SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------------ to --------------
COMMISSION FILE NUMBER: 333-50475
KMC TELECOM HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3545325
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1545 ROUTE 206, SUITE 300
BEDMINSTER, NEW JERSEY 07921
(Address, including zip code, of principal executive offices)
(908) 470-2100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding
----- -----------
Common Stock, par value $0.01 852,676 shares,
per share. as of August 10, 1999
<PAGE>
KMC TELECOM HOLDINGS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets,
December 31, 1998 and June 30, 1999. ............................ 2
Unaudited Condensed Consolidated Statements of Operations,
Three Months Ended June 30, 1998 and 1999 and Six Months
Ended June 30, 1998 and 1999 ...................................... 3
Unaudited Condensed Consolidated Statements of Cash Flows, Six
Months Ended June 30, 1998 and 1999................................ 4
Notes to Unaudited Condensed Consolidated Financial Statements...... 5
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 12
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.......... 17
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings................................................... 18
ITEM 2. Changes in Securities and Use of Proceeds........................... 18
ITEM 3. Defaults Upon Senior Securities..................................... 18
ITEM 4. Submission of Matters to a Vote of Security Holders................. 18
ITEM 5. Other Information................................................... 20
ITEM 6. Exhibits and Reports on Form 8-K.................................... 20
SIGNATURES.................................................................. 23
<PAGE>
PART I - FINANCIAL INFORMATION
KMC TELECOM HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER JUNE 30,
31, 1999
1998
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents........................... $ 21,181 $187,992
Restricted investments.............................. - 37,125
Accounts receivable, net of allowance for doubtful 7,539 19,489
accounts..........................................
Prepaid expenses and other current assets........... 1,315 1,543
----------- ----------
Total current assets.................................. 30,035 246,149
Investments held for future capital expenditures...... 27,920 64,000
Long term restricted investments...................... - 67,430
Networks and equipment, net........................... 224,890 386,426
Intangible assets, net................................ 2,829 2,142
Deferred financing costs, net......................... 20,903 41,076
Due from affiliate.................................... - 207
Other assets.......................................... 4,733 1,322
---------- -----------
$ 311,310 $ 808,752
=========== ===========
LIABILITIES, REDEEMABLE AND NONREDEEMABLE EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.................................... $ 21,052 $ 112,637
Accrued expenses.................................... 10,374 33,609
---------- -----------
Total current liabilities............................. 31,426 146,246
Notes payable......................................... 41,414 125,000
Senior discount notes payable......................... 267,811 283,472
Senior notes payable.................................. - 275,000
---------- -----------
Total liabilities..................................... 340,651 829,718
Commitments and contingencies
Redeemable equity:
Senior redeemable, exchangeable, PIK preferred
stock, par value $.01 per share; authorized:
-0- shares in 1998, 630 shares in 1999; shares issued and
outstanding:
Series E, - 0 - shares in 1998 and 61 shares in
1999 ($60,695 liquidation preference)......... - 45,827
Series F, - 0 - shares in 1998 and 41 shares in
1999 ($41,112 liquidation preference)......... - 37,009
Redeemable cumulative convertible preferred stock,
par value $.01 per share 499 shares authorized;
shares issued and outstanding:
Series A, 124 shares in 1998 and 1999 ($12,380
liquidation preference)......................... 30,390 55,721
Series C, 175 shares in 1998 and 1999 ($17,500
liquidation preference)......................... 21,643 32,524
Redeemable common stock, 224 shares issued and
outstanding....................................... 22,305 29,223
Redeemable common stock warrants.................... 674 11,964
---------- -----------
Total redeemable equity............................... 75,012 212,268
---------- -----------
Nonredeemable equity (deficiency):
Common stock, par value $.01 per share; 3,000
shares authorized, 614 shares and 629 shares
issued and outstanding in 1998 and 1999,
respectively...................................... 6 6
Additional paid-in capital.......................... 13,750 -
Unearned compensation............................... (5,824) (10,796)
Accumulated deficit................................. (112,285) (222,444)
----------- -----------
Total nonredeemable equity (deficiency)............... (104,353) (233,234)
----------- -----------
$ 311,310 $ 808,752
=========== ===========
See accompanying notes.
2
<PAGE>
KMC TELECOM HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
<S> <C> <C> <C> <C>
1998 1999 1998 1999
----------- ----------- ----------- -----------
Revenue............................. $ 4,545 $ 15,634 $ 7,338 $ 26,712
Operating expenses:
Network operating costs........... 8,103 24,385 13,919 44,055
Selling, general and 5,747 14,734 9,220 26,724
administrative..................
Stock option compensation expense. 5,097 16,332 6,196 20,201
Depreciation and amortization..... 1,063 6,113 2,056 11,636
---------- ----------- ---------- ----------
Total operating expenses........ 20,010 61,564 31,391 102,616
---------- ----------- ---------- ----------
Loss from operations................ (15,465) (45,930) (24,053) (75,904)
Other expense....................... - (4,297) - (4,297)
Interest income.....................
2,166 2,113 5,019 3,055
Interest expense.................... (7,334) (15,687) (14,563) (26,014)
---------- ----------- ----------- -----------
Net loss............................ (20,633) (63,801) (33,597) (103,160)
Dividends and accretion on
redeemable preferred stock........ (6,687) (31,971) (10,040) (43,415)
----------- ----------- ----------- -----------
Net loss applicable to common
shareholders...................... $ (27,320) $ (95,772) (43,637) (146,575)
=========== =========== =========== ===========
Net loss per common share........... $ (32.61) $ (112.32) $ (52.71) $ (172.31)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding................ 837,876 852,676 827,827 850,632
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
KMC TELECOM HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1998 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.............................................. $ (33,597) $ (103,160)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization....................... 2,056 11,636
Non-cash interest expense........................... 14,142 22,834
Non-cash stock option compensation expense.......... 6,196 20,201
Changes in assets and liabilities:
Accounts receivable............................... (2,120) (11,950)
Prepaid expenses and other current assets......... (407) (228)
Other assets...................................... (292) 860
Accounts payable.................................. (3,889) 6,888
Accrued expenses.................................. 697 7,921
Due from affiliate................................ (47) (207)
---------- -----------
Net cash used in operating activities................. (17,261) (45,205)
---------- -----------
INVESTING ACTIVITIES
Construction of networks and purchases of equipment... (22,081) (83,725)
Acquisitions of franchises, authorizations and (1,212) (230)
related assets......................................
Deposit on purchases of equipment..................... (5,000) -
Purchases of investments, net......................... (153,500) (36,080)
---------- -----------
Net cash used in investing activities................. (181,793) (120,035)
---------- -----------
FINANCING ACTIVITIES
Repayment of notes payable............................ (20,801) -
Proceeds from issuance of preferred stock and related
warrants, net of issuance costs..................... - 91,235
Proceeds from issuance of common stock and warrants,
net of issuance costs .............................. 20,451 -
Proceeds from exercise of stock options............... - 333
Proceeds from issuance of senior discount notes, net
of issuance costs................................... 226,056 -
Proceeds from issuance of senior notes, net of
issuance costs and purchase of portfolio of
restricted investments.............................. - 159,942
Proceeds from senior secured credit facility, net of
issuance costs...................................... - 82,770
Issuance costs of Lucent facility..................... - (2,229)
Dividends on preferred stock of subsidiary............ (592) -
---------- -----------
Net cash provided by financing activities............. 225,114 332,051
---------- -----------
Net increase in cash and cash equivalents............. 26,060 166,811
Cash and cash equivalents, beginning of period........ 15,553 21,181
---------- -----------
Cash and cash equivalents, end of period.............. $ 41,613 $ 187,992
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest, net of
amounts capitalized................................. $ 2,200 $ 3,180
========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
KMC TELECOM HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. BASIS OF PRESENTATION AND ORGANIZATION
KMC Telecom Holdings, Inc. and its subsidiaries, KMC Telecom Inc., KMC
Telecom II, Inc., KMC Telecom III, Inc., KMC Telecom of Virginia, Inc., and KMC
Investments, Inc. are collectively referred to herein as the Company. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting. Accordingly, they do not include certain information and
note disclosures required by generally accepted accounting principles for annual
financial reporting and should be read in conjunction with the financial
statements and notes thereto of KMC Telecom Holdings, Inc.
as of and for the year ended December 31, 1998.
The unaudited interim financial statements reflect all adjustments which
management considers necessary for a fair presentation of the results of
operations for these periods. The results of operations for the interim periods
are not necessarily indicative of the results for the full year.
The balance sheet of KMC Telecom Holdings, Inc. at December 31, 1998 was
derived from the audited consolidated balance sheet at that date.
2. INVESTMENTS HELD FOR FUTURE CAPITAL EXPENDITURES
The Company has designated certain amounts as investments held for future
capital expenditures. As of June 30, 1999, the Company's investments held for
future capital expenditures consisted of cash equivalents (bank term deposits
and commercial paper with maturities of less than 90 days) of $58.7 million and
debt securities (US government obligations and commercial bonds due within 1
year) of $5.3 million. All debt securities have been designated by the Company
as held-to-maturity. Accordingly, such securities are recorded in the
accompanying financial statements at amortized cost. At June 30, 1999, the
carrying value of such held-to-maturity debt securities approximated their fair
value.
3. NETWORKS AND EQUIPMENT
Networks and equipment are comprised of the following (in thousands):
DECEMBER 31, JUNE 30,
1998 1999
----------- ------------
Fiber optic systems.............................. $99,502 $114,623
Telecommunications equipment..................... 115,769 134,276
Furniture and other.............................. 7,340 19,947
Leasehold improvements........................... 1,177 1,441
Construction-in-progress......................... 11,770 135,969
----------- -----------
235,558 406,256
Less accumulated depreciation.................... (10,668) (19,830)
----------- -----------
$224,890 $386,426
=========== ===========
5
<PAGE>
Costs capitalized during the development of the Company's networks include
amounts incurred related to network engineering, design and construction and
capitalized interest. Capitalized interest related to the construction of the
networks for the six months ended June 30, 1998 and 1999 amounted to $1.4
million and $1.3 million, respectively.
4. INTANGIBLE ASSETS
Intangible assets are comprised of the following (in thousands):
DECEMBER 31, JUNE 30,
1998 1999
---------- ---------
Franchise costs.................................... $1,690 $1,281
Authorizations and rights-of-way................... 1,455 1,326
Building access agreements and other............... 1,062 736
---------- ---------
4,207 3,343
Less accumulated amortization...................... (1,378) (1,201)
---------- ---------
$2,829 $2,142
========== =========
5. DUE FROM AFFILIATE
On July 1, 1999, the Company acquired all of the membership interests of
KMC Services LLC from Harold N. Kamine, the Chairman of our Board of Directors,
for nominal consideration. KMC Services LLC was formed to provide services to
the Company and its customers, initially offering a leasing program for
equipment physically installed at a customer's premises. The acquisition was
accounted for as a combination of entities under common control, and no changes
were made to the historical cost basis of KMC Services LLC's assets.
Accordingly, during the second quarter of 1999, the Company reduced the carrying
value of its $709,000 loan receivable from KMC Services LLC to an amount equal
to the value of KMC Services LLC's net assets at the acquisition date.
6. ACCRUED EXPENSES
Accrued expenses are comprised of the following (in thousands):
DECEMBER 31, JUNE 30,
1998 1999
------------ -----------
Accrued compensation..................... $ 4,138 $ 6,387
Deferred revenue......................... 1,187 4,109
Accrued costs related to financing
activities............................. 380 9,210
Accrued interest payable................. 162 6,719
Accrued cost of sales.................... 565 2,232
Other accrued expenses................... 3,942 4,952
--------- ----------
$ 10,374 $ 33,609
========= ==========
6
<PAGE>
7. LUCENT LOAN AND SECURITY AGREEMENT
KMC Telecom III entered into a Loan and Security Agreement (the "Lucent
Facility") dated February 4, 1999 with Lucent Technologies Inc. ("Lucent") which
provides for borrowings to be used to fund the acquisition of certain
telecommunications equipment and related expenses. The Lucent Facility provides
for an aggregate commitment of up to $600 million, of which $250 million is
currently available to purchase Lucent products. Further, up to an additional
$350 million will be available upon (a) additional lenders participating in the
Lucent Facility and making commitments to make loans so that Lucent's aggregate
commitment does not exceed $250 million and (b) the Company satisfying certain
other requirements, the most significant of which is KMC Holdings raising and
contributing at least $300 million in high yield debt or equity (other than
disqualified stock) to KMC Telecom III. The Lucent Facility places certain
restrictions upon KMC Telecom III's ability to purchase non-Lucent equipment
with proceeds from such facility. At June 30, 1999, no amounts had been borrowed
under the Lucent Facility.
Interest on borrowings under the Lucent Facility is charged, at the option
of KMC Telecom III, at a floating rate of LIBOR plus the "Applicable LIBOR
Margin", or at an alternative base rate plus the "Applicable Base Rate Margin"
(as defined). Such margins will be increased by 0.25% until KMC Telecom III and
its subsidiaries have completed systems in fourteen markets. If KMC Telecom III
defaults on any payment due under the Lucent Facility, the interest rate will
increase by four percentage points. If any other event of default shall occur,
the interest rate will be increased by two percentage points. Interest on each
LIBOR loan is payable on each LIBOR interest payment date in arrears and
interest on each base rate loan is payable quarterly in arrears. KMC Telecom III
must pay an annual commitment fee on the unused portion of the Lucent Facility
of 1.25%.
Loans borrowed under the Lucent Facility amortize in amounts based upon
the following percentages of the aggregate amount of the loans drawn under the
Lucent Facility:
PAYMENT DATES AMORTIZATION
------------------------------- ---------------
May 1, 2002 - February 1, 2003 2.5% per quarter
May 1, 2003 - February 1, 2006 5.0% per quarter
May 1, 2006 - February 1, 2007 7.5% per quarter
KMC Holdings has unconditionally guaranteed the repayment of up to $250
million under the Lucent Facility when such repayment is due, whether at
maturity, upon acceleration, or otherwise. KMC Telecom III Holdings, Inc., which
owns the shares of KMC Telecom III and is wholly-owned by KMC Holdings, has
pledged the shares of KMC Telecom III to Lucent to collateralize its obligations
under the guaranty. In addition, KMC Telecom III has pledged all of its assets
to Lucent.
The Lucent Facility contains a number of affirmative and negative
covenants including, among others, covenants restricting the ability of KMC
Telecom III to consolidate or merge with any person, sell or lease assets not in
the ordinary course of business, sell or enter into any long term leases of dark
fiber, redeem stock, pay dividends or make any other payments (including
payments of principal or interest on loans) to KMC Holdings, create
subsidiaries, transfer any permits or licenses, or incur additional indebtedness
or act as guarantor for the debt of any other person, subject to certain
conditions.
KMC Telecom III is required to comply with certain financial tests and
maintain certain financial ratios, including, among others, a ratio of total
debt to contributed capital, certain minimum revenues, maximum EBITDA losses and
minimum EBITDA, maximum capital expenditures and minimum access lines, a maximum
total leverage ratio, a minimum debt service coverage ratio, a minimum fixed
charge coverage ratio and a maximum consolidated leverage ratio. The covenants
7
<PAGE>
become more restrictive upon the earlier of (i) July 1, 2002 and (ii) after KMC
Telecom III achieves positive EBITDA for two consecutive fiscal quarters.
Failure to satisfy any of the financial covenants will constitute an event
of default under the Lucent Facility, permitting the lenders to terminate the
commitment and/or accelerate payment of outstanding indebtedness. The Lucent
Facility also includes other customary events of default, including, without
limitation, a cross-default to other material indebtedness, material
undischarged judgments, bankruptcy, loss of a material franchise or material
license, breach of representations and warranties, a material adverse change,
and the occurrence of a change of control.
8. PREFERRED STOCK AND WARRANT ISSUANCES
SERIES E PREFERRED STOCK
On February 4, 1999, the Company issued 25,000 shares of Series E Senior
Redeemable, Exchangeable, PIK Preferred Stock (the "Series E Preferred Stock")
to Newcourt Commercial Finance Corporation ("Newcourt Finance"), generating
aggregate gross proceeds of $22.9 million. On April 30, 1999, the Company issued
an additional 35,000 of Series E Preferred Stock for gross proceeds of $25.9
million. The Series E Preferred Stock has a liquidation preference of $1,000 per
share and an annual dividend equal to 14.5% of the liquidation preference,
payable quarterly. On or before January 15, 2004, the Company may pay dividends
in cash or in additional fully paid and nonassessable shares of Series E
Preferred Stock. After January 15, 2004, dividends must be paid in cash, subject
to certain conditions. Unpaid dividends accrue at the dividend rate of the
Series E Preferred Stock, compounded quarterly. On April 15, 1999, the Company
issued 695 shares of Series E Preferred Stock to pay the dividends due for such
period.
The Series E Preferred Stock must be redeemed on February 1, 2011, subject
to the legal availability of funds therefor, at a redemption price, payable in
cash, equal to the liquidation preference thereof on the redemption date, plus
all accumulated and unpaid dividends to the date of redemption. After April 15,
2004, the Series E Preferred Stock may be redeemed, in whole or in part, at the
option of the Company, at a redemption price equal to 110% of the liquidation
preference of the Series E Preferred Stock plus all accrued and unpaid dividends
to the date of redemption. The redemption price declines to an amount equal to
100% of the liquidation preference as of April 15, 2007.
In addition, on or prior to April 15, 2002, the Company may, at its
option, redeem up to 35% of the aggregate liquidation preference of Series E
Preferred Stock with the proceeds of sales of its capital stock at a redemption
price equal to 110% of the liquidation preference on the redemption date plus
accrued and unpaid dividends.
The holders of Series E Preferred Stock have voting rights in certain
circumstances. Upon the occurrence of a change of control, the Company will be
required to make an offer to repurchase the Series E Preferred Stock for cash at
a purchase price of 101% of the liquidation preference thereof, together with
all accumulated and unpaid dividends to the date of purchase.
The Series E Preferred Stock is not convertible. The Company may, at the
sole option of the Board of Directors (out of funds legally available), exchange
all, but not less than all, of the Series E Preferred Stock then outstanding,
including any shares of Series E Preferred Stock issued as payment for
dividends, for a new series of subordinated debentures (the "Exchange
Debentures") issued pursuant to an exchange debenture indenture. The holders of
Series E Preferred Stock are entitled to receive on the date of any such
exchange, Exchange Debentures having an aggregate principal amount equal to (i)
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<PAGE>
the total of the liquidation preference for each share of Series E Preferred
Stock exchanged, plus (ii) an amount equal to all accrued but unpaid dividends
payable on such share.
SERIES F PREFERRED STOCK
On February 4, 1999, the Company issued 40,000 shares of Series F Senior
Redeemable, Exchangeable, PIK Preferred Stock (the "Series F Preferred Stock")
to Lucent and Newcourt Finance, generating aggregate gross proceeds of $38.9
million. The Series F Preferred Stock has a liquidation preference of $1,000 per
share and an annual dividend equal to 14.5% of the liquidation preference,
payable quarterly. The Company may pay dividends in cash or in additional fully
paid and nonassessable shares of Series F Preferred Stock. On April 15, 1999,
the Company issued 1,112 shares of Series F Preferred Stock to pay the dividends
due for such period.
The Series F Preferred Stock may be redeemed at any time, in whole or in
part, at the option of the Company, at a redemption price equal to 110% of the
liquidation preference on the redemption date plus an amount in cash equal to
all accrued and unpaid dividends thereon to the redemption date. Upon the
occurrence of a change of control, the Company will be required to make an offer
to purchase the Series F Preferred Stock for cash at a purchase price of 101% of
the liquidation preference thereof, together with all accumulated and unpaid
dividends to the date of purchase.
The holders of Series F Preferred Stock have voting rights under certain
circumstances.
Upon the earlier of (i) the date that is sixty days after the
date on which the Company closes an underwritten primary offering of at least
$200 million of its Common Stock, pursuant to an effective registration
statement under the Securities Act or (ii) February 4, 2001, any outstanding
Series F Preferred Stock will automatically convert into Series E Preferred
Stock, on a one for one basis.
The Company may, at the sole option of the Board of Directors (out of
funds legally available), exchange all, but not less than all, of the Series F
Preferred Stock then outstanding, including any shares of Series F Preferred
Stock issued as payment for dividends, for Exchange Debentures. The holders of
Series F Preferred Stock are entitled to receive on the date of any such
exchange, Exchange Debentures having an aggregate principal amount equal to (i)
the total of the liquidation preference for each share of Series F Preferred
Stock exchanged, plus (ii) an amount equal to all accrued but unpaid dividends
payable on such share.
WARRANTS
In connection with the February 4, 1999 issuances of the Series E
Preferred Stock and the Series F Preferred Stock, warrants to purchase an
aggregate of 24,660 shares of Common Stock were sold to Newcourt Finance and
Lucent. The aggregate gross proceeds from the sale of these warrants was
approximately $3.2 million. These warrants, at an exercise price of $.01 per
share, are exercisable from February 4, 2000 through February 1, 2009.
In addition, the Company also delivered to the Warrant Agent certificates
representing warrants to purchase an aggregate of an additional 107,228 shares
of Common Stock at an exercise price of $.01 per share (the "Springing
Warrants"). The Springing Warrants may become issuable under the circumstances
described in the following paragraph.
If the Company fails to redeem all shares of Series F Preferred Stock
prior to the date (the "Springing Warrant Date") which is the earlier of (i) the
date that is sixty days after the date on which the Company closes an
underwritten primary offering of at least $200 million of its Common Stock
pursuant to an effective registration statement under the Securities Act or (ii)
9
<PAGE>
February 4, 2001, the Warrant Agent is authorized to issue the Springing
Warrants to the Eligible Holders (as defined in the warrant agreement) of the
Series E and Series F Preferred Stock. In the event the Company has redeemed all
outstanding shares of Series F Preferred Stock prior to the Springing Warrant
Date, the Springing Warrants will not be issued and the Warrant Agent will
return the certificates to the Company. To the extent the Company exercises its
option to exchange all of the Series F Preferred Stock for Exchange Debentures
prior to the Springing Warrant Date, the Springing Warrants will not become
issuable. Therefore, as the future issuance of the Springing Warrants is
entirely within the control of the Company and the likelihood of their issuance
is deemed to be remote, no value has been ascribed to the Springing Warrants.
In connection with the April 30, 1999 issuance of additional shares of the
Series E Preferred Stock, warrants to purchase an aggregate of 60,353 shares of
Common Stock were issued to Newcourt Finance and First Union. The aggregate
gross proceeds from the sale of these warrants was approximately $9.1 million.
These warrants, at an exercise price of $.01 per share, are exercisable from
February 4, 2000 through February 1, 2009.
9. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
As of June 30, 1999, the Company has outstanding commitments aggregating
approximately $114.0 million related to purchases of telecommunications
equipment and fiber optic cable and its obligations under its agreements with
certain suppliers.
REDEMPTION RIGHTS
Pursuant to a stockholders agreement, certain of the Company's
stockholders and warrant holders have "put rights" entitling them to have the
Company repurchase their preferred and common shares and redeemable common stock
warrants for the fair value of such securities if no Liquidity Event (defined as
(i) an initial public offering with gross proceeds of at least $40 million, (ii)
the sale of substantially all of the stock or assets of the Company or (iii) the
merger or consolidation of the Company with one or more other corporations) has
taken place by the later of (x) October 22, 2003 or (y) 90 days after the final
maturity date of the Senior Discount Notes. The restrictive covenants of the
Senior Discount Notes limit the Company's ability to repurchase such securities.
All of the securities subject to such "put rights" are presented as redeemable
equity in the accompanying balance sheets.
The redeemable preferred stock, redeemable common stock and redeemable
common stock warrants which are subject to the stockholders agreement are being
accreted up to their fair market values from their respective issuance dates to
their earliest potential redemption date (October 22, 2003). At June 30, 1999,
the aggregate redemption value of the redeemable equity was approximately $280
million, reflecting per share redemption amounts of $1,090 for the Series A
Preferred Stock, $429 for the Series C Preferred Stock and $225 for the
redeemable common stock and redeemable common stock warrants.
ARBITRATION AWARD
During the second quarter of 1999, the Company recorded a $4.3 million
charge to other expense in connection with an unfavorable arbitration award. The
net amount due under the terms of the award was paid in full in June 1999.
10
<PAGE>
10. NET LOSS PER COMMON SHARE
The following table sets forth the computation of net loss per common
share-basic (in thousands, except share and per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net loss.......................... $ (20,633) $ (63,801) $ (33,597) $ (103,160)
Dividends and accretion on
redeemable preferred stock...... (6,687) (31,971) (10,040) (43,415)
----------- ----------- ----------- -----------
Numerator for net loss per common
share - basic................... $ (27,320) $ (95,772) $ (43,637) $(146,575)
=========== =========== =========== ===========
Denominator:
Denominator for net loss per
common share - weighted average
number of common shares
outstanding...................... 837,876 852,676 827,827 850,632
========== =========== =========== ===========
Net loss per common share - basic... $ (32.61) $ (112.32) $ (52.71) $ (172.31)
=========== =========== =========== ===========
</TABLE>
Options and warrants to purchase an aggregate of 251,885 and 483,273 shares
of common stock were outstanding as of June 30, 1998 and 1999, respectively, but
a computation of diluted net loss per common share has not been presented, as
the effect would be anti-dilutive.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. THE FOLLOWING DISCUSSION
SHOULD BE READ IN CONJUNCTION WITH THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS
FORM 10-Q.
RESULTS OF OPERATIONS
As a result of the development and rapid growth of the Company's business during
the periods presented, the period-to-period comparisons of the Company's results
of operations are not necessarily meaningful and should not be relied upon as an
indication of future performance.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1998
REVENUE. Revenue increased from $4.5 million for the three months ended
June 30, 1998 (the "1998 Second Quarter") to $15.6 million for the three months
ended June 30, 1999 (the "1999 Second Quarter"). This increase is primarily
attributable to the fact that we derived revenues from 23 markets during the
1999 Second Quarter compared to 8 markets during the 1998 Second Quarter. In
addition, each of our systems that generated revenue during the 1998 Second
Quarter generated higher revenue during the 1999 Second Quarter. Revenue for the
1998 Second Quarter and 1999 Second Quarter included $3.1 million and $6.3
million, respectively, of revenue derived from resale of switched services and
an aggregate of $1.4 million and $9.3 million (including $2.8 million of revenue
related to reciprocal compensation during the 1999 Second Quarter),
respectively, of revenue derived from on-net special access, private line and
switched services. Although incumbent local exchange carriers, such as
BellSouth, have generally withheld payments of amounts due for reciprocal
compensation to competitive local exchange carriers such as the Company for
calls to internet service providers and disputed the entitlement of competitive
local exchange carriers to reciprocal compensation for such calls, we have
determined to recognize amounts due to us for reciprocal compensation for such
calls because we have concluded, based upon all of the facts and circumstances,
including numerous state public service commission and state and federal court
decisions upholding competitive local exchange carriers' entitlement to
reciprocal compensation for such calls, that realization of such amounts is
reasonably assured.
NETWORK OPERATING COSTS. Network operating costs increased from $8.1
million in the 1998 Second Quarter to $24.4 million in the 1999 Second Quarter.
This increase of $16.3 million was due primarily to the increase in the number
of markets in which we operated in the 1999 Second Quarter and the related
increases of $4.6 million in costs associated with providing resale services and
leasing unbundled network element services, $4.5 million in personnel costs,
$1.9 million in contracted network support costs, $1.7 million in consultant and
professional services related costs, $1.0 million in reciprocal expense,
$600,000 in facility costs, and $2.0 million in other direct operating costs.
Costs associated with providing on-net switched services were greater than
revenue generated from on-net switched services because we hired personnel and
staffed local offices prior to generating revenue and obtaining sufficient
revenue volume to cover such fixed operating costs.
Costs associated with providing resale services are greater than the
revenues generated from these services because of narrow discounts provided by
12
<PAGE>
the incumbent local exchange carriers and because initial installation charges
by the incumbent local exchange carrier to us are greater than our installation
charges to our customers. Initially, resale has been used as an interim strategy
for us to create a backlog of customers to be transitioned to our on-net
switched facilities as our own switches become commercially operational. We now
have switches in commercial operation in 23 markets. We are in the process of
transitioning the majority of our resale customers to on-net switched services,
but this can be a time-consuming task.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $5.7 million for the 1998 Second Quarter
to $14.7 million for the 1999 Second Quarter. This increase of $9.0 million
resulted primarily from increases of $5.5 million in personnel costs, $1.3
million in professional costs (consisting primarily of legal costs), $200,000 in
advertising costs, and $1.0 million in travel related expenses, along with
increases in other marketing and general and administrative costs aggregating
approximately $1.0 million.
STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense, a
non-cash charge, increased from $5.1 million for the 1998 Second Quarter to
$16.3 million for the 1999 Second Quarter. This increase primarily resulted from
an increase in the estimated fair value of the Company's Common Stock as well as
the grant of additional stock options during the period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased from $1.1 million for the 1998 Second Quarter to $6.1 million for the
1999 Second Quarter primarily as a result of depreciation expense associated
with the greater number of networks in commercial operation during the 1999
Second Quarter.
OTHER EXPENSE. During the 1999 Second Quarter, the Company recorded a $4.3
million charge to other expense in connection with an unfavorable arbitration
award. The net amount due under the terms of the award was paid in full in June
1999.
INTEREST EXPENSE. Interest expense increased from $7.3 million in the 1998
Second Quarter to $15.7 million in the 1999 Second Quarter. The increase
resulted primarily from the issuance of the Senior Notes during the 1999 Second
Quarter, additional accretion on the Senior Discount Notes, and increased
interest charges related to higher borrowings under the Senior Secured Credit
Facility. The Company capitalized interest related to network construction
projects of $800,000 during the 1998 Second Quarter and $700,000 during the 1999
Second Quarter.
NET LOSS. For the reasons stated above, net loss increased from $20.6
million for the 1998 Second Quarter to $63.8 million for the 1999 Second
Quarter.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1998
REVENUE. Revenue increased from $7.3 million for the six months ended June
30, 1998 (the "1998 Six Months") to $26.7 million for the six months ended June
30, 1999 (the "1999 Six Months"). This increase is primarily attributable to the
fact that we derived revenue from 23 markets during the 1999 Six Months compared
to 8 markets during the 1998 Six Months. In addition, each of our systems that
generated revenue during the 1998 Six Months generated higher revenue during the
1999 Six Months. Revenue for the 1998 Six Months and 1999 Six Months included
$5.2 million and $12.5 million, respectively, of revenue derived from resale of
switched services and an aggregate of $2.1 million and $14.2 million (including
$4.6 million of revenue related to reciprocal compensation during the 1999 Six
Months), respectively, of revenue derived from on-net special access, private
line and switched services. Although incumbent local exchange carriers, such as
BellSouth, have generally withheld payments of amounts due for reciprocal
compensation to competitive local exchange carriers such as the Company for
13
<PAGE>
calls to internet service providers and disputed the entitlement of competitive
local exchange carriers to reciprocal compensation for such calls, we have
determined to recognize amounts due to us for reciprocal compensation for such
calls because we have concluded, based upon all of the facts and circumstances,
including numerous state public service commission and state and federal court
decisions upholding competitive local exchange carriers' entitlement to
reciprocal compensation for such calls, that realization of such amounts is
reasonably assured.
NETWORK OPERATING COSTS. Network operating costs increased from $13.9
million in the 1998 Six Months to $44.1 million in the 1999 Six Months. This
increase of $30.2 million was due primarily to the increase in the number of
markets in which we operated in the 1999 Six Months and the related increases of
$9.0 million in costs associated with providing resale services and leasing
unbundled network element services, $8.6 million in personnel costs, $3.5
million in contracted network support costs, $2.6 million in consultant and
professional services related costs, $1.3 million in reciprocal expense, $1.1
million in facility costs, and $4.1 million in other direct operating costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses increased from $9.2 million for the 1998 Six Months to
$26.7 million for the 1999 Six Months. This increase of $17.5 million resulted
primarily from increases of $9.3 million in personnel costs, $2.8 million in
professional costs (consisting primarily of legal costs), $2.3 million in
advertising costs, and $1.6 million in travel related expenses, along with
increases in other marketing and general and administrative costs aggregating
approximately $1.5 million.
STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense, a
non-cash charge, increased from $6.2 million for the 1998 Six Months to $20.2
million for the 1999 Six Months. This increase primarily resulted from an
increase in the estimated fair value of the Company's Common Stock as well as
the grant of additional stock options during the period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased from $2.1 million for the 1998 Six Months to $11.6 million for the
1999 Six Months primarily as a result of depreciation expense associated with
the greater number of networks in commercial operation during the 1999 Six
Months.
OTHER EXPENSE. During the 1999 Second Quarter, the Company recorded a $4.3
million charge to other expense in connection with an unfavorable arbitration
award. The net amount due under the terms of the award was paid in full in June
1999.
INTEREST EXPENSE. Interest expense increased from $14.6 million in the
1998 Six Months to $26.0 million in the 1999 Six Months. The increase resulted
primarily from the issuance of the Senior Notes during the 1999 Second Quarter,
additional accretion on the Senior Discount Notes, and increased interest
charges related to higher borrowings under the Senior Secured Credit Facility.
The Company capitalized interest related to network construction projects of
$1.4 million during the 1998 Six Months and $1.3 during the 1999 Six Months.
NET LOSS. For the reasons stated above, net loss increased from $33.6
million for the 1998 Six Months to $103.2 million for the 1999 Six Months.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred significant operating and net losses as a result of the
development and operation of our networks. We expect that such losses will
continue as we emphasize the development, construction and expansion of our
networks and build our customer base. As a result, there will not be any cash
provided by operations in the near future and we will need to fund the expansion
14
<PAGE>
of our networks. We have financed our operating losses and capital expenditures
with equity invested by our founders, preferred stock placements, credit
facility borrowings and the 12 1/2% Senior Discount Notes and 13 1/2% Senior
Notes.
In February 1999, we issued PIK Preferred Stock and warrants to purchase
common stock for aggregate gross proceeds of $65.0 million to two purchasers. In
April 1999, we issued additional shares of PIK Preferred Stock and warrants to
purchase common stock to one additional purchaser for aggregate gross proceeds
of $35.0 million.
In February 1999, our subsidiary which owns the 14 additional networks
currently under development, entered into a secured vendor financing facility
with Lucent Technologies Inc. Under this Lucent Facility, our subsidiary will be
permitted to borrow, subject to certain conditions, up to an aggregate of $600.0
million, primarily for the purchase from Lucent of switches and other
telecommunications equipment. Currently, $250.0 million is available under this
facility. The balance of $350.0 million will become available only upon (a)
additional lenders agreeing to participate in the facility so that Lucent's own
aggregate commitment does not exceed $250.0 million and (b) the Company
satisfying certain other requirements, the most significant of which is the
Company raising, and contributing to the subsidiary, at least $300.0 million
from the sale of high yield debt or equity. As of June 30, 1999 the Company had
no borrowings outstanding under this facility.
On May 24, 1999, we issued $275.0 million in aggregate principal amount of
13 1/2% Senior Notes due 2009. Approximately $104.1 million of the net proceeds
of this offering were used to purchase a portfolio of U.S. treasury securities
that have been pledged to secure the first six scheduled interest payments on
these notes.
At June 30, 1999, the Company had $125.0 million of indebtedness
outstanding under the Senior Secured Credit Facility, and had $125.0 million in
borrowing capacity available under the Senior Secured Credit Facility, subject
to certain conditions.
Net cash provided by financing activities from borrowings and equity
issuances was $332.1 million for the six months ended June 30, 1999. Our net
cash used in operating and investing activities was $165.2 million for the six
months ended June 30, 1999.
We made capital expenditures of $170.7 million in the six months ended
June 30, 1999. We currently plan to make additional capital expenditures of
approximately $153.0 million during the remainder of 1999. Continued significant
capital expenditures are expected to be made thereafter. The majority of these
expenditures is expected to be made for network construction and the purchase of
switches and related equipment to facilitate the offering of our services. In
addition, we expect to continue to incur operating losses while we expand our
business and build our customer base. Actual capital expenditures and operating
losses will depend on numerous factors, including the nature of future expansion
and acquisition opportunities and factors beyond our control, including economic
conditions, competition, regulatory developments and the availability of
capital.
At June 30, 1999, the Company had outstanding commitments aggregating
approximately $114.0 million related to the purchase of fiber optic cable and
telecommunications equipment as well as engineering services, principally under
the Company's agreements with Lucent Technologies Inc.
We believe that our cash, investments held for future capital expenditures
and borrowings available under our Senior Secured Credit Facility and the Lucent
Facility, together with the net proceeds from our April 1999 issuance of our PIK
Preferred Stock and the May 1999 offering of our 13 1/2% Senior Notes will be
sufficient to meet our liquidity needs for our initial 23 networks and the 14
additional networks currently under development and anticipated to be completed
over the next 12 months, although we can give no assurance in this regard.
Thereafter we will require additional financing. However, in the event that our
plans change, the assumptions upon which our plans are based prove inaccurate,
we expand or accelerate our business plan or we determine to consummate
15
<PAGE>
acquisitions, the foregoing sources of funds may prove insufficient to complete
all of the networks, and we may be required to seek additional financing sooner
than we currently expect. Additional sources of financing may include public or
private equity or debt financings by the Company, capitalized leases and other
financing arrangements.
We can give no assurance that additional financing will be available to us
or, if available, that it can be obtained on a timely basis and on acceptable
terms. Failure to obtain such financing could result in the delay or abandonment
of some or all of our development and expansion plans and expenditures. Such a
failure could also limit our ability to make principal and interest payments on
our indebtedness and meet our dividend and redemption obligations with respect
to our preferred stock. The Company has no working capital or other credit
facility under which it may borrow for working capital and other general
purposes. We can give no assurance that such financing will be available to the
Company in the future or that, if such financing were available, it would be
available on terms and conditions acceptable to the Company.
YEAR 2000 COMPLIANCE
Similar to all businesses, we may be affected by the inability of
certain computer software to distinguish between the years 1900 and 2000 due to
a commonly-used programming convention. Unless such programs are modified or
replaced prior to January 1, 2000, calculations based on date arithmetic or
logical operations performed by such programs may be incorrect. In addition, the
Senior Secured Credit Facility and the Lucent Facility impose certain Year 2000
compliance obligations on the Company.
Management's plan to address the effect of the Year 2000 issue focuses on
the following areas: applications systems (including our billing system and
financial software), infrastructure (including personal computers and servers
used throughout the Company), and other third party business partners, vendors
and suppliers. Management's analysis and review of these areas is comprised
primarily of the following phases: developing an inventory of hardware, software
and embedded chips; assessing the degree to which each area is currently
compliant with Year 2000 requirements; performing renovations, repairs and
replacements as needed to attain compliance; testing to ensure compliance; and,
developing a contingency plan for each area if our initial efforts to attain
compliance are either unsuccessful or untimely.
Management completed the inventory and assessment phases of the project
during the fourth quarter of 1998. The renovation, repair and replacement phase
and the testing phase have commenced; however, we expect to continue these
phases throughout 1999.
Further, we are currently in the process of implementing new billing
software systems, operational software systems and financial and personnel
software systems. Although these implementations were made necessary by the
expansion of our business and were not directly related to Year 2000 issues,
they have enabled us to utilize new software for these purposes which the
respective suppliers have certified as Year 2000 compliant.
Costs incurred to date have primarily consisted of labor from the
redeployment of existing information services and operational resources. We
expect to spend approximately $150,000 for these Year 2000 compliance efforts
which will be expensed as incurred. This amount does not include the costs of
the new billing software, operational software and financial and personnel
software systems which we are implementing as a result of the expansion of our
business.
If the software applications of the local exchange carriers, long distance
carriers or others on whose services we depend or with which our systems
16
<PAGE>
interact are not Year 2000 compliant, it could affect our systems which could
have a material adverse effect on our business, financial condition and results
of operations.
We have formed a contingency team to develop a work plan in the event that
certain programs and hardware are not fully compliant and operational before
January 1, 2000. The costs associated with this effort are currently being
evaluated and cannot yet be determined. In the event that certain, or all, of
the contingency plans are deployed, we will incur additional costs; however, as
contingency plans are not yet developed, we cannot determine these costs at
present.
Although we do not presently anticipate a material business interruption
as a result of the Year 2000 issue, the worst case scenario if all of our Year
2000 efforts fail would result in a daily loss of revenues of approximately
$200,000 calculated based upon our current revenues.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Market risks relating to the Company's operations result primarily from
changes in interest rates. The substantial majority of the Company's long-term
debt bears interest at a fixed rate. However, the fair market value of the fixed
rate debt is sensitive to changes in interest rates. The Company is subject to
the risk that market interest rates will decline and the interest expense due
under the fixed rate debt will exceed the amounts due based on current market
rates. Under its current policies, the Company does not utilize any interest
rate derivative instruments to manage its exposure to interest rate changes.
The following table provides information about the Company's significant
financial instruments that are sensitive to changes in interest rates (in
millions):
<TABLE>
<CAPTION>
Fair Value on Future Principal Payments
June 30, 1999 1999 2000 2001 2002 2003 Thereafter Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt
Fixed Rate:
Senior Discount Notes,
interest payable at 12 1/2%, $ 271.8 -- -- -- -- -- $ 292.3 $292.3
maturing 2008
Senior Notes,
interest payable at
13 1/2%, maturing 2009 275.0 -- -- -- -- -- 275.0 275.0
Variable rate:
Senior Secured Credit Facility,
interest variable at LIBOR plus 3
3/4 % (8.81% at June 30,
1999) (a) 125.0 -- -- -- 0.6 0.8 123.6 125.0
----------------------------------------------------------------------
Total $ 671.8 -- -- -- $.6 0.8 $690.9 $692.3
======================================================================
</TABLE>
(a) Interest rate is based on a variable rate, which at the Company's option, is
determined by either a base rate or LIBOR, plus, in each case, a specified
margin.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
-----------------
In ITEM 3 - LEGAL PROCEEDINGS of its Annual Report to the Commission on
Form 10-K for the year ended December 31, 1998, the Company included a
description of an arbitration proceeding between its subsidiary KMC Telecom
Inc., and Wang Laboratories, Inc. (as successor to I-NET, Inc.). On June 1, 1999
the American Arbitration Association transmitted to the parties an Award of
Arbitration in the proceeding. The award provides that KMC Telecom Inc. shall
pay to Wang Laboratories, Inc. the sum of approximately $4.8 million (which
amount includes pre-award interest) with interest thereon from the date of
service of the award to the date of payment. KMC Telecom Inc.'s counterclaims
were dismissed. The Company paid the award in full during June 1999.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
-----------------------------------------
(a) Not Applicable.
(b) Not Applicable.
(c) On April 30, 1999, we issued units (the "Units") consisting of an
aggregate of 35,000 shares of Series E Senior Redeemable, Exchangeable PIK
Preferred Stock, par value $.01 per share (the "Series E Preferred Stock") and
an aggregate of 127,932 warrants (the "Warrants"), each to purchase 0.471756
shares of our Common Stock, par value $.01 per share, to an institutional
investor for aggregate gross proceeds of $35.0 million.
The sale of the Units was made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act, on the basis that
the transaction did not involve a public offering. The offer and sale was made
to only one institutional investor. In the Securities Purchase Agreement
applicable to the transaction, such institutional investor made representations
as to its investment intent. The Securities Purchase Agreement places
substantial restrictions upon transfer of the securities and the certificates
representing the securities have been legended to that effect. The Warrants
issued as part of the Units entitle the holders of the Warrants to purchase an
aggregate of 60,353 shares of Common Stock and are exercisable from February 4,
2000 through February 1, 2009 at a price of $.01 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
-------------------------------
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
(a) By unanimous written consent, dated as of April 30, 1999, the holders
of the Registrant's Common Stock, Series A Cumulative Convertible Preferred
Stock (the "Series A Preferred Stock") and Series C Cumulative Convertible
Preferred Stock (the "Series C Preferred Stock"), voting as a single class,
approved and adopted an amendment to the Company's Amended and Restated
Certificate of Incorporation to effect an increase in the aggregate number of
authorized shares of the Registrant's capital stock from 3,748,800 to 4,128,800
shares, composed of an increase in the aggregate number of authorized shares of
the Registrant's preferred stock from 748,800 to 1,128,800.
18
<PAGE>
(b) By unanimous written consent, dated as of April 30, 1999, the holders
of the Registrant's Series A Preferred Stock, voting as a class, approved (A) a
Certificate of Amendment to the Certificate of the Powers, Designations,
Preferences and Rights of the Series A Cumulative Convertible Preferred Stock,
par value $.01 per share, providing that the Series A Preferred Stock would rank
junior to the Registrant's Series E Senior Redeemable, Exchangeable PIK
Preferred Stock (the "Series E Preferred Stock") and the Registrant's Series F
Senior Redeemable, Exchangeable PIK Preferred Stock (the "Series F Preferred
Stock"), (B) a Certificate of Amendment to the Certificate of Voting Powers,
Designations, Preferences and Relative Participating, Optional or Other Special
Rights and Qualifications, Limitations and Restrictions Thereof of the Series E
Preferred Stock providing that the Series E Preferred Stock would rank senior to
the Series A Preferred Stock and the Series C Preferred Stock and increasing the
number of authorized shares of the Registrant's preferred stock which are
designated as Series E Preferred Stock from 175,000 to 575,000 shares (the
"Series E Certificate of Amendment"), and (C) a Certificate of Amendment to the
Certificate of Voting Powers, Designations, Preferences and Relative
Participating, Optional or Other Special Rights and Qualifications, Limitations
and Restrictions Thereof of the Series F Preferred Stock providing that the
Series F Preferred Stock would rank senior to the Series A Preferred Stock and
the Series C Preferred Stock (the "Series F Certificate of Amendment"), each as
required by the Certificate of Designation governing the rights of the holders
of the Series A Preferred Stock.
(c) By unanimous written consent, dated as of April 30, 1999, the holders
of the Registrant's Series C Preferred Stock, voting as a class, approved (a) a
Certificate of Amendment to the Certificate of the Powers, Designations,
Preferences and Rights of the Series C Cumulative Convertible Preferred Stock,
par value $.01 per share, providing that the Series C Preferred Stock would rank
junior to the Series E Preferred Stock and the Series F Preferred Stock, (B) the
Series E Certificate of Amendment and (C) the Series F Certificate of Amendment,
each as required by the Certificate of Designation governing the rights of the
holders of the Series C Preferred Stock.
(d) By unanimous written consent, dated as of April 30, 1999, the holders
of the Registrant's Series E Preferred Stock, voting as a class, approved (A)
the Series E Certificate of Amendment, (B) the Series F Certificate of
Amendment, and (C) the issuance of 35,000 shares of the Series E Preferred Stock
to an institutional investor, each as required by the Certificate of Designation
governing the rights of the holders of the Series E Preferred Stock.
(e) By unanimous written consent, dated as of April 30, 1999, the holders
of the Registrant's Series F Preferred Stock, voting as a class, approved (A)
the Series E Certificate of Amendment, (B) the Series F Certificate of Amendment
and (C) the issuance of 35,000 shares of the Series E Preferred Stock to an
institutional investor, each as required by the Certificate of Designation
governing the rights of the holders of the Series F Preferred Stock.
(f) The Annual Meeting of Stockholders of the Registrant was held on June
7, 1999. At the Annual Meeting, the following actions were taken:
(i) The existing board of seven directors was re-elected in its entirety
to hold office until the next Annual Meeting of Stockholders, or until their
respective successors shall be elected and qualified, by a vote of the holders
of the Registrant's Common Stock, Series A Preferred Stock and Series C
Preferred Stock, voting as a single class. In this vote each share of Common
Stock had one vote and each share of Series A Preferred Stock and Series C
Preferred Stock had a number of votes equal to the number of shares of Common
Stock into which it is convertible. The persons elected as directors were:
Harold N. Kamine
Michael A. Sternberg
William H. Stewart
John G. Quigley
Randall A. Hack
Richard H. Patterson
Gary E. Lasher
19
<PAGE>
The vote was as follows:
FOR AGAINST ABSTAINING
1,690,771 0 95,238
(ii) The holders of the Registrant's Common Stock, Series A Preferred
Stock and Series C Preferred Stock, voting as a single class, approved an
amendment to the 1998 Stock Purchase and Option Plan for Key Employees of KMC
Telecom Holdings, Inc. and Affiliates (the "KMC Holdings Stock Option Plan")
previously approved and recommended by the board of directors, to increase the
number of shares of Common Stock of the Company authorized to be granted
pursuant to the KMC Holdings Stock Option Plan from 262,750 to 600,000. In this
vote each share of Common Stock had one vote and each share of Series A
Preferred Stock and Series C Preferred Stock had a number of votes equal to the
number of shares of Common Stock into which it is convertible.
The vote was as follows:
FOR AGAINST ABSTAINING
1,690,771 0 95,238
(iii) The holders of the Registrant's Common Stock, Series A Preferred
Stock and Series C Preferred Stock, voting as a single class, ratified the
retention of Ernst & Young LLP as independent auditors of the Registrant for the
fiscal year ending December 31, 1999. In this vote each share of common stock
had one vote and each share of Series A Preferred Stock and Series C Preferred
Stock had a number of votes equal to the number of shares of Common Stock into
which it is convertible.
The vote was as follows:
FOR AGAINST ABSTAINING
1,690,771 0 95,238
(iv) The holders of the Registrant's Common Stock, Series A Preferred
Stock and Series C Preferred Stock, voting as a single class, ratified all of
the actions taken by the board of directors of the Registrant for the fiscal
year beginning January 1, 1998 and ending December 31, 1998. In this vote each
share of Common Stock had one vote and each share of Series A Preferred Stock
and Series C Preferred Stock had a number of votes equal to the number of shares
of Common Stock into which it is convertible.
The vote was as follows:
FOR AGAINST ABSTAINING
1,499,377.5 0 292,631.5
ITEM 5. OTHER INFORMATION.
-----------------
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
(a) Exhibits
--------
3.1 Certificate of Incorporation of KMC Telecom Holdings, Inc., as
amended, dated as of April 30, 1999.
20
<PAGE>
3.2 Certificate of the Powers, Designations, Preferences and Rights of
the Series A Cumulative Convertible Preferred Stock, Par Value $.01
Per Share, as amended, dated as of April 30, 1999.
3.3 Certificate of the Powers, Designations, Preferences and Rights of
the Series C Cumulative Convertible Preferred Stock, Par Value $.01
Per Share, as amended, dated as of April 30, 1999.
3.4 Certificate of the Powers, Designations, Preferences and Rights of
the Series D Cumulative Convertible Preferred Stock, Par Value
$.01 Per Share, as amended, dated as of April 30, 1999.
3.5 Certificate of Voting Powers, Designations, Preferences and Relative
Participating, Optional or Other Special Rights and Qualifications,
Limitations and Restrictions Thereof of the Series E Senior
Redeemable, Exchangeable PIK Preferred Stock, as amended, dated as
of April 30, 1999.
3.6 Certificate of Voting Powers, Designations, Preferences and Relative
Participating, Optional or Other Special Rights and Qualifications,
Limitations and Restrictions Thereof of the Series F Senior
Redeemable, Exchangeable PIK Preferred Stock, as amended, dated as
of June 1, 1999.
4.1 First Supplemental Indenture dated as of May 24, 1999 by and among
KMC Telecom Holdings, Inc., KMC Telecom Financing, Inc. and The
Chase Manhattan Bank, as Trustee.
4.2 Securities Purchase Agreement dated as of April 30, 1999 between
KMC Telecom Holdings, Inc. and First Union Investors, Inc.
4.3 Amendment No. 1 dated as of June 1, 1999, to Securities Purchase
Agreement among KMC Telecom Holdings, Inc., First Union Investors,
Inc., Newcourt Commercial Finance Corporation and Lucent
Technologies Inc.
4.4 Warrant Agreement dated as of April 30, 1999 among KMC Telecom
Holdings, Inc., The Chase Manhattan Bank, as Warrant Agent, First
Union Investors, Inc, Harold N. Kamine and Nassau Capital Partners
L.P.
4.5 Warrant Registration Rights Agreement dated as of April 30, 1999
between KMC Telecom Holdings, Inc. and First Union Investors, Inc.
4.6 Amendment No. 1 dated as of April 30, 1999 to Warrant Registration
Rights Agreement among KMC Telecom Holdings, Inc., Newcourt
Commercial Finance Corporation and Lucent Technologies Inc.
4.7 Amendment No. 1 dated as of April 30, 1999 to Warrant Agreement
dated as of April 30, 1999 among KMC Telecom Holdings, Inc., The
Chase Manhattan Bank, Newcourt Commercial Finance Corporation,
Lucent Technologies Inc. and First Union Investors, Inc.
4.8 Amendment No. 2 dated as of June 1, 1999 to Warrant Agreement among
KMC Telecom Holdings, Inc., The Chase Manhattan Bank, Newcourt
Commercial Finance Corporation, Lucent Technologies Inc., Harold N.
Kamine and Nassau Capital Partners L.P.
4.9 Preferred Stock Registration Rights Agreement dated as of
April 30, 1999 between KMC Telecom Holdings, Inc. and First Union
Investors, Inc.
21
<PAGE>
4.10 Amendment No. 1 dated as of June 1, 1999 to Preferred Stock
Registration Rights Agreement among KMC Telecom Holdings, Inc.,
First Union Investors, Inc., Newcourt Commercial Finance Corporation
and Lucent Technologies, Inc.
4.11 Amendment No. 5 dated as of April 30, 1999 to the Amended and
Restated Stockholders Agreement among KMC Telecom Holdings, Inc.,
Nassau Capital Partners L.P., NAS Partners I L.L.C., Harold N.
Kamine, Newcourt Commercial Finance Corporation, General Electric
Capital Corporation, First Union National Bank, CoreStates Holdings,
Inc. and KMC Telecommunications L.P.
4.12 Amendment No. 6 dated as of June 1, 1999 to the Amended and Restated
Stockholders Agreement among KMC Telecom Holdings, Inc., Nassau
Capital Partners L.P., NAS Partners I L.L.C., Harold N. Kamine,
Newcourt Commercial Finance Corporation, General Electric Capital
Corporation, First Union National Bank, KMC Telecommunications L.P.
and CoreStates Holdings, Inc.
10.1 Amendment No. 1 made as of June 7, 1999 to 1998 Stock Purchase and
Option Plan for Key Employees of KMC Telecom Holdings, Inc.
and Affiliates.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
(b)(i) A report on Form 8-K was filed by the Registrant on April 28, 1999
pursuant to Item 5 thereof reporting its unaudited financial results for the
three month period ended March 31, 1999. Such financial results were disclosed
in a Press Release, dated April 28, 1999, filed as an exhibit to such report.
(b)(ii) A report on Form 8-K was filed by the Company on June 10, 1999
pursuant to Item 5 thereof reporting the results of an arbitration proceeding
previously disclosed in Item 3 - "Legal Proceedings" of its Annual Report to the
Securities and Exchange Commission on Form 10-K for the year ended December 31,
1998.
22
<PAGE>
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 thereunto duly authorized.
DATED: August 13, 1999
KMC TELECOM HOLDINGS, INC.
(Registrant)
By: /s/ Michael A. Sternberg
------------------------------
Michael A. Sternberg
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ James D. Grenfell
-------------------------------
James D. Grenfell
Executive Vice President, Chief
Financial Officer and Secretary
(Principal Financial Officer)
23
<PAGE>
EXHIBIT INDEX
NO. DESCRIPTION
-- -----------
3.1 Certificate of Incorporation of KMC Telecom Holdings, Inc., as
amended, dated as of April 30, 1999.
3.2 Certificate of the Powers, Designations, Preferences and Rights of
the Series A Cumulative Convertible Preferred Stock, Par Value $.01
Per Share, as amended, dated as of April 30, 1999.
3.3 Certificate of the Powers, Designations, Preferences and Rights of
the Series C Cumulative Convertible Preferred Stock, Par Value $.01
Per Share, as amended, dated as of April 30, 1999.
3.4 Certificate of the Powers, Designations, Preferences and Rights of the
Series D Cumulative Convertible Preferred Stock, Par Value $.01 Per
Share, as amended, dated as of April 30, 1999.
3.5 Certificate of Voting Powers, Designations, Preferences and Relative
Participating, Optional or Other Special Rights and Qualifications,
Limitations and Restrictions Thereof of the Series E Senior
Redeemable, Exchangeable PIK Preferred Stock, as amended, dated as
of April 30, 1999.
3.6 Certificate of Amendment of the Certificate of Voting Powers,
Designations, Preferences and Relative Participating, Optional or
Other Special Rights and Qualifications, Limitations and
Restrictions Thereof of the Series F Senior Redeemable, Exchangeable
PIK Preferred Stock, as amended, dated as of June 1, 1999.
4.1 First Supplemental Indenture dated as of May 24, 1999 by and among
KMC Telecom Holdings, Inc., KMC Telecom Financing, Inc. and The
Chase Manhattan Bank, as Trustee.
4.2 Securities Purchase Agreement dated as of April 30, 1999 between
KMC Telecom Holdings, Inc. and First Union Investors, Inc.
4.3 Amendment No. 1 dated as of June 1, 1999, to Securities Purchase
Agreement among KMC Telecom Holdings, Inc., First Union Investors,
Inc., Newcourt Commercial Finance Corporation and Lucent
Technologies Inc.
4.4 Warrant Agreement dated as of April 30, 1999 among KMC Telecom
Holdings, Inc., The Chase Manhattan Bank, as Warrant Agent, First
Union Investors, Inc, Harold N. Kamine and Nassau Capital Partners
L.P.
4.5 Warrant Registration Rights Agreement dated as of April 30, 1999
between KMC Telecom Holdings, Inc. and First Union Investors, Inc.
4.6 Amendment No. 1 dated as of April 30, 1999 to Warrant Registration
Rights Agreement among KMC Telecom Holdings, Inc., Newcourt
Commercial Finance Corporation and Lucent Technologies Inc.
4.7 Amendment No. 1 dated as of April 30, 1999 to Warrant Agreement
dated as of April 30, 1999 among KMC Telecom Holdings, Inc., The
Chase Manhattan Bank, Newcourt Commercial Finance Corporation,
Lucent Technologies Inc. and First Union Investors, Inc.
24
<PAGE>
4.8 Amendment No. 2 dated as of June 1, 1999 to Warrant Agreement among
KMC Telecom Holdings, Inc., The Chase Manhattan Bank, Newcourt
Commercial Finance Corporation, Lucent Technologies Inc., Harold N.
Kamine and Nassau Capital Partners L.P.
4.9 Preferred Stock Registration Rights Agreement dated as of
April 30, 1999 between KMC Telecom Holdings, Inc. and First Union
Investors, Inc.
4.10 Amendment No. 1 dated as of June 1, 1999 to Preferred Stock
Registration Rights Agreement among KMC Telecom Holdings, Inc.,
First Union Investors, Inc., Newcourt Commercial Finance Corporation
and Lucent Technologies, Inc.
4.11 Amendment No. 5 dated as of April 30, 1999 to the Amended and
Restated Stockholders Agreement among KMC Telecom Holdings, Inc.,
Nassau Capital Partners L.P., NAS Partners I L.L.C., Harold N.
Kamine, Newcourt Commercial Finance Corporation, General Electric
Capital Corporation, First Union National Bank, CoreStates Holdings,
Inc. and KMC Telecommunications L.P.
4.12 Amendment No. 6 dated as of June 1, 1999 to the Amended and Restated
Stockholders Agreement among KMC Telecom Holdings, Inc., Nassau
Capital Partners L.P., NAS Partners I L.L.C., Harold N. Kamine,
Newcourt Commercial Finance Corporation, General Electric Capital
Corporation, First Union National Bank, KMC Telecommunications L.P.
and CoreStates Holdings, Inc.
10.1 Amendment No. 1 made as of June 7, 1999 to 1998 Stock Purchase and
Option Plan for Key Employees of KMC Telecom Holdings, Inc.
and Affiliates.
27.1 Financial Data Schedule.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
KMC TELECOM HOLDINGS, INC.
FIRST: The name of the Corporation is KMC Telecom Holdings, Inc.
SECOND: The address of the Corporation's registered office in the
State of Delaware is The Corporation Trust Company, 1209 Orange Street, in the
City of Wilmington, County of New Castle.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH:
A. AUTHORIZED CAPITAL STOCK.
The total number of shares of all classes of capital stock which the
Corporation shall have the authority to issue is 4,128,800 shares, consisting of
3,000,000 shares of Common Stock with a par value of $0.01 per share ("Common
Stock") and 1,128,000 shares of Preferred Stock with a par value of $0.01 per
share ("Preferred Stock"). The Preferred Stock may be issued from time to time
in one or more series. The Board of Directors is hereby authorized to fix or
alter by resolution or resolutions, the designations, preferences and relative
participating, optional, or other special rights of the shares of each series
and the qualifications, limitations, or restrictions thereon, including, but not
limited to, determination of the dividend rights, dividend rates, conversion
rights, voting rights, rights in terms of redemption (including sinking fund
provisions), redemption price or prices and liquidation preferences of any
wholly unissued series of Preferred Stock and the number of shares constituting
any such series and the designation thereof of any of them; and to increase or
decrease the number of shares of any series subsequent to the issue of shares
then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares in such series.
B. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock.
2. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
3. DISSOLUTION, LIQUIDATION OR WINDING UP. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, each issued and outstanding share of Common
Stock shall entitle the holder thereof to receive an equal portion of the net
assets of the Corporation available for distribution to holders of Common Stock,
subject to any preferential rights of any then outstanding Preferred Stock.
4. VOTING RIGHTS. Except as otherwise required by law or this
Certificate of Incorporation, each holder of Common Stock shall have one vote in
respect of each share of stock held by such holder of record on the books of the
Corporation for the election of directors and on all matters submitted to a vote
of stockholders of the Corporation.
C. PREFERRED STOCK.
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors of the Corporation is expressly authorized to
provide for the issue of all or any of the remaining shares of the Preferred
Stock in one or more series, and to fix the number of shares and to determine or
alter for each such series, such voting powers, full or limited, or no voting
powers, and such designations, preferences, and relative, participating,
optional, or other rights and such qualifications, limitations, or restrictions
thereof, as shall be stated and expressed in any resolution or resolutions
adopted by the Board of Directors providing for the issue of such shares and as
may be permitted by the General Corporation Law of the State of Delaware.
FIFTH: Elections of directors need not be by ballot unless the By-Laws
of the Corporation shall so provide.
SIXTH: The Board of Directors of the Corporation may make By-Laws and
from time to time may alter, amend or repeal By-Laws.
SEVENTH: A director of the corporation shall not be personally liable
to the corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction form which the director derived any
improper personal benefit. No amendment or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director for
or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
EIGHTH:
Section 1. POWERS OF DIRECTORS. The property, business and affairs of
the Corporation shall be managed and controlled by its Board of Directors. The
Board may exercise all of the powers of the Corporation except such as are by
law, the Certificate of Incorporation or the By-Laws conferred upon or reserved
to the stockholders.
Section 2. NUMBER AND TERM OF OFFICE. The number of directors
constituting the entire Board of Directors shall not be less than six nor more
than nine. The number of directors shall be fixed from time to time by
resolution of the Board of Directors.
Section 3. RESIGNATIONS. Any director or member of a committee of the
Board may resign at any time. Such resignation shall be made in writing and
shall take effect at the time specified therein, and if no time is specified, at
the time of its receipt by the Chairman of the Board, if one is elected,
President or Secretary. The acceptance of a resignation shall not be necessary
to make it effective.
Section 4. REMOVAL. Any director or the entire Board of Directors may
be removed either for or without cause at any time by the affirmative vote of
the holders of a majority of all of the shares of stock outstanding and entitled
to vote for the election of directors at any annual or special meeting of
stockholders called for that purpose. Vacancies thus created may be filled at
the meeting held for the purpose of removal by the affirmative vote of a
majority of the stockholders entitled to vote for directors, or if not so
filled, by the directors as provided in Section 5 below.
Section 5. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Vacancies in the
office of any director or member of a committee of the Board of Directors and
newly created directorships may be filled by a majority vote of the remaining
directors in the office. Any director so chosen shall hold office for the
unexpired term of his predecessor and until his successor shall be elected and
qualified or until his earlier resignation or removal. However, the directors
may not fill the vacancy created by removal of a director by electing the
director so removed.
Section 6. PLACE OF MEETING. The Board of Directors may hold its
meetings at such places and times as the Board of Directors from time to time
shall determine.
Section 7. REGULAR MEETINGS. No notice shall be required for any
regular meeting of the Board of Directors; however, if the item or place of any
regular meeting shall be changed, notice shall be given to each Director at
least two days before the meeting.
Section 8. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be called by the Chairman of the Board, if one is elected, the
President or by the Secretary on the written request of any two directors and
shall be held at such place as may be determined by the directors or as shall be
stated in the notice of the meeting.
Section 9. QUORUM, VOTING AND ADJOURNMENT. A majority of the entire
Board of Directors of any committee of the Board of Directors shall constitute a
quorum for the transaction of business at any meeting of the Board of Directors
or committee thereof. The vote of the majority of the directors present at any
meeting of the Board of Directors or committee at which a quorum is present
shall be the act of the Board of Directors or committee. If at any meeting of
the Board or committee there is less than a quorum present, a majority of those
present may adjourn the meeting from time to time.
Section 10. ORGANIZATION. The Chairman of the Board, if one is
elected, or, in his absence or the vacancy of such office, the President, shall
preside at all meetings of the Board of Directors. In the absence of the
Chairman of the Board and the President, a Chairman shall be elected by the
Directors present. The Secretary of the Corporation shall act as Secretary of
all meetings of the Directors. In the absence of the Secretary, the Chairman may
appoint any person to act as Secretary of the meeting.
Section 11. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
to replace any absent or disqualified member of any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent specified by resolution
of the Board, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and the affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority to amend the Certificate of Incorporation, adopt an agreement of
merger or consolidation, recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommend to the stockholders a dissolution of the Corporation or a revocation
of a dissolution, or amend the By-Laws; and unless otherwise expressly provided,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
Section 12. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted
by the Certificate of Incorporation or by the By-Laws, the members of the Board
of Directors or any committee thereof, may participate in a meeting of the Board
or committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation shall constitute presence in person at such
meeting.
Section 13. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors, or any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing.
Section 14. COMPENSATION. Directors shall be entitled to receive and
be paid for their services of such compensation as the Board of Directors may
determine. Any director may serve the Corporation in any other capacity as an
officer, agent or otherwise, and receive compensation therefor.
Section 15. SPECIAL CLASSIFICATION PROVISIONS.
(a) Notwithstanding anything to the contrary in the preceding
provisions of this Article EIGHTH, (but subject to such requirements as may,
from time to time, be specified in the terms of any outstanding series of
Preferred Stock), the provisions of this Section 15 shall govern the number,
election and removal of the members of the Board of Directors and any committees
thereof (and the filling of vacancies on the Board of Directors and any
committees thereof) until such time as the aggregate number of shares of Common
Stock that are outstanding and owned by Nassau Capital Partners, L.P. and its
affiliates ("Nassau") or subject to issuance upon conversion of outstanding
shares of Preferred Stock ("Nassau Common Stock") ceases to represent at least
five percent of the aggregate number of outstanding shares of all classes of
Common Stock on a fully converted basis.
(b) The number of directors constituting the entire Board of Directors
shall be six or such greater number (not exceeding nine), or such greater number
as may be required, from time to time, by the terms of any outstanding series of
Preferred Stock as shall be specified in a resolution of the Board of Directors
approved by the Board of Directors; PROVIDED that so long as there shall be at
least one Kamine Director (as hereinafter defined), the affirmative vote of the
Kamine Directors shall be required, and so long as there shall be at least one
Nassau Director (as hereinafter defined), the affirmative vote of the Nassau
Directors shall be required.
(c) Subject to the provisions of paragraph (h), three of the directors
of the Corporation (the "Kamine Directors") shall be elected by Harold N. Kamine
and his affiliates ("Kamine") voting their Common Stock ("Kamine Common Stock")
separately as a class; provided that one of the Kamine Directors shall be the
President and Chief Executive Officer of the Corporation, elected from time to
time pursuant to Article IV of the By-Laws. Subject to the provisions of
paragraph (h), three of the directors of the Corporation (the "Nassau
Directors") shall be elected by holders of Nassau Common Stock, voting
separately as a class. Subject to the provisions of paragraph (h) and to such
requirements as may, from time to time, be specified in the terms of any
outstanding series of Preferred Stock, any other directors of the Corporation to
be elected shall be elected by holders of Kamine Common Stock and Nassau Common
Stock voting together as a single class.
(d) No Kamine Director may be removed, whether for or without cause,
except by the affirmative vote of a majority in voting power of the outstanding
shares of Kamine Common Stock voting separately as a class. No Nassau Director
may be removed, whether for or without cause, except by the affirmative vote of
a majority in voting power of the outstanding shares of Nassau Common Stock
voting as a separate class.
(e) If as a result of death, removal or resignation, any vacancy shall
exist among the Kamine Directors or Nassau Directors, as the case may be, such
vacancy shall be filled by the holders of Kamine Common Stock or Nassau Common
Stock, respectively, voting as a separate class.
(f) A quorum for the transaction of business at any meeting of the
Board of Directors or any committee thereof shall require the presence of a
majority of the Board of Directors, including at least one Kamine Director and
at least one Nassau Director.
(g) The members of each committee of the Board of Directors shall
include an equal number of Kamine Directors and Nassau Directors.
(h) (1) From and after the date that Nassau and its affiliates own in
the aggregate Shares representing less than two-thirds of the shares of Nassau
Common Stock initially issued to them, Nassau shall have the right to elect or
remove only two (2) directors for election or removal (and shall cause one of
the Nassau Directors to resign), (ii) from and after the date that Nassau and
its affiliates own in the aggregate Shares representing less than one-third of
the shares of Nassau Common Stock initially issued to them, Nassau shall have
the right to elect or remove only one (1) director (and shall cause such number
of Nassau Directors to resign such that one Nassau Director remains on the Board
of Directors) and (iii) at such time as Nassau and affiliates owns less than 5%
of the shares of Nassau Common Stock initially issued them on a fully diluted
basis (taking into account the conversion prices then in effect), Nassau shall
not be entitled to elect or remove any directors (and shall cause all Nassau
Directors to resign).
(2) Notwithstanding anything herein to the contrary, (i) from and
after the date that Kamine and his affiliates own in the aggregate Shares
representing less than two-thirds of the shares of Kamine Common Stock
originally issued to them, Kamine shall have the right to elect or remove only
two (2) directors (and shall cause one of the Kamine Directors to resign), (ii)
from and after the date that Kamine and his affiliates own in the aggregate
Shares representing less than one-third of the shares of Kamine Common Stock
originally issued to them, Kamine shall have the right to elect or remove only
one (1) director (and shall cause such number of Kamine Directors to resign such
that one Kamine Director remains on the Board of Directors) and (iii) at such
time as Kamine and his affiliates own less than 5% of the shares of Kamine
Common Stock originally issued to them, Kamine shall not be entitled to elect or
remove any directors (and shall cause all Kamine Directors to resign).
(3) If any director resigns pursuant to the provisions of
paragraphs (h)(1) and (h)(2), unless the number of directors constituting the
entire Board of Directors shall be reduced in accordance with paragraph (b), the
Board of Directors shall fill any vacancy for the unexpired term of the Director
who has resigned and thereafter the holders of the Common Stock shall elect any
such Director.
NINTH: In addition to such other voting requirements as may be
specified by the General Corporation Law of the State of Delaware, no provision
of Article EIGHTH or this Article NINTH may be amended, altered or repealed
except by affirmative vote of a majority in voting power of the Kamine Common
Stock and Nassau Common Stock (as defined in Article EIGHTH), each voting
separately as a class.
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
KMC TELECOM HOLDINGS, INC.
PURSUANT TO SECTION 242 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
KMC TELECOM HOLDINGS, INC., a corporation organized and existing under
and by virtue of General Corporation Laws of the State of Delaware (the
"CORPORATION"), does hereby certify as follows:
FIRST: That the name of the Corporation is KMC TELECOM HOLDINGS, INC.
SECOND: That the original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of Delaware on September 17,
1997, and that an Amended and Restated Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware at
12:00 p.m. on September 22, 1997, and that a Certificate of Amendment of the
Amended and Restated Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware at 10:00 a.m. on November
5, 1997, and that a Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware at 9:30 a.m. on February 4, 1999, and that a
Certificate of Amendment of the Amended and Restated Certificate of
Incorporation of the Corporation was filed with the Secretary of State of the
State of Delaware at 3:30 p.m. on April 30, 1999, and that a Certificate of
Correction filed to correct the Certificate of Amendment of the Amended and
Restated Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware at 11:45 a.m. on May 6, 1999.
THIRD: That the Board of Directors of the Corporation, by unanimous
written consent in lieu of meeting, adopted a resolution amending the
Certificate of Incorporation and adopting the Amended and Restated Certificate
of Incorporation as set forth in Exhibit A hereto as the Certificate of
Incorporation of the Corporation. The stockholders of the Corporation duly
approved the Amended and Restated Certificate of Incorporation by written
consent in accordance with Sections 228 and 242 of the General Corporation of
the State of Delaware.
IN WITNESS WHEREOF, KMC TELECOM HOLDINGS, INC. has caused this
certificate to be duly executed by its ____________________ this ___ day of
__________, 1999.
KMC TELECOM HOLDINGS, INC
By:___________________________
Name: ________________________
Title:________________________
1
KMC TELECOM HOLDINGS, INC.
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE SERIES A
CUMULATIVE CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.0l PER SHAPE
Pursuant to Sections 141 and 242 of the
General Corporation Law of the State of Delaware
As contemplated by Sections 141 and 242 of the General Corporation Law of the
State of Delaware (the "DGCL"), the following resolution was duty adopted by the
Board of Directors of KMC Telecom Inc., a Delaware corporation (the
"Corporation"), by unanimous written consent, dated April 30, 1999:
WHEREAS, the Board of Directors of the Corporation is authorized,
within the limitations and restrictions stated in the Certificate of
Incorporation of the Corporation, to propose by resolution or resolutions for
the amendment of outstanding series of preferred stock, par value $.0l per
share, of the Corporation, to contain such voting powers, full or limited, or
without voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions as shall be stated and expressed in the resolution or
resolutions providing for the amendment thereof adopted by the Board of
Directors, and as are not stated and expressed in the Amended and Restated
Certificate of Incorporation, or any amendment thereto, including (but without
limiting the generality of the foregoing) such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets and such other subjects or matters as may be fixed by resolution or
resolutions of the Board of Directors under the DGCL;
<PAGE>
2
WHEREAS, the Board of Directors of the Corporation, pursuant to its
authority under Section 242 of the DGCL, deems it advisable to amend and
restated the terms of its Series A Cumulative Convertible Preferred Stock;
NOW, THEREFORE, BE IT RESOLVED:
1. DESIGNATION AND NUMBERS OF SHARES. There shall be hereby
established a series of preferred stock designated as "Series A Cumulative
Convertible Preferred Stock" (such Series being hereinafter referred to as the
"Series A Preferred Stock"). The authorized number of shares of Series A
Preferred Stock shall be 123,800. The liquidation preference of the Series A
Preferred Stock shall be $100 per share (the "Liquidation Preference").
2. RANK. The Series A Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding-up, and
dissolution of the Corporation, rank (i) senior to the Common Stock, par value
$.0l per share, of the Corporation (the "Common Stock"); (ii) on a parity with
(A) each class or series of Capital Stock, other than the Common Stock and the
Senior Preferred Stock, and (B) the Parity Preferred Stock; and (iii) junior to
the Senior Preferred Stock (the Common Stock and the classes and series of
Capital Stock described in clause (ii) of this Section are collectively referred
to as the "Junior Stock"). The Series A Preferred Stock shall also, with respect
to any redemption or repurchase by the Corporation of its Capital Stock, rank
junior with respect to the Senior Preferred Stock, except as provided in Section
3 of the Shareholders Agreement
3. DIVIDENDS.
(a) Beginning on the date of issuance of the Series A Preferred Stock,
the holders of the outstanding shares of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors of the
Corporation, out of funds legally available therefor, cash dividends on each
share of Series A Preferred Stock at an annual rate equal to 7.0% of the
Liquidation Preference, payable quarterly in arrears on the applicable Dividend
Payment Date or the next succeeding Business Day, if the applicable Dividend
Payment Date is not a Business Day. Notwithstanding the foregoing, the dividend
payable on each share of Series A Preferred Stock with respect to the Initial
Dividend Period shall be equal to (i) 7.0% of the Liquidation Preference
multiplied by (ii) a fraction equal to (A) the number of days from (and
including) the Series A Preferred Stock Issue Date to (but excluding) the
Dividend Payment Date with respect to the Initial Dividend Period divided by (B)
365. All dividends shall be cumulative, whether or not earned or declared, from
the date of issuance of the Series A Preferred Stock and shall be payable
quarterly in arrears on each Dividend Payment Date, commencing on the first
Dividend Payment Date after the date of issuance of the Series A Preferred
Stock. If any dividend (or portion thereof) payable on any Dividend Payment Date
is not declared or paid in full on such Dividend Payment Date, the amount of
such dividend payable that is not paid on such date shall increase at the rate
of 7.0% per annum (compounded quarterly on each subsequent Dividend Payment
Date) from such Dividend Payment Date until paid in full. Each distribution on
the Series A Preferred Stock shall be payable to holders of record as they
<PAGE>
3
appear on the stock books of the Corporation on such record dates, not less than
ten (10) nor more than sixty (60) days preceding the related Dividend Payment
Date, as shall be fixed by the Board of Directors of the Corporation.
(b) All accumulated and unpaid dividends on the Series A Preferred
Stock shall be paid by the Corporation upon the occurrence of a Realization
Event, without reference to any regular Dividend Payment Date, to holders of
record on such date. The Corporation shall send by first class, postage prepaid
mail a notice of the Realization Event to all holders of Series A Preferred
Stock that are entitled to receive such dividends. In the case of a Realization
Event which is an initial public offering, if any such holder gives written
notice to the Corporation that such holder wishes to receive such accumulated
unpaid dividends in the form of shares of Common Stock in lieu of cash, the
Corporation, in lieu of a cash payment, shall issue to such holder on such
Dividend Payment Date, a number of shares of Common Stock equal to the quotient
obtained by dividing (x) the aggregate accumulated and unpaid dividends on the
shares of Series A Preferred Stock held by such holder by (y) the price at which
shares of Common Stock are sold in such offering (before deduction of
underwriting discounts and expenses of sale).
(c) All dividends paid with respect to shares of Series A Preferred
Stock pursuant to Section 3(a) shall be paid pro rata and in like manner to all
of the holders entitled thereto.
(d) Nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board of Directors of the
Corporation to declare, or the Corporation to pay or set apart for payment, any
dividends on shares of the Series A Preferred Stock at any time, nor to permit
the Board of Directors of the Corporation to declare, or the Corporation to pay
or set apart for payment, any dividends on shares of the Series A Preferred
Stock prior to the payment of any dividends accrued on shares of the Senior
Preferred Stock.
4. LIQUIDATION PREFERENCE.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the affairs of the Corporation, the holders of
shares of Parity Preferred Stock (including the Series A Preferred Stock) then
outstanding shall be entitled to be paid for each share held thereby, out of the
assets of the Corporation available for distribution to its stockholders, an
amount in cash equal to the Liquidation Preference plus an amount in cash equal
to all accumulated and unpaid dividends thereon (calculated pursuant to
Paragraph 3(a)) to the date fixed for liquidation, dissolution or winding-up
(including an amount equal to a prorated dividend for the period from the last
Dividend Payment Date to the date fixed for liquidation, dissolution or
winding-up), before any payment shall be made or any assets distributed to the
holders of any shares of Junior Stock, but after all liquidation payment have
been made to the holders of all shares of Senior Preferred Stock. Except as
provided in the preceding sentence, holders of the Parity Preferred Stock
(including the Series A Preferred Stock) shall not be entitled to any
distribution in the event of any liquidation, dissolution or winding-up of the
affairs of the Corporation. If the assets of the Corporation are not sufficient
to pay in full the foregoing liquidation payments payable to the holders of
outstanding shares of the Parity Preferred Stock (including the Series A
Preferred Stock), then the holders of all shares of Parity Preferred Stock
<PAGE>
4
(including the Series A Preferred Stock) shall share ratably in such
distribution of assets in accordance with the amount that would be payable on
such distribution if the amounts to which the holders of outstanding shares of
Parity Preferred Stock (including the Series A Preferred Stock) are entitled
were paid in full. If all of the foregoing liquidation payments with respect to
any share of Series A Preferred Stock have been made, such share may not be
converted into Common Stock pursuant to Section 5.
(b) For the purposes of this Section 4, neither the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stocks, securities or
other consideration) of all or substantially all or part of the property or
assets of the Corporation nor the consolidation or merger of the Corporation
with one or more other corporations shall be deemed to be a liquidation,
dissolution or winding-up, voluntary or involuntary, of the affairs of the
Corporation (unless such sale, conveyance, exchange or transfer is in connection
with a liquidation, dissolution or winding-up of the affairs of the
Corporation).
5. CONVERSION.
(a) CONVERSION PRICE. Shares of Series A Preferred Stock to be
converted into shares of Common Stock shall be so converted initially at a
conversion price equal to $20.633333 per share of Common Stock, which price
shall be adjusted as hereinafter provided (and, as so adjusted, is hereinafter
sometimes referred to as the "Conversion Price"), with each share of Series A
Preferred Stock being valued at $100.00 for such purpose (that is, a conversion
rate initially equivalent to 4.8465266 shares of Common Stock for each share of
Series A Prefer-red Stock so converted, which is subject to adjustment (to the
nearest fourth decimal place) as the Conversion Price is adjusted as hereinafter
provided); PROVIDED, HOWEVER, that in no event shall the Conversion Price be
less than the par value, if any, of the Common Stock.
(b) AUTOMATIC CONVERSION UPON A QUALIFIED PUBLIC OFFERING. Upon a
Qualified Public Offering, each share of Series A Preferred Stock shall
automatically convert, without any action on the part of the holder thereof,
into shares of Common Stock at the Conversion Price in effect at such time, plus
the right to receive an amount of cash equal to the accumulated unpaid dividends
on such share of Series A Preferred Stock to and including such date (or the
right to receive additional shares of Common Stock in lieu of cash dividends
pursuant to Section 3(b)).
(c) CONVERSION AT THE OPTION OF THE HOLDER. At any time and from time
to time prior to a Qualified Public Offering, the holders of Series A Preferred
Stock shall have the right to convert, in whole or in part, each share of Series
A Preferred Stock into shares of Common Stock at the Conversion Price in effect
at such time, plus the right to receive an amount of cash equal to the
accumulated unpaid dividends on each share of Series A Preferred Stock to and
including the Conversion Date (as defined below); provided that, if such
Conversion Date is prior to a Realization Event, the Corporation may, in lieu of
making a payment in cash equal to such amount, deliver a number of shares of
Common Stock equal to such amount divided by the Fair Market Value of one share
of Common Stock. In order to convert shares of Series A Preferred Stock pursuant
to this Section 5(c) the holder thereof shall surrender at the office of the
Corporation the certificate or certificates therefor, duly endorsed to the
Corporation in blank, and give written notice to the Corporation that such
holder elects to convert such shares and shall state in writing therein the name
<PAGE>
5
or names (with addresses) in which such holder wishes the certificate or
certificates of Common Stock to be issued. Shares of Series A Preferred Stock
shall be deemed to have been converted on the date of surrender of such
certificate or certificates as provided above (the "Conversion Date"), and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such Common Stock on such date. As soon as practicable on or after
the Conversion Date, the Corporation shall issue and deliver a certificate or
certificates for the number of shares of Common Stock issuable upon conversion.
(d) FRACTIONAL SHARES; PARTIAL-CONVERSION. No fractional shares shall
be issued upon conversion of shares of Series A Preferred Stock into Common
Stock. In case the number of shares of Series A Preferred Stock represented by
the certificate or certificates surrendered pursuant to this Section 5 exceeds
the number of shares converted, the Corporation shall, upon such conversion,
execute and deliver to the holder, at the expense of the Corporation, a new
certificate or certificates for the number of shares of Series A Preferred Stock
represented by the certificate or certificates surrendered which are not to be
converted. If any fractional share of Common Stock would, except for the
provisions of the first sentence of this Section 5(d), be delivered upon such
conversion, the Corporation, in lieu of delivering such fractional share, shall
pay to the holder surrendering the Series A Preferred Stock for conversion an
amount in cash equal to the current market price of such fractional share as
determined in good faith by the Board of Directors.
(e) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF COMMON STOCK.
Except as provided in Section 5(f), if and whenever the Corporation shall
hereafter issue or sell, or is, in accordance with subsection 5(e)(1) through
5(e)(6), 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, forthwith upon such issue or
sale, the Conversion Price shall be reduced to the price determined by dividing
(i) an amount equal to the sum of (a) the number of shares of Common Stock
outstanding immediately prior to such issue or sale (determined on a Fully
Diluted basis) multiplied by the then existing Conversion Price and (b) the
consideration, if any, received by the Corporation upon such issue or sale, by
(ii) the total number of shares of Common Stock outstanding immediately after
such issue or sale (determined on a Fully Diluted basis).
For purposes of this Section 5(e), the following subsections 5(e)(1)
to 5(e)(6) shall also be applicable:
5(e)(1) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time hereafter
the Corporation shall in any manner grant (whether directly or by assumption in
a merger or otherwise) any Options to purchase Common Stock or any Convertible
Securities, whether or not such Options or the right to convert or exchange any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(i) the total amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon the 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 upon the issue or sale of such Convertible
<PAGE>
6
Securities and upon the conversion or exchange thereof, by (ii) 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) shall be less than the Conversion
Price in effect immediately prior to the time of the granting 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 have been issued for such price per share as of the date of
granting of such Options or the issuance of such Convertible Securities and
thereafter shall be deemed to be outstanding. Except as otherwise provided in
subsection 5(e)(3), no adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
5(e)(2) ISSUANCE OF CONVERTIBLE SECURITIES. In case the Corporation
shall hereafter in any manner issue (whether directly or by assumption in a
merger or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon
such conversion or exchange (determined by dividing (i) 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 (ii) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities)
shall be less than the Conversion Price in effect immediately prior to the time
of such issue or sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities shall be
deemed to have been issued for such price per share as of the date of the issue
or sale of such Convertible Securities and thereafter shall be deemed to be
outstanding, provided that (a) except as otherwise provided in subparagraph
5(e)(3), no adjustment of the Conversion Price should be made upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities and (b) if any such issue or sale of such Convertible Securities is
made upon exercise of any Options to purchase any such Convertible Securities
for which adjustments of the Conversion Price have been or are to be made
pursuant to other provisions of this Section 5(e), no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
5(e)(3) CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the happening
of any of the following events, namely, if the purchase price provided for in
any Option referred to in subsection 5(e)(1), the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities
referred to in subsection 5(e)(1) or 5(e)(2) or the rate at which Convertible
Securities referred to in subsection 5(e)(1) or 5(e)(2) are convertible into or
exchangeable for Common Stock shall change at any time (including, but not
limited to, changes under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time of such event shall
forthwith be readjusted 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
<PAGE>
7
rate, as the case may be, at the time initially granted, issued or sold, put
only if as a result of such adjustment the Conversion Price then in effect
hereunder is thereby reduced; and on the termination of any such Option or any
such right to convert or exchange such Convertible Securities, the Conversion
Price then in effect hereunder shall forthwith be increased to the Conversion
Price which would have been in effect at the time of such termination had such
Option or Convertible Securities, to the extent outstanding immediately prior to
such termination, never been issued.
5(e)(4) CONSIDERATION FOR STOCK. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors, without deduction of any
expenses incurred or any underwriting commissions or concessions paid or allowed
by the Corporation in connection therewith. In case any Options shall be issued
in connection with the issue and sale of other securities of the Corporation,
together comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued for such consideration as determined in good faith by
the Board of Directors of the Corporation.
5(e)(5) RECORD DATE. In case the Corporation shall take a record of
the holders of its Common Stock for the purpose of entitling them (i) to receive
a dividend or other distribution payable in Common Stock, Options or 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 the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
5(e)(6) TREASURY SHARES. 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, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purpose of this Section
5(e).
(f) EXCEPTIONS TO CONVERSION PRICE ADJUSTMENT. Notwithstanding the
foregoing, no adjustment to the Conversion Price shall be made pursuant to this
Section 5 in connection with the grant, issuance or sale of Common Stock,
Convertible Securities, warrants, options or other rights to subscribe for or
purchase Common Stock or Convertible Securities: (i) pursuant to employee stock
purchase or stock option ownership plans adopted by the Corporation for
employees, consultants and/or directors of the Corporation and its affiliates;
(ii) pursuant to the terms of any Convertible Securities, warrants, options or
other rights to subscribe for or purchase granted, issued or sold pursuant to
clause (ii) above; (iii) pursuant to the High Yield Debt and Equity Offering (as
defined in a Subordinated Loan and Security Agreement, dated as of September 22,
1997, among KMC Telecom Inc. ("KMC") and KMC Telecom II, Inc. and AT&T
<PAGE>
8
Commercial Finance Corporation, as in effect on the Series C Preferred Stock
Issue Date) or a subsequent debt offering occurring prior to December 31, 1998;
(iv) pursuant to the terms of any Convertible Securities, warrants, options or
other rights to subscribe for or purchase granted, issued or sold pursuant to
clauses (iii) above; (v) pursuant to Section 10C of the Amended and Restated
Note Purchase and Investment Agreement, dated as of October 22, 1996, as
amended, by and among the Corporation, Nassau Capital Partners L.P., NAS
Partners I L.L.C. and Harold N. Kamine; or (vi) pursuant to the issuance of
Series C Cumulative Convertible Preferred Stock and Series D Cumulative
Convertible Preferred Stock pursuant to a Purchase Agreement, by and among the
Corporation, General Electric Capital Corporation, CoreStates Holdings, Inc.,
Nassau Capital Partners L.P., NAS Partners I L.L.C. and the issuance of any
shares of Common Stock issued in conversion thereof, PROVIDED that the aggregate
number of shares of Common Stock issued or issuable pursuant to clauses (i) and
(ii) above shall not exceed 15% of the Common Stock (on a Fully Diluted basis)
outstanding from time to time and the aggregate number of shares of Common Stock
issued or issuable pursuant to clause (iii) and (iv) above shall not exceed 11%
of the Common Stock (on a Fully Diluted basis) outstanding from time to time;
and FURTHER PROVIDED that for the purposes of this Section 5(f): (a) 221,500
shares of Common Stock initially allocated under the 1997 Stock Option Plan will
be deemed outstanding regardless of the number of shares actually granted and
exercisable thereunder and (b) shares of Common Stock issued or issuable upon
exercise of options not among the 221,500 shares initially allocated pursuant to
the 1997 Stock Option Plan and which, when issued, were subject to clause (i) or
(ii) above, will not be deemed outstanding, regardless of whether or not they
have been granted or are exercisable.
(g) SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(h) REORGANIZATION OR RECLASSIFICATION. If any capital reorganization
or reclassification of the capital stock of the Corporation shall be effected in
such a way that holders of Conunon Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization or reclassification, lawful and adequate
provisions shall be made whereby each holder of a share or shares of Series A
Preferred Stock shall thereupon have the right to receive, upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore receivable upon the conversion of such
share or shares of Series A Preferred Stock, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore receivable upon such conversion had such
reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Conversion Price) shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise of such conversion
rights.
<PAGE>
9
(i) CARRYOVER. Notwithstanding any other provisions of this Section 5,
the Corporation shall not be required to make any adjustment to the Conversion
Price unless such adjustment would require an increase or decrease of at least
one percent (1%) in the Conversion Price. Any lesser adjustment shall be carried
forward and shall be made no later than the time of, and together with, the next
subsequent adjustment which, together with any adjustment or adjustments so
carried forward, shall amount to an increase or decrease of at least one percent
(1%) in the Conversion Price.
6. OTHER EVENTS. If the Corporation shall make any dividend (excluding
cash dividends payable out of accumulated earnings and profits) or distribution
on the Common Stock or issue any Common Stock, other capital stock or other
security of the Corporation or any rights or warrants to purchase or acquire any
such security, which transaction does not result in an adjustment to the
Conversion Price pursuant to the foregoing provisions of this Section 5, the
Board of Directors may consider whether such action is of such a nature that an
adjustment to the Conversion Price should equitably be made in respect of such
transaction. If the Board of Directors of the Corporation determines that an
adjustment to the Conversion Price should be made, an adjustment shall be made
effective as of such date, as determined by the Board of Directors of the
Corporation. The determination of the Board of Directors of the Corporation as
to whether such an adjustment to the Conversion Price should be made, and, if
so, as to what adjustment should be made and when, shall be final and binding on
the Corporation and all stockholders of the Corporation. The Corporation shall
be entitled to make such additional adjustments in the Conversion Price, in
addition to those required by the foregoing provisions of this Section 5, as
shall be necessary in order that any dividend or distribution in shares of
capital stock of the Corporation, subdivision, reclassification or combination
of shares of stock of the Corporation or any recapitalization of the Corporation
shall not be taxable to the holders of the Common Stock.
(k) NOTICE OF ADJUSTMENT. Upon any adjustment of the Conversion Price,
then and in each such case the Corporation shall give written notice thereof, by
delivery in person, certified or registered mail, return receipt requested, or
facsimile addressed to each holder of shares of Series A Preferred Stock
affected by such adjustment at the address of such holder as shown on the books
of the Corporation, which notice shall state the Conversion Price resulting from
such adjustment, setting forth in reasonable detail the method upon which such
calculation is based.
6. VOTING RIGHTS.
(a) The holders of Series A Preferred Stock, except as otherwise
required under Delaware law or as set forth below in this Section 6, shall not
be entitled or permitted to vote on any matter required or permitted to be voted
upon by the stockholders of the Corporation.
(b) So long as the Series A Preferred Stock is outstanding, each share
of Series A Preferred Stock shall entitle the holder thereof to vote, in person
or by proxy, at a special or annual meeting of stockholders or by written
consent, on all matters voted on by holders of Common Stock voting together as a
single class with other shares entitled to vote thereon, except as otherwise
provided in Articles EIGHTH and NINTH of the Corporation's Amended and Restated
<PAGE>
10
Certificate of Incorporation. With respect to any such vote, each share of
Series A Preferred Stock shall entitle the holder thereof to cast a number of
votes equal to the number of votes entitled to be cast by such holder had such
holder converted such share of Series A Preferred Stock into Common Stock prior
to such vote (or, if earlier, the record date with respect to such vote).
(c) Without the prior consent of the holders of two-thirds of the
shares of the Series A Preferred Stock then outstanding, voting as a separate
class, the Corporation shall not:
(i) increase the number of shares of the Corporation's Series A
Cumulative Convertible Preferred Stock, par value $.0l per share, outstanding at
any time to more than $12,800,000 of aggregate liquidation preference;
(ii) increase the number of shares of Preferred Stock (of whatever
series) authorized or Common Stock authorized for issuance;
(iii) merge or consolidate with or into any other company, person or
entity, unless holders of each share of Series A Preferred Stock receive
consideration in an amount equal to at least the greater of (A) the product of
(x) the number of shares of Common Stock into which such shares of Series A
Preferred Stock is then convertible and (y) the consideration to be received by
holders of each share of Common Stock pursuant to such merger or consolidation
and (B) the Liquidation Preference, of such share of Series A Preferred Stock
plus all accumulated but unpaid dividends thereon (whether or not declared);
(iv) amend, modify or repeal the powers, preferences or rights of or
the restrictions provided for the benefit of holders of the Series A Preferred
Stock or the Common Stock if such action would affect the Series A Preferred
Stock or the Common Stock adversely;
(v) sell or otherwise dispose of all or substantially all of the
assets of the Corporation in any single transaction or series of related
transactions unless the holders of each share of Series A Preferred Stock
receive consideration in an amount equal to at least the Liquidation Preference
of such share of Series A Preferred Stock plus all accumulated but unpaid
dividends thereon (whether or not declared);
(vi) declare or pay any dividend on shares of Common Stock or other
equity securities of the Corporation ranking junior to the Parity Preferred
Stock (excluding dividends payable solely in shares of Common Stock or other
equity securities of the Corporation ranking junior to the Parity Preferred
Stock);
(vii) authorize or enter into any transaction or series of
transactions (excluding transactions authorized by the Corporation or its
subsidiaries prior to the Series C Preferred Stock Issue Date and any amendments
thereto that do not alter the economic value of such transactions) with any
director or executive officer of the Corporation or any Person directly or
indirectly controlling the Corporation (or any affiliate thereof other than a
subsidiary of the Corporation) if the aggregate amount involved in such
<PAGE>
11
transaction or series of transactions involves the payment by or to the
Corporation or its subsidiaries of more than $100,000 in any one fiscal year of
the Corporation; or
(viii) issue Common Stock or Convertible Securities as consideration
for assets comprising a business that is not within the lines of business
conducted by the Corporation or any of its subsidiaries (or operations
reasonably ancillary thereto) on the Series C Preferred Stock Issue Date.
(d) Without the consent of each holder of Series A Preferred Stock
affected thereby, the Corporation shall not reduce the Liquidation Preference of
the Series A Preferred Stock or the rate at which dividends accumulate thereon,
or modify the dividend cumulation provisions of the Series A Preferred Stock or
the times and prices at which the Series A Preferred Stock may be redeemed in a
manner that would be adverse to the holders of Series A Preferred Stock.
7. REISSUANCE OF SERIES A PREFERRED STOCK. Shares of Series A
Preferred Stock that have been issued and reacquired in any manner including
shares purchased or redeemed or exchanged or converted, shall (upon compliance
with any applicable provisions of the laws of Delaware) have the status of
authorized and unissued shares of preferred stock undesignated as to series and
may be redesignated and reissued as part of any series of preferred stock (other
than Series A Preferred Stock).
8. BUSINESS DAY. If any payment or conversion shall be required by the
terms hereof to be made on a day that is not a Business Day, such payment or
conversion shall be made on the immediately succeeding Business Day.
9. DEFINITIONS. As used in this Certificate of Designation, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"1997 Stock Option Plan" shall mean the 1997 Stock Purchase and Option
Plan for Key Employees of KMC Telecom Holdings, Inc. and affiliates, as the same
may be amended from time to time.
"Board of Directors" shall have the meaning ascribed to it in the
first paragraph of this Resolution.
"Business Day" means any day except a Saturday, a Sunday, or other day
on which commercial banks in the State of New York or New Jersey are authorized
or required by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock (but excluding
any debt security that is exchangeable for or convertible into such capital
stock).
"Conunon Stock" shall have the meaning ascribed to it in Section 2
hereof.
<PAGE>
12
"Convertible Securities" shall mean any evidences of indebtedness,
shares or securities convertible into or exchangeable for Common Stock.
"Corporation" shall have the meaning ascribed to it in the first
paragraph of this Resolution.
"Dividend Payment Date" means March 31, June 30, September 30 and
December 31 of each year.
"Dividend Period" means the Initial Dividend Period and, thereafter,
each Quarterly Dividend Period.
"Fair Market Value" per share of Common Stock as of a particular date
(the "Determination Date") shall mean: (i) if the Common Stock is listed or
admitted for trading on a national securities exchange, then the Fair Market
Value shall be the average of the last 30 "daily sales prices" of the Common
Stock on the principal national securities exchange on which the Common Stock is
listed or admitted for trading on the last 30 Business Days prior to the
Determination Date, or if not listed or traded on any such exchange, then the
Fair Market Value shall be the average of the last 30 "daily sales prices" of
the Common Stock on the Nasdaq National Market on the last 30 Business Days
prior to the Determination Date (the "daily sales price" shall be the closing
price for bona fide transactions of the Common Stock at the end of each day); or
(ii) if the Common Stock is not so listed or admitted to unlisted trading
privileges or if no such sale is made on at least 25 of such days, then the Fair
Market Value shall be as reasonably determined in good faith by the Company's
Board of Directors or a duly appointed committee of the Board of Directors
(which determination shall be reasonably described in the written notice
delivered, and shall be reasonably acceptable, to the holders of the Series A
Preferred Stock).
"Fully Diluted" shall mean at any date as of which the number of
shares of Common Stock is to be determined, all shares of Common Stock
outstanding at such date and the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and warrants, options and other
rights to purchase (directly or indirectly) shares of Common Stock or
Convertible Securities (giving effect to the then current respective conversion
prices) outstanding on such date (to the extent the rights to convert, exchange
or exercise thereunder are presently exercisable).
"High Yield Debt and Equity Offering" shall have the meaning ascribed
to it in Section 5 hereof.
"Initial Dividend Period" means the dividend period commencing on, and
including, the Series A Prefer-red Stock Issue Date and ending on, and
excluding, the first Dividend Payment Date to occur thereafter.
"Junior Stock" shall have the meaning ascribed to it in Section 2
hereof.
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13
"Liquidation Preference" shall have the meaning ascribed to it in
Section 1 hereof.
"Option" shall mean rights, options, or warrants to subscribe for
purchase or otherwise acquire Convertible Securities or Common Stock.
"Parity Preferred Stock" means, collectively, the Series A Preferred
Stock, the Series B Cumulative Convertible Preferred Stock, par value $.01 per
share, the Corporation's Series C Cumulative Convertible Preferred Stock, par
value $.0l per share, the Corporation's Series D Cumulative Convertible
Preferred Stock, par value $.0l per share and any other series of preferred
stock which is determined to be "Parity Preferred Stock" by the Board of
Directors.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental body or other entity of any kind.
"Qualified Public Offering" shall mean the first offer for sale of
Common Stock pursuant to an effective registration statement filed by the
Corporation under the Securities Act of 1933, as amended, in which the
Corporation receives aggregate gross proceeds (before deduction of underwriting
discounts and expenses of sale) of at least $40,000,000; provided that the per
share price at which such shares are sold in the offering (before deduction of
underwriting discounts and expenses of sale) is at least four (4) times the
Conversion Price then in effect.
"Quarterly" shall mean the quarterly periods commencing on, and
including, each Dividend Payment Date and ending on, and excluding, each next
Dividend Payment Date occurring immediately thereafter, respectively.
"Realization Event" shall mean the occurrence of (i) the sale of all
or substantially all of the stock or assets of the Corporation, the
consolidation or merger of the Corporation with one or more other corporations
or (ii) the closing of an initial public offering of Common Stock in which the
Corporation receives aggregate gross proceeds (before deduction of underwriting
discounts and expenses of sale) of at least $40,000,000.
"Senior Preferred Stock" means, collectively, the Series E Preferred
Stock, and the Series F Preferred Stock and any other series of preferred stock
which is determined to be "Senior Preferred Stock" by the Directors, PROVIDED
that, no Capital Stock shall be designated as such without the consent of the
holders of a majority of the shares of Series A Preferred Stock.
"Series A Preferred Stock" shall have the meaning ascribed to it in
Section 1 hereof.
"Series A Preferred Stock Issue Date" means the first date on which
the Series A Preferred Stock is issued by the Corporation.
"Series C Preferred Stock" means the Corporation's Series C Cumulative
Convertible Preferred Stock, par value $.01 per share.
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14
"Series D Preferred Stock" means the Corporation's Series D Cumulative
Convertible Preferred Stock, par value, $.01 per share.
"Series E Preferred Stock" means the Series E Senior Redeemable,
Exchangeable, PIK Preferred Stock.
"Series F Preferred Stock" means the Series F Senior Redeemable,
Exchangeable, PIK Preferred Stock.
"Shareholders Agreement" means the Amended and Restated Stockholders
Agreement among KMC Telecom Holdings, Inc., Nassau Capital Partners L.P., NAS
Partners I L.L.C., Harold N. Kamine, KMC Telecommunications L.P., AT&T Credit
Corporation, General Electric Capital Corporation, Corestates Bank, N.A. and
Corestates Holdings, Inc., dated as of October 31, 1997, as amended by Amendment
No.1, dated as of January 7, 1998, to the Amended and Restated Stockholders
Agreement, dated as of October 31, 1997, Amendment No. 2, dated as of January
26, 1998, to the Amended and Restated Stockholders Agreement, dated as of
October 31, 1997, Amendment No. 3, dated as of February 25, 1998, to the Amended
and Restated Stockholders Agreement, dated as of October 31, 1997, Amendment No.
4, dated as of February 4, 1999, to the Amended and Restated Stockholders
Agreement, dated as of October 31, 1997, Amendment No. 5, dated as of April 30,
1999, to the Amended and Restated Stockholders Agreement, dated as of October
31, 1997.
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15
IN WITNESS WHEREOF, KMC TELECOM HOLDINGS, INC. has caused this
certificate to be duly executed by its Chief Financial Officer this 30th day of
April, 1999.
KMC TELECOM HOLDINGS, INC
By: /S/ James D. Grenfell
--------------------------------
Name: James D. Grenfell
Title: Chief Financial Officer
KMC TELECOM HOLDINGS, INC.
CERTIFICATE OF THE POWERS,
DESIGNATIONS, PREFERENCES AND RIGHTS OF THE
SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.0l PER SHARE
Pursuant to Sections 141 and 151 of the
General Corporation Law of the State of Delaware
As contemplated by Section 141 of the General Corporation Law of the
State of Delaware (the "DGCL"), the following resolution was duly adopted by the
Board of Directors of KMC Telecom Holdings, Inc., a Delaware corporation (the
"Corporation"), by unanimous written consent, dated April 30, 1999;
WHEREAS, the Board of Directors of the Corporation is authorized,
within the limitations and restrictions stated in the Amended and Restated
Certificate of Incorporation of the Corporation, to provide by resolution or
resolutions for the issuance of shares of preferred stock, par value $.0l per
share, of the Corporation, in one or more series with such voting powers, full
or limited, or without voting powers, and such designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions as shall be stated and expressed in the resolution
or resolutions providing for the issuance thereof adopted by the Board of
Directors, and as are not stated and expressed in the Certificate of
Incorporation, or any amendment thereto, including (but without limiting the
generality of the foregoing) such provisions as may be desired concerning
voting, redemption, dividends, dissolution or the distribution of assets and
such other subjects or matters as may be fixed by resolution or resolutions of
the Board of Directors under the DGCL;
<PAGE>
WHEREAS, the Board of Directors of the Corporation, pursuant to its
authority under Section 151 of the DGCL, desires to authorize and fix the terms
of its Series C Cumulative Convertible Preferred Stock; and
WHEREAS, the Board of Directors of the Corporation has determined that
such Series C Cumulative Convertible Preferred Stock shall constitute "Parity
Preferred Stock" within the meaning of the Certificates of the Powers,
Designations, Preferences and Rights of the Corporation's Series A Cumulative
Convertible Preferred Stock, Series B Cumulative Convertible Preferred Stock and
Series D Cumulative Convertible Preferred Stock;
NOW, THEREFORE, BE IT RESOLVED:
1. DESIGNATION AND NUMBER OF SHARES. There shall be hereby established
a series of preferred stock designated as "Series C Cumulative Convertible
Preferred Stock" (such Series being hereinafter referred to as the "Series C
Preferred Stock"). The authorized number of shares of Series C Preferred Stock
shall be 350,000. The liquidation preference of the Series C Preferred Stock
shall be $100 per share (the "Liquidation Preference").
2. RANK. The Series C Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding-up, and
dissolution of the Corporation, rank (i) senior to the Common Stock, par value
$.0l per share, of the Corporation (the "Common Stock"); (ii) on a parity with
(A) each class or series of Capital Stock, other than the Common Stock and the
Senior Preferred Stock, and (B) the Parity Preferred Stock; and (iii) junior to
the Senior Preferred Stock (the Common Stock and the classes and series of
Capital Stock described in clause (ii) of this Section are collectively referred
to as the "Junior Stock"). The Series C Preferred Stock shall also, with respect
to any redemption or repurchase by the Corporation of its Capital Stock, rank
junior with respect to the Senior Preferred Stock, except as provided in Section
3 of the Shareholders Agreement.
3. DIVIDENDS.
(a) Beginning on the date of issuance of the Series C Preferred Stock,
the holders of the outstanding shares of Series C Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors of the
Corporation, out of funds legally available therefor, cash dividends on each
share of Series C Preferred Stock at an annual rate equal to 7.0% of the
Liquidation Preference, payable quarterly in arrears on the applicable Dividend
Payment Date or the next succeeding Business Day, if the applicable Dividend
Payment Date is not a Business Day. Notwithstanding the foregoing, the dividend
payable on each share of Series C Preferred Stock with respect to the Initial
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Dividend Period shall be equal to (i) 7.0% of the Liquidation Preference
multiplied by (ii) a fraction equal to (A) the number of days from (and
including) the Series C Preferred Stock Issue Date to (but excluding) the
Dividend Payment Date with respect to the Initial Dividend Period divided by (B)
365. All dividends shall be cumulative, whether or not earned or declared, from
the date of issuance of the Series C Preferred Stock and shall be payable
quarterly in arrears on each Dividend Payment Date, commencing on the first
Dividend Payment Date after the date of issuance of the Series C Preferred
Stock. If any dividend (or portion thereof) payable on any Dividend Payment Date
is not declared or paid in full on such Dividend Payment Date, the amount of
such dividend payable that is not paid on such date shall increase at the rate
of 7.0% per annum (compounded quarterly on each subsequent Dividend Payment
Date) from such Dividend Payment Date until paid in full. Each distribution on
the Series C Preferred Stock shall be payable to holders of record as they
appear on the stock books of the Corporation on such record dates, not less than
ten (10) nor more than sixty (60) days preceding the related Dividend Payment
Date, as shall be fixed by the Board of Directors of the Corporation.
(b) All accumulated and unpaid dividends on the Series C Preferred
Stock shall be paid by the Corporation upon the occurrence of a Realization
Event, without reference to any regular Dividend Payment Date, to holders of
record on such date. The Corporation shall send by first class, postage prepaid
mail a notice of the Realization Event to all holders of Series C Preferred
Stock that are entitled to receive such dividends. In the case of a Realization
Event which is an initial public offering, if any such holder gives written
notice to the Corporation that such holder wishes to receive such accumulated
unpaid dividends in the form of shares of Common Stock in lieu of cash, the
Corporation, in lieu of a cash payment, shall issue to such holder on such
Dividend Payment Date, a number of shares of Common Stock equal to the quotient
obtained by dividing (x) the aggregate accumulated and unpaid dividends on the
shares of Series C Preferred Stock held by such holder by (y) the price at which
shares of Common Stock are sold in such offering (before deduction of
underwriting discounts and expenses of sale).
(c) All dividends paid with respect to shares of Series C Preferred
Stock pursuant to Section 3(a) shall be paid pro rata and in like manner to all
of the holders entitled thereto.
(d) Except as otherwise provided in paragraph (b) above, nothing
herein contained shall in any way or under any circumstances be construed or
deemed to require the Board of Directors of the Corporation to declare, or the
Corporation to pay or set apart for payment, any dividends on shares of the
Series C Preferred Stock at any time, nor to permit the Board of Directors of
the Corporation to declare, or the Corporation to pay or set apart for payment,
any dividends on shares of the Series C Preferred Stock prior to the payment of
any dividends accrued on shares of the Senior Preferred Stock.
(e) Whenever the provisions hereof require that the amount of
dividends with respect to the Series C Preferred Stock be determined for less
than a full quarterly period ending on a Dividend Payment Date, the amount of
dividends for such period shall be equal to 7.0% of the Liquidation Preference
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<PAGE>
multiplied by a fraction equal to (i) the number of days from (and including)
the most recent Dividend Payment Date to (but excluding) the last day of the
period in respect of which such determination is being made divided by (ii) 365.
4. LIQUIDATION PREFERENCE.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the affairs of the Corporation, the holders of
shares of Parity Preferred Stock (including the Series C Preferred Stock) then
outstanding shall be entitled to be paid for each share held thereby, out of the
assets of the Corporation available for distribution to its stockholders, an
amount in cash equal to the Liquidation Preference plus an amount in cash equal
to all accumulated and unpaid dividends thereon (calculated pursuant to
Paragraph 3(a)) to the date fixed for liquidation, dissolution or winding-up
(including an amount equal to a prorated dividend for the period from the last
Dividend Payment Date to the date fixed for liquidation, dissolution or
winding-up), before any payment shall be made or any assets distributed to the
holders of any shares of Junior Stock, but after all liquidation payments have
been made tot he holders of all shares of Senior Preferred Stock. Except as
provided in the preceding sentence, holders of the Parity Preferred Stock
(including the Series C Preferred Stock) shall not be entitled to any
distribution in the event of any liquidation, dissolution or winding-up of the
affairs of the Corporation. If the assets of the Corporation are not sufficient
to pay in full the foregoing liquidation payments payable to the holders of
outstanding shares of the Parity Preferred Stock (including the Series C
Preferred Stock), then the holders of all shares of Parity Preferred Stock
(including the Series C Preferred Stock) shall share ratably in such
distribution of assets in accordance with the amount that would be payable on
such distribution if the amounts to which the holders of outstanding shares of
Parity Preferred Stock (including the Series C Preferred Stock) are entitled
were paid in full. If all of the foregoing liquidation payments with respect to
any share of Series C Preferred Stock have been made, such share may not be
converted into Common Stock pursuant to Section 5.
(b) For the purposes of this Section 4, neither the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stocks, securities or
other consideration) of all or substantially all or part of the property or
assets of the Corporation nor the consolidation or merger of the Corporation
with one or more other corporations shall be deemed to be a liquidation,
dissolution or winding-up, voluntary or involuntary, of the affairs of the
Corporation (unless such sale, conveyance, exchange or transfer is in connection
with a liquidation, dissolution or winding-up of the affairs of the
Corporation).
5. CONVERSION.
(a) CONVERSION PRICE. Shares of Series C Preferred-Stock to be
converted into shares of Common Stock shall be so converted at a conversion
price (which price shall be adjusted to the nearest fourth decimal place as
hereinafter provided and, as so adjusted, is hereinafter referred to as the
"Conversion Price") equal to: (i) from the date of initial issuance of shares of
Series C Preferred Stock to but excluding the 30-month anniversary of such
issuance, $52.50 per share of Common Stock, with each share of Series C
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<PAGE>
Preferred Stock being valued at $100.00 for such purpose; PROVIDED, HOWEVER,
that if a Realization Event shall occur during such 30-month period the
Conversion Price shall equal to a fraction, the numerator of which is (A) the
consideration per share of Common Stock (on a Fully Diluted basis) received in
connection with such Realization Event, and the denominator of which is (B) 1.30
raised to a number equal to the number of years (or fraction thereof) from the
date of initial issuance of shares of Series C Preferred Stock until the date of
such Realization
Event, but in no case shall be greater than $52.50 per share of Common Stock nor
less than $42.18 per share of Common Stock; and (ii) from and after the
thirty-month anniversary of the date of initial issuance of shares of Series C
Preferred Stock (subject to paragraph (b) below), $42.18 per share of Common
Stock, with each share of Series C Preferred Stock being valued at $100.00 for
such purpose; provided, however, that in no event shall the Conversion Price be
less than the par value, if any, of the Common Stock.
(b) AUTOMATIC CONVERSION UPON A QUALIFIED PUBLIC OFFERING. Upon a
Qualified Public Offering, each share of Series C Preferred Stock shall
automatically convert, without any action on the part of the holder thereof,
into shares of Common Stock at the Conversion Price in effect at such time, plus
the right to receive an amount of cash equal to the accumulated unpaid dividends
on such share of Series C Preferred Stock to and including such date (or the
right to receive additional shares of Common Stock in lieu of cash dividends
pursuant to Section 3(b)).
(c) CONVERSION AT THE OPTION OF THE HOLDER. At any time and from time
to time prior to a Qualified Public Offering, each holder of Series C Preferred
Stock shall have the right to convert such holder's shares of Series C Preferred
Stock, in whole or in part, into shares of Common Stock at the Conversion Price
in effect at such time, plus the right to receive an amount of cash equal to the
accumulated unpaid dividends on the shares of Series C Preferred Stock so
converted to and including the Conversion Date (as defined below); provided
that, if such Conversion Date is prior to a Realization Event, the Corporation
may, in lieu of making a payment in cash equal to such amount, deliver a number
of shares of Common Stock equal to such amount divided by the Fair Market Value
of one share of Common Stock. In order to convert shares of Series C Preferred
Stock pursuant to this Section 5(c) the holder thereof shall surrender at the
office of the Corporation the certificate or certificates therefor, duty
endorsed to the Corporation in blank, and give written notice to the Corporation
that such holder elects to convert such shares and shall state in writing
therein the name or names (with addresses) in which such holder wishes the
certificate or certificates of Common Stock to be issued. Shares of Series C
Preferred Stock shall be deemed to have been converted on the date of surrender
of such certificate or certificates as provided above (the "Conversion Date"),
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Common Stock on such date. As soon as practicable on
or after the Conversion Date, the Corporation shall issue and deliver a
certificate or certificates for the number of shares of Common Stock issuable
upon conversion.
(d) FRACTIONAL SHARES; PARTIAL CONVERSION. No fractional shares shall
be issued upon conversion of shares of Series C Preferred stock into Common
Stock. In case the number of shares of Series C Preferred Stock represented by
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<PAGE>
the certificate or certificates surrendered pursuant to this Section 5 exceeds
the number of shares converted, the Corporation shall, upon such conversion,
execute and deliver to the holder, at the expense of the Corporation, a new
certificate or certificates for the number of shares of Series C Preferred Stock
represented by the certificate or certificates surrendered which are not to be
converted. If any fractional share of Common Stock would, except for the
provisions of the first sentence of this Section 5(d), be delivered upon such
conversion, the Corporation, in lieu
of delivering such fractional share, shall pay to the holder surrendering the
Series C Preferred Stock for conversion an amount in cash equal to the current
market price of such fractional share as determined in good faith by the Board
of Directors.
(e) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF COMMON STOCK.
Except as provided in Section 5(f), if and whenever the Corporation shall
hereafter issue or sell, or is, in accordance with subsection 5(e)(1) through
5(e)(6), 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, forthwith upon such issue or
sale, the Conversion Price shall be reduced to the price determined by dividing
(i) an amount equal to the sum of (a) the number of shares of Common Stock
outstanding immediately prior to such issue or sale (determined on a Fully
Diluted basis) multiplied by the then existing Conversion Price and (b) the
consideration, if any, received by the Corporation upon such issue or sale, by
(ii) the total number of shares of Common Stock outstanding immediately after
such issue or sale (determined on a Fully Diluted basis).
For purposes of this Section 5(e), the following subsections 5(e)(1)
to 5(e)(6) shall also be applicable:
5(e)(1) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time hereafter
the Corporation shall in any manner grant (whether directly or by assumption in
a merger or otherwise) any Options to purchase Common Stock or any Convertible
Securities, whether or not such Options or the right to convert or exchange any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(i) the total amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon the 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 upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) 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) shall be less than the Conversion
Price in effect immediately prior to the time of the granting 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 have been issued for such price per share as of the date of
granting of such Options or the issuance of such Convertible Securities and
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<PAGE>
thereafter shall be deemed to be outstanding. Except as otherwise provided in
subsection 5(e)(3), no adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
5(e)(2) ISSUANCE OF CONVERTIBLE SECURITIES. In case the Corporation
shall hereafter in any manner issue (whether directly or by assumption in a
merger or otherwise) or
sell any Convertible Securities, whether or not the rights to exchange or
convert any such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) 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 (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than the
Conversion Price in effect immediately prior to the time of such issue or sale,
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall be deemed to have been
issued for such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be outstanding,
provided that (a) except as otherwise provided in subparagraph 5(e)(3), no
adjustment of the Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities and (b)
if any such issue or sale of such Convertible Securities is made upon exercise
of any Options to purchase any such Convertible Securities for which adjustments
of the Conversion Price have been or are to be made pursuant to other provisions
of this Section 5(e), no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.
5(e)(3) CHANGE IN OPTION PRICE-OR CONVERSION RATE. Upon the happening
of any of the following events, namely, if the purchase price provided for in
any Option referred to in subsection 5(e)(1), the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities
referred to in subsection 5(e)(1) or 5(e)(2) or the rate at which Convertible
Securities referred to in subsection 5(e)(1) or 5(e)(2) are convertible into or
exchangeable for Common Stock shall change at any time (including, but not
limited to, changes under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time of such event shall
forthwith be readjusted 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, but
only if as a result of such adjustment the Conversion Price then in effect
hereunder is thereby reduced; and on the termination of any such Option or any
such right to convert or exchange such Convertible Securities, the Conversion
Price then in effect hereunder shall forthwith be increased to the Conversion
Price which would have been in effect at the time of such termination had such
Option or Convertible Securities, to the extent outstanding immediately prior to
such termination, never been issued.
5(e)(4) CONSIDERATION FOR STOCK. In case any shares of Common Stock,
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Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good
faith by the Board of Directors, without deduction of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any Options shall be issued in connection with
the issue and sale of other securities of the Corporation, together comprising
one integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
for such consideration as determined in good faith by the Board of Directors of
the Corporation.
5(e)(5) RECORD DATE. In case the Corporation shall take a record of
the holders of its Common Stock for the purpose of entitling them (i) to receive
a dividend or other distribution payable in Common Stock, Options or 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 the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
5(e)(6) TREASURY SHARES. 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, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purpose of this Section
5(e).
(f) EXCEPTIONS TO CONVERSION PRICE ADJUSTMENT. Notwithstanding the
foregoing, no adjustment to the Conversion Price shall be made pursuant to this
Section 5 in connection with the grant, issuance or sale of Common Stock,
Convertible Securities, warrants, options or other rights to subscribe for or
purchase Common Stock or Convertible Securities: (i) pursuant to employee stock
purchase or stock option ownership plans adopted by the Corporation for
employees, consultants and/or directors of the Corporation and its affiliates;
(ii) pursuant to the terms of any Convertible Securities, warrants, options or
other rights to subscribe for or purchase granted, issued or sold pursuant to
clause (ii) above; (iii) pursuant to the High Yield Debt and Equity Offering (as
defined in a Subordinated Loan and Security Agreement, dated as of September 22,
1997, among KMC Telecom Inc. ("KMC") and KMC Telecom II, Inc. and AT&T
Commercial Finance Corporation, as in effect on the Series C Preferred Stock
Issue Date) or a subsequent debt offering occurring prior to December 31, 1998;
(iv) pursuant to the terms of any Convertible Securities, warrants, options or
other rights to subscribe for or purchase granted, issued or sold pursuant to
clause (iii) above; or (v) pursuant to Section 10C of the Amended and Restated
Note Purchase and Investment Agreement, dated as of October 22, 1996, as
amended, by and among the Corporation, Nassau Capital Partners L.P., NAS
Partners I L.L.C. and Harold N. Kamine; PROVIDED that the aggregate number of
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shares of Common Stock issued or issuable pursuant to clauses (i) and (ii) above
shall not exceed 15% of the Common Stock (on a Fully Diluted basis) outstanding
from time to time and the aggregate number of shares of Common Stock issued or
issuable pursuant to clauses (iii) and (iv) above shall not exceed 11% of the
Common Stock (on a Fully Diluted basis) outstanding from time to time; and
FURTHER PROVIDED that for the purposes of this Section 5(f): (a) 221,500 shares
of Common Stock initially allocated under the 1997 Stock Option Plan will be
deemed outstanding regardless of the number of shares actually granted and
exercisable thereunder and (b) shares of Common Stock issued or issuable upon
exercise of options not among the 221,500 shares initially allocated pursuant to
the 1997 Stock Option Plan and which, when issued, were subject to clauses (i)
or (ii) above, will not be deemed outstanding, regardless of whether or not they
have been granted or are exercisable.
(g) SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(h) REORGANIZATION OR RECLASSIFICATION. If any capital reorganization
or reclassification of the capital stock of the Corporation shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization or reclassification (but subject to Section 7),
lawful and adequate provisions shall be made whereby each holder of a share or
shares of Series C Preferred Stock shall thereupon have the right to receive,
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the
conversion of such share or shares of Series C Preferred Stock, such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such Common Stock immediately theretofore receivable upon
such conversion had such reorganization or reclassification not taken place, and
in any such case appropriate provisions shall be made with respect to the rights
and interests of such holder to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of such
conversion rights.
(i) CARRYOVER. Notwithstanding any other provisions of this Section 5,
the Corporation shall not be required to make any adjustment to the Conversion
Price unless such adjustment would require an increase or decrease of at least
one percent (1%) in the Conversion Price. Any lesser adjustment shall be carried
forward and shall be made no later than the time of, and together with, the next
subsequent adjustment which, together with any adjustment or adjustments so
carried forward, shall amount to an increase or decrease of at least one percent
(1%) in the Conversion Price.
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(j) OTHER EVENTS. If the Corporation shall make any dividend
(excluding cash dividends payable out of accumulated earnings and profits) or
distribution on the Common Stock or issue any Common Stock, other capital stock
or other security of the Corporation or any rights or warrants to purchase or
acquire any such security, which transaction does not result in an adjustment to
the Conversion Price pursuant to the foregoing provisions of this Section 5, the
Board of Directors may consider whether such action is of such a nature that an
adjustment to the Conversion Price should equitably be made in respect of such
transaction. If the Board of Directors of the Corporation determines that an
adjustment to the Conversion Price should be made, an adjustment shall be made
effective as of such date, as determined by the Board of Directors of the
Corporation. The determination of the Board of Directors of the Corporation as
to whether such an adjustment to the Conversion Price should be made, and, if
so, as to what adjustment should be made and when, shall be final and binding on
the Corporation and all stockholders of the Corporation. The Corporation shall
be entitled to make such additional adjustments in the Conversion Price, in
addition to those required by the foregoing provisions of this Section 5, as
shall be necessary in order that any dividend or distribution in shares of
capital stock of the Corporation, subdivision, reclassification or combination
of shares of stock of the Corporation or any recapitalization of the Corporation
shall not be taxable to the holders of the Common Stock.
(k) NOTICE OF ADJUSTMENT. Upon any adjustment of the Conversion Price,
then and in each such case the Corporation shall give written notice thereof, by
delivery in person, certified or registered mail, return receipt requested, or
facsimile addressed to each holder of shares of Series C Preferred Stock
affected by such adjustment at the address of such holder as shown on the books
of the Corporation, which notice shall state the Conversion Price resulting from
such adjustment, setting forth in reasonable detail the method upon which such
calculation is based.
6. VOTING RIGHTS.
(a) The holders of Series C Preferred Stock, except as otherwise
required under Delaware law or as set forth below in this Section 6, shall not
be entitled or permitted to vote on any matter required or permitted to be voted
upon by the stockholders of the Corporation.
(b) So long as the Series C Preferred Stock is outstanding, each share
of Series C Preferred Stock shall entitle the holder thereof to vote, in person
or by proxy, at a special or annual meeting of stockholders or by written
consent, on all matters voted on by holders of Common Stock voting together as a
single class with other shares entitled to vote thereon except as otherwise
provided in Articles EIGHTH and NINTH of the Corporation's Amended and Restated
Certificate of Incorporation. With respect to any such vote, each share of
Series C Preferred Stock shall entitle the holder thereof to cast a number of
votes equal to the number of votes entitled to be cast by such holder had such
holder converted such share of Series C Preferred Stock into Common Stock prior
to such vote (or, if earlier, the record date with respect to such vote).
(c) Subject to Section 7, without the prior consent of the holders of
two-thirds of the shares of the Series C Preferred Stock then outstanding,
voting as a separate class, the Corporation shall not:
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(i) increase the number of shares of Series C Preferred Stock
outstanding at any time to more than $35,000,000 of aggregate Liquidation
Preference;
(ii) increase the number of shares of Preferred Stock (of whatever
series) authorized for issuance;
(iii)merge or consolidate with or into any other company, person or
entity, unless holders of each share of Series C Preferred Stock receive
consideration in an amount equal to at least the greater of (A) the product of
(x) the number of shares of Common Stock into which such share of Series C
Preferred Stock is then convertible and (y) the consideration to be received by
holders of each share of Common Stock pursuant to such merger or consolidation
and (B) the Liquidation Preference of such share of Series C Preferred Stock
plus all accumulated but unpaid dividends thereon (whether or not declared);
(iv) amend, modify or repeal the powers, preferences or rights of or
the restrictions provided for the benefit of holders of the Series C Preferred
Stock or the Common Stock if such action would affect the Series C Preferred
Stock or the Common Stock adversely;
(v) sell or otherwise dispose of all or substantially all of the
assets of the Corporation in any single transaction or series of related
transactions unless the holders of each share of Series C Preferred Stock
receive consideration in an amount equal to at least the Liquidation Preference
of such share of Series C Preferred Stock plus all accumulated but unpaid
dividends thereon (whether or not declared);
(vi) declare or pay any dividend on shares of Common Stock or other
equity securities of the Corporation ranking junior to the Parity Preferred
Stock (excluding dividends payable solely in shares of Common Stock or other
equity securities of the Corporation ranking junior to the Parity Preferred
Stock);
(vii) authorize or enter into any transaction or series of
transactions (excluding transactions authorized by the Corporation or its
subsidiaries prior to the Series C Preferred Stock Issue Date and any amendments
thereto that do not alter the economic value of such transactions) with any
director or executive officer of the Corporation or any Person directly or
indirectly controlling the Corporation (or any affiliate thereof other than a
subsidiary of the Corporation) if the aggregate amount involved in such
transaction or series of transactions involves the payment by or to the
Corporation or its subsidiaries of more than $100,000 in any one fiscal year of
the Corporation; or
(viii) issue Common Stock or Convertible Securities as consideration
for assets comprising a business that is not within the lines of business
conducted by the Corporation or any of its subsidiaries (or operations
reasonably ancillary thereto) on the Series C Preferred Stock Issue Date.
(d) Without the consent of each holder of Series C Preferred Stock
affected thereby, the Corporation shall not reduce the Liquidation Preference of
the Series C Preferred Stock or the rate at which dividends accumulate thereon,
or modify the dividend cumulation provisions of the Series C Preferred Stock or
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the times and prices at which the Series C Prefer-red Stock may be redeemed in a
manner that would be adverse to the holders of Series C Preferred Stock.
(e) In the event that a Default (as such term is defined in the Loan
Agreement (as defined below) as in effect as of the date hereof) relating to
payment obligations of principal and interest thereunder has occurred and
continued for a period of 90 days under the Amended and Restated Loan and
Security Agreement, dated as of September 22, 1997, among KMC Telecom Inc., KMC
Telecom II, Inc. and AT&T Commercial Finance Corporation (the "Loan Agreement"),
the number of directors constituting the entire Board of Directors shall be
increased by two individuals and the persons holding, from time to time, greater
than 50% of the combined voting power of the outstanding shares of Series C
Preferred Stock and the outstanding shares of Common Stock into which shares of
Series C Preferred Stock theretofore have been converted (the "Majority Series C
Holders") (for themselves and on behalf of all stockholders holding shares of
Common Stock into which shares of Series C Convertible Preferred Stock have
been, or may be, converted) shall be entitled to elect two individuals (the
"Series C Directors") to the Board of Directors. Immediately upon the cure of
such Default, the number of directors constituting the entire Board of Directors
shall be reduced by two individuals and the two individuals elected by the
Majority Series C Holders shall resign or automatically be removed from the
Board of Directors.
7. OPTIONAL REDEMPTION. (a) The outstanding shares of Series C
Preferred Stock shall be subject to redemption, as hereinafter provided, at the
option of the Corporation, in whole but not in part, in connection with an
Acquisition Event. For purposes hereof, "Acquisition Event" shall mean any
merger or consolidation of the Corporation with any other company, person or
entity (whether or not the Corporation is the entity surviving in such
transaction) as a result of which the holders of shares of Common Stock
(determined on a fully diluted basis) will hold less than a majority of the
outstanding shares of common stock or other equity interests of the company,
person or entity resulting from such transaction (or any parent of such entity).
(b) For each share of Series C Preferred Stock redeemed pursuant to
this Section 7, the Corporation shall be obligated on the date fixed for such
redemption (the "Redemption Date"), which date shall not be earlier than the
date of consummation of the applicable Acquisition Event, to pay to the holder
thereof (upon surrender by such holder at the Corporation's principal office of
the certificate representing such share duty endorsed in blank or accompanied by
an appropriate form of assignment) an amount (the "Redemption Price") equal to
the greater of (A) the product of (x) the number of shares of Common Stock into
which such share of Series C Preferred Stock is then convertible and (y) the
consideration to be received by holders of each share of Common Stock pursuant
to such Acquisition Event and (B) the Liquidation Preference of such share of
Series C Preferred Stock plus all accumulated but unpaid dividends thereon
(whether or not declared).
(c) Notice of any redemption of the Series C Preferred Stock pursuant
to this Section 7 (specifying the time and place of redemption, the Redemption
Price, the Conversion Price and the date on and after which shares of Series C
Preferred Stock may no longer be converted) shall be mailed by certified or
registered mail, return receipt requested, to each holder of Series C Preferred
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Stock, at the address of such holder shown on the Corporation's records, not
less than 30 nor more than 45 days prior to the Redemption Date.
(d) If the Corporation holds and sets aside money sufficient to Pay
the Redemption Price of the Series C Preferred Stock on the Redemption Date,
then on and after the Redemption Date: (i) the shares of Series C Preferred
Stock shall no longer be convertible into shares of Common Stock; (ii) the
shares of Series C Preferred Stock will cease to be outstanding and dividends on
the Series C Preferred Stock will cease to be declared and paid, whether or not
certificates representing the Series C Preferred Stock have been delivered to
the Corporation; and (iii) all other rights of the holder in respect thereof
shall terminate (other than the right to receive the Redemption Price upon
delivery of such Series C Preferred Stock).
8. REISSUANCE OF SERIES C PREFERRED STOCK. Shares of Series C
Preferred Stock that have been issued and reacquired in any manner, including
shares purchased or redeemed or exchanged or converted, shall (upon compliance
with any applicable provisions of the laws of Delaware) have the status of
authorized and unissued shares of preferred stock undesignated as to series and
may be redesignated and reissued as part of any series of preferred stock (other
than Series C Preferred Stock).
9. BUSINESS DAY. If any payment or conversion shall be required by the
terms hereof to made on a day that is not a Business Day, such payment or
conversion shall be made on the immediately succeeding Business Day.
10. DEFINITIONS. As used in this Certificate of Designation, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa
unless the context otherwise requires:
"1997 Stock Option Plan" shall mean the 1997 Stock Purchase and Option
Plan for Key Employees of KMC Telecom Holdings, Inc. and Affiliates, as the same
may be amended from time to time.
"Board of Directors" shall have the meaning ascribed to it in the
first paragraph of this Resolution.
"Business Day" means any day except a Saturday, a Sunday, or other day
on which commercial banks in the State of New York or New Jersey are authorized
or required by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock (but excluding
any debt security that is exchangeable for or convertible into such capital
stock).
"Common Stock" shall have the meaning ascribed to it in Section 2 hereof.
"Convertible Securities" shall mean any evidences of indebtedness, shares
or securities convertible into or exchangeable for Common Stock.
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"Corporation" shall have the meaning ascribed to it in the first paragraph
of this Resolution.
"Dividend Payment Date" means March 31, June 30, September 30 and December
31 of each year.
"Dividend Period" means the Initial Dividend Period and, thereafter, each
Quarterly Dividend Period.
"Fair Market Value" per share of Common Stock as of a particular date (the
"Determination Date") shall mean: (i) if the Common Stock is listed or admitted
for trading on a national securities exchange, then the Fair Market Value shall
be the average of the last 30 "daily sales prices" of the Common Stock on the
principal national securities exchange on which the Common Stock is listed or
admitted for trading on the last 30 Business Days prior to the Determination
Date, or if not listed or traded on any such exchange, then the Fair Market
Value shall be the average of the last 30 "daily sales prices" of the Common
Stock on the Nasdaq National Market on the last 30 Business Days prior to the
Determination Date (the "daily sales price" shall be the closing price for bona
fide transactions of the Common Stock at the end of each day); or (ii) if the
Common Stock is not so listed or admitted to unlisted trading privileges or if
no such sale is made on at least 25 of such days, then the Fair Market Value
shall be as reasonably determined by an investment banking firm of recognized
national standing selected in good faith by the Company's Board of Directors or
a duly appointed committee of the Board of Directors (which determination shall
be reasonably described in the written notice delivered to the holders of the
Series C Preferred Stock).
"Fully Diluted" shall mean at any date as of which the number of shares of
Common Stock is to be determined, all shares of Common Stock outstanding at such
date and the maximum number of shares of Common Stock issuable in respect of
Convertible Securities and warrants, options and other rights to purchase
(directly or indirectly) shares of Common Stock or Convertible Securities
(giving effect to the then current respective conversion prices) outstanding on
such date (to the extent the fights to convert, exchange or exercise thereunder
are presently exercisable).
"High Yield Debt and Equity Offering" shall have the meaning ascribed to it
in Section 5 hereof
"Initial Dividend Period" means the dividend period commencing on, and
including, the Series C Preferred Stock Issue Date and ending on, and excluding,
the first Dividend Payment Date to occur thereafter.
"Junior Stock" shall have the meaning ascribed to it in Section 2 hereof.
"Liquidation Preference" shall have the meaning ascribed to it in Section 1
hereof.
"Loan Agreement" shall have the meaning ascribed to it in Section 6 hereof.
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"Majority Series C Holders" shall have the meaning ascribed to in Section 6
hereof.
"Option" shall mean rights, options, or warrants to subscribe for purchase
or otherwise acquire Convertible Securities or Common Stock.
"Parity Preferred Stock" means, collectively, the Series A Preferred Stock
the Corporation's Series B Cumulative Convertible Preferred Stock, par value
$.0l per share, the Series C Preferred Stock, the Corporation's Series D
Cumulative Convertible Preferred Stock, par value $.0l per share, and any other
series of preferred stock which is determined to be "Parity Preferred Stock" by
the Board of Directors.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental body or other entity of any kind.
"Qualified Public Offering" shall mean the offer for sale of Common Stock
pursuant to an effective registration statement filed by the Corporation under
the Securities Act of 1933, as amended, in any single transaction or series of
related transactions, in which the Corporation receives aggregate gross proceeds
(before deduction of underwriting discounts and expenses of sale) of at least
$40,000,000 in the aggregate; provided that the per share price at which such
shares are sold in the offering (before deduction of underwriting discounts and
expenses of sale) is at least four times the conversion price of the Series A
Preferred Stock which would then be in effect if determined pursuant to the
terms of the Series A Preferred Stock in effect on the initial issuance date of
the Series C Preferred Stock (whether or not any shares of Series A Preferred
Stock are then outstanding).
"Quarterly" shall mean the quarterly periods commencing on, and including,
each Dividend Payment Date and ending on, and excluding, each next Dividend
Payment Date occurring immediately thereafter, respectively.
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"Realization Event" shall mean the occurrence of (i) the sale of all or
substantially all of the Common Stock or assets of the Corporation or the
consolidation or merger of the Corporation with one or more other corporations,
in any single transaction or series of related transactions, or (ii) the closing
of one or more public offerings of Common Stock in which the Corporation
receives aggregate gross proceeds (before deduction of underwriting discounts
and expenses of sale) of at least $40,000,000.
"Senior Preferred Stock" means, collectively, the Series E Preferred Stock,
and the Series F Preferred Stock and any other series of preferred stock which
is determined to be "Senior Preferred Stock" by the Directors, provided that, no
Capital Stock shall be designated as such without the consent of the majority of
the holders of Series C Preferred Stock.
"Series A Preferred Stock" means the Corporation's Series A Cumulative
Convertible Preferred Stock, par value, $.0l per share.
"Series C Directors" shall have the meaning ascribed to it in Section 6
hereof.
"Series C Preferred Stock" shall have the meaning ascribed to it in Section
1 hereof.
"Series C Preferred Stock Issue Date" means the first date on which the
Series C Preferred Stock is issued by the Corporation.
"Series D Preferred Stock" means the Corporation's Series D Cumulative
Convertible Preferred Stock, par value, $.01 per share.
"Series E Preferred Stock" means the Series E Senior Redeemable,
Exchangeable, PIK Preferred Stock.
"Series F Preferred Stock" means the Series F Senior Redeemable,
Exchangeable, PIK Preferred Stock.
"Shareholders Agreement" means the Amended and Restated Stockholders
Agreement among KMC Telecom Holdings, Inc., Nassau Capital Partners L.P., NAS
Partners I L.L.C., Harold N. Kamine, KMC Telecommunications L.P., AT&T Credit
Corporation, General Electric Capital Corporation, Corestates Bank, N.A. and
Corestates Holdings, Inc., dated as of October 31, 1997, as amended by Amendment
No.1, dated as of January 7, 1998, to the Amended and Restated Stockholders
Agreement, dated as of October 31, 1997, Amendment No. 2, dated as of January
26, 1998, to the Amended and Restated Stockholders Agreement, dated as of
October 31, 1997, Amendment No. 3, dated as of February 25, 1998, to the Amended
and Restated Stockholders Agreement, dated as of October 31, 1997, Amendment No.
4, dated as of February 4, 1999, to the Amended and Restated Stockholders
Agreement, dated as of October 31, 1997, Amendment No. 5, dated as of April 30,
1999, to the Amended and Restated Stockholders Agreement, dated as of October
31, 1997.
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IN WITNESS WHEREOF, KMC TELECOM HOLDINGS, INC. has caused this
certificate to be duly executed by its Chief Financial Officer this 30th day
of April, 1999.
KMC TELECOM HOLDINGS. INC.
By: s/ James D. Grenfell
------------------------
Name: James D. Grenfell
Title: Chief Financial Officer
18
KMC TELECOM HOLDINGS, INC.
CERTIFICATE OF THE POWERS,
DESIGNATIONS, PREFERENCES AND RIGHTS OF THE
SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.0l PER SHARE
Pursuant to Sections 141 and 151 of the
General Corporation Law of the State of Delaware
As contemplated by Section 141 of the General Corporation Law
of the State of Delaware (the "DGCL"), the following resolution was duly adopted
by the Board of Directors of KMC Telecom Holdings, Inc., a Delaware corporation
(the "Corporation"), by unanimous written consent, dated April 30, 1999;
WHEREAS, the Board of Directors of the Corporation is
authorized, within the limitations and restrictions stated in the Amended and
Restated Certificate of Incorporation of the Corporation, to provide by
resolution or resolutions for the issuance of shares of preferred stock, par
value $.01 per share, of the Corporation, in one or more series with such voting
powers, full or limited, or without voting powers, and such designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions as shall be stated and expressed in
the resolution or resolutions providing for the issuance thereof adopted by the
Board of Directors, and as are not stated and expressed in the Certificate of
Incorporation, or any amendment thereto, including (but without limiting the
generality of the foregoing) such provisions as may be desired concerning
voting, redemption, dividends, dissolution or the distribution of assets and
such other subjects or matters as may be fixed by resolution or resolutions of
the Board of Directors under the DGCL;
<PAGE>
WHEREAS, the Board of Directors of the Corporation, pursuant
to its authority under Section 151 of the DGCL, desires to authorize and fix the
terms of its Series D Cumulative Convertible Preferred Stock; and
WHEREAS, the Board of Directors of the Corporation has
determined that such Series D Cumulative Convertible Preferred Stock shall
constitute "Parity Preferred Stock" within the meaning of the Certificates of
the Powers, Designations, Preferences and Rights of the Corporation's Series A
Cumulative Convertible Preferred Stock, Series B Cumulative Convertible
Preferred Stock and Series C Preferred Stock;
NOW, THEREFORE, BE IT RESOLVED:
1. Designation and Number of Shares. There shall be hereby
established a series of preferred stock designated as "Series D Cumulative
Convertible Preferred Stock" (such Series being hereinafter referred to as the
"Series D Preferred Stock"). The authorized number of shares of Series D
Preferred Stock shall be 25,000. The liquidation preference of the Series D
Preferred Stock shall be $100 per share (the "Liquidation Preference").
2. Rank. The Series D Preferred Stock shall, with respect to
dividend distributions and distributions upon the liquidation, winding-up, and
dissolution of the Corporation, rank (i) senior to the Common Stock, par value
$.0l per share, of the Corporation (the "Common Stock"); (ii) on a parity with
(A) each class or series of Capital Stock, other than the Common Stock and the
Senior Preferred Stock, and (B) the Parity Preferred Stock; and (iii) junior to
the Senior Preferred Stock (the Common Stock and the classes and series of
Capital Stock described in clause (ii) of this Section are collectively referred
to as the "Junior Stock"). The Series D Preferred Stock shall also, with respect
to any redemption or repurchase by the Corporation of its Capital Stock, rank
junior with respect to the Senior Preferred Stock, except as provided in Section
3 of the Shareholders Agreement.
3. Dividends.
(a) Beginning on the date of issuance of the Series D
Preferred Stock, the holders of the outstanding shares of Series D Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors of the Corporation, out of funds legally available therefor, cash
dividends on each share of Series D Preferred Stock at an annual rate equal to
7.0% of the Liquidation Preference, payable quarterly in arrears on the
applicable Dividend Payment Date or the next succeeding Business Day, if the
applicable Dividend Payment Date is not a Business Day. Notwithstanding the
foregoing, the dividend payable on each share of Series D Preferred Stock with
respect to the Initial Dividend Period shall be equal to (i) 7.0% of the
Liquidation Preference multiplied by (ii) a fraction equal to (A) the number of
days from (and including) the Series D Preferred Stock Issue Date to (but
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excluding) the Dividend Payment Date with respect to the Initial Dividend Period
divided by (B) 365. All dividends shall be cumulative, whether or not earned or
declared, from the date of issuance of the Series D Preferred Stock and shall be
payable quarterly in arrears on each Dividend Payment Date, commencing on the
first Dividend Payment Date after the date of issuance of the Series D Preferred
Stock. If any dividend (or portion thereof) payable on any Dividend Payment Date
is not declared or paid in full on such Dividend Payment Date, the amount of
such dividend payable that is not paid on such date shall increase at the rate
of 7.0% per annum (compounded quarterly on each subsequent Dividend Payment
Date) from such Dividend Payment Date until paid in full. Each distribution on
the Series D Preferred Stock shall be payable to holders of record as they
appear on the stock books of the Corporation on such record dates, not less than
ten (10) nor more than sixty (60) days preceding the related Dividend Payment
Date, as shall be fixed by the Board of Directors of the Corporation.
(b) All accumulated and unpaid dividends on the Series D
Preferred Stock shall be paid by the Corporation upon the occurrence of a
Realization Event, without reference to any regular Dividend Payment Date, to
holders of record on such date. The Corporation shall send by first class,
postage prepaid mail a notice of the Realization Event to all holders of Series
D Preferred Stock that are entitled to receive such dividends. In the case of a
Realization Event which is an initial public offering, if any such holder gives
written notice to the Corporation that such holder wishes to receive such
accumulated unpaid dividends in the form of shares of Common Stock in lieu of
cash, the Corporation, in lieu of a cash payment, shall issue to such holder on
such Dividend Payment Date, a number of shares of Common Stock equal to the
quotient obtained by dividing (x) the aggregate accumulated and unpaid dividends
on the shares of Series D Preferred Stock held by such holder by (y) the price
at which shares of Common Stock are sold in such offering (before deduction of
underwriting discounts and expenses of sale).
(c) All dividends paid with respect to shares of Series D
Preferred Stock pursuant to Section 3(a) shall be paid pro rata and in like
manner to all of the holders entitled thereto.
(d) Except as otherwise provided in paragraph (b) above,
nothing herein contained shall in any way or under any circumstances be
construed or deemed to require the Board of Directors of the Corporation to
declare, or the Corporation to pay or set apart for payment, any dividends on
shares of the Series D Preferred Stock at any time, nor to permit the Board of
Directors of the Corporation to declare, or the Corporation to pay or set apart
for payment, any dividends on shares of the Series D Preferred Stock prior to
the payment of any dividends accrued on shares of the Senior Preferred Stock.
(e) Whenever the provisions hereof require that the amount of
dividends with respect to the Series D Preferred Stock be determined for less
than a full quarterly period ending on a Dividend Payment Date, the amount of
dividends for such period shall be equal to 7.0% of the Liquidation Preference
multiplied by a fraction equal to (i) the number of days from (and including)
the most recent Dividend Payment Date to (but excluding) the last day of the
period in respect of which such determination is being made divided by (ii) 365.
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4. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the affairs of the Corporation, the holders of
shares of Parity Preferred Stock (including the Series D Preferred Stock) then
outstanding shall be entitled to be paid for each share held thereby, out of the
assets of the Corporation available for distribution to its stockholders, an
amount in cash equal to the Liquidation Preference plus an amount in cash equal
to all accumulated and unpaid dividends thereon (calculated pursuant to
Paragraph 3(a)) to the date fixed for liquidation, dissolution or winding-up
(including an amount equal to a prorated dividend for the period from the last
Dividend Payment Date to the date fixed for liquidation, dissolution or
winding-up), before any payment shall be made or any assets distributed to the
holders of any shares of Junior Stock, but after all liquidation payments have
been made to the holders of all shares of Senior Preferred Stock. Except as
provided in the preceding sentence, holders of the Parity Preferred Stock
(including the Series D Preferred Stock) shall not be entitled to any
distribution in the event of any liquidation, dissolution or winding-up of the
affairs of the Corporation. If the assets of the Corporation are not sufficient
to pay in full the foregoing liquidation payments payable to the holders of
outstanding shares of the Parity Preferred Stock (including the Series D
Preferred Stock), then the holders of all shares of Parity Preferred Stock
(including the Series D Preferred Stock) shall share ratably in such
distribution of assets in accordance with the amount that would be payable on
such distribution if the amounts to which the holders of outstanding shares of
Parity Preferred Stock (including the Series D Preferred Stock) are entitled
were paid in full. If all of the foregoing liquidation payments with respect to
any share of Series D Preferred Stock have been made, such share may not be
converted into Common Stock pursuant to Section 5.
(b) For the purposes of this Section 4, neither the voluntary
sale, conveyance, exchange or transfer (for cash, shares of stocks, securities
or other consideration) of all or substantially all or part of the property or
assets of the Corporation nor the consolidation or merger of the Corporation
with one or more other corporations shall be deemed to be a liquidation,
dissolution or winding-up, voluntary or involuntary, of the affairs of the
Corporation (unless such sale, conveyance, exchange or transfer is in connection
with a liquidation, dissolution or winding-up of the affairs of the
Corporation).
4A. Conversion into Series C Preferred Stock
At any time prior to a Qualified Public Offering, each holder
of Series D Preferred Stock shall have the right to convert all, but not less
than all, of such holder's shares of Series D Preferred Stock (together with all
accumulated unpaid dividends thereon to the date of conversion) into an equal
number of shares of Series C Preferred Stock (together with all accumulated
unpaid dividends thereon to the date of conversion). In order to convert shares
of Series D Preferred Stock pursuant to this Section 4A the holder thereof shall
surrender at the office of the Corporation the certificate or certificates
therefor, duty endorsed to the Corporation in blank, and give written notice to
the Corporation that such holder elects to convert such shares and shall state
in writing therein the name or names (with addresses) in which such holder
wishes the certificate or certificates of Series C Preferred Stock to be issued.
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Shares of Series D Preferred Stock shall be deemed to have been converted on the
date of surrender of such certificate or certificates as provided above, and the
person or persons entitled to receive the shares of Series C Preferred Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Series C Preferred Stock on such date. As soon as
practicable on or after such conversion date, the Corporation shall issue and
deliver a certificate or certificates for the number of shares of Series C
Preferred Stock issuable upon conversion.
5. Conversion.
(a) Conversion Price. Shares of Series D Preferred Stock to be
converted into shares of Common Stock shall be so converted at a conversion
price (which price shall be adjusted to the nearest fourth decimal place as
hereinafter provided and, as so adjusted, is hereinafter referred to as the
"Conversion Price") equal to: (i) from the date of initial issuance of shares of
Series D Preferred Stock to but excluding the 30-month anniversary of such
issuance, $52.50 per share of Common Stock, with each share of Series D
Preferred Stock being valued at $100.00 for such purpose; provided, however,
that if a Realization Event shall occur during such 30-month period the
Conversion Price shall equal to a fraction, the numerator of which is (A) the
consideration per share of Common Stock (on a Fully Diluted basis) received in
connection with such Realization Event, and the denominator of which is (B) 1.30
raised to a number equal to the number of years (or fraction thereof) from the
date of initial issuance of shares of Series D Preferred Stock until the date of
such Realization Event, but in no case shall be greater than $52.50 per share of
Common Stock nor less than $42.18 per share of Common Stock; and (ii) from and
after the thirty month anniversary of the date of initial issuance of shares of
Series D Preferred Stock (subject to paragraph (b) below), $42.18 per share of
Common Stock, with each share of Series D Preferred Stock being valued at
$100.00 for such purpose; provided, however, that in no event shall the
Conversion Price be less than the par value, if any, of the Common Stock.
(b) Automatic Conversion Upon a Qualified Public Offering.
Upon a Qualified Public Offering, each share of Series D Preferred Stock shall
automatically convert, without any action on the part of the holder thereof,
into shares of Common Stock at the Conversion Price in effect at such time, plus
the right to receive an amount of cash equal to the accumulated unpaid dividends
on such share of Series D Preferred Stock to and including such date (or the
right to receive additional shares of Common Stock in lieu of cash dividends
pursuant to Section 3(b)).
(c) Conversion at the Option of the Holder. At any time and
from time to time prior to a Qualified Public Offering, each holder of Series D
Preferred Stock shall have the right to convert such holder's shares of Series D
Preferred Stock, in whole or in part, into shares of Common Stock at the
Conversion Price in effect at such time, plus the right to receive an amount of
cash equal to the accumulated unpaid dividends on the shares of Series D
Preferred Stock so converted to and including the Conversion Date (as defined
below); provided that, if such Conversion Date is prior to a Realization Event,
the Corporation may, in lieu of making a payment in cash equal to such amount,
deliver a number of shares of Common Stock equal to such amount divided by the
Fair Market Value of one share of Common Stock. In order to convert shares of
Series D Preferred Stock pursuant to this Section 5(c) the holder thereof shall
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surrender at the office of the Corporation the certificate or certificates
therefor, duly endorsed to the Corporation in blank, and give written notice to
the Corporation that such holder elects to convert such shares and shall state
in writing therein the name or names (with addresses) in which such holder
wishes the certificate or certificates of Common Stock to be issued. Shares of
Series D Preferred Stock shall be deemed to have been converted on the date of
surrender of such certificate or certificates as provided above (the "Conversion
Date"), and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Common Stock on such date. As soon as practicable on
or after the Conversion Date, the Corporation shall issue and deliver a
certificate or certificates for the number of shares of Common Stock issuable
upon conversion.
(d) Fractional Shares, Partial Conversion. No fractional
shares shall be issued upon conversion of shares of Series D Preferred Stock
into Common Stock. In case the number of shares of Series D Preferred Stock
represented by the certificate or certificates surrendered pursuant to this
Section 5 exceeds the number of shares converted, the Corporation shall, upon
such conversion, execute and deliver to the holder, at the expense of the
Corporation, a new certificate or certificates for the number of shares of
Series D Preferred Stock represented by the certificate or certificates
surrendered which are not to be converted. If any fractional share of Common
Stock would, except for the provisions of the first sentence of this Section
5(d), be delivered upon such conversion, the Corporation, in lieu of delivering
such fractional share, shall pay to the holder surrendering the Series D
Preferred Stock for conversion an amount in cash equal to the current market
price of such fractional share as determined in good faith by the Board of
Directors.
(e) Adjustment of Conversion Price Upon Issuance of Common
Stock. Except as provided in Section 5(f), if and whenever the Corporation shall
hereafter issue or sell, or is, in accordance with subsection 5(e)(1) through
5(e)(6), 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, forthwith upon such issue or
sale, the Conversion Price shall be reduced to the price determined by dividing
(i) an amount equal to the sum of (a) the number of shares of Common Stock
outstanding immediately prior to such issue or sale (determined on a Fully
Diluted basis) multiplied by the then existing Conversion Price and (b) the
consideration, if any, received by the Corporation upon such issue or sale, by
(ii) the total number of shares of Common Stock outstanding immediately after
such issue or sale (deter-mined on a Fully Diluted basis).
For purposes of this Section 5(e), the following subsections
5(e)(1) to 5(e)(6) shall also be applicable:
5(e)(1) Issuance of Rights or Options. In case at any time
hereafter the Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any Options to purchase Common Stock or any
Convertible Securities, whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or receivable by
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the Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the Corporation
upon the 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 upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) 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) shall be less than the Conversion
Price in effect immediately prior to the time of the granting 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 have been issued for such price per share as of the date of
granting of such Options or the issuance of such Convertible Securities and
thereafter shall be deemed to be outstanding. Except as otherwise provided in
subsection 5(e)(3), no adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
5(e)(2) Issuance of Convertible Securities. In case the
Corporation shall hereafter in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible Securities, whether
or not the rights to exchange or convert any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (i) 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 (ii) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities)
shall be less than the Conversion Price in effect immediately prior to the time
of such issue or sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities shall be
deemed to have been issued for such price per share as of the date of the issue
or sale of such Convertible Securities and thereafter shall be deemed to be
outstanding, provided that (a) except as otherwise provided in subparagraph
5(e)(3), no adjustment of the Conversion Price shall be made upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities and (b) if any such issue or sale of such Convertible Securities is
made upon exercise of any Options to purchase any such Convertible Securities
for which adjustments of the Conversion Price have been or are to be made
pursuant to other provisions of this Section 5(e), no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
5(e)(3) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price provided
for in any Option referred to in subsection 5(e)(1), the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subsection 5(e)(1) or 5(e)(2) or the rate
at which Convertible Securities referred to in subsection 5(e)(1) or 5(e)(2) are
convertible into or exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of provisions
designed to protect against dilution), the Conversion Price in effect at the
time of such event shall forthwith be readjusted to the Conversion Price which
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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, but only if as a result of such adjustment
the Conversion Price then in effect hereunder is thereby reduced; and on the
termination of any such Option or any such right to convert or exchange such
Convertible Securities, the Conversion Price then in effect hereunder shall
forthwith be increased to the Conversion Price which would have been in effect
at the time of such termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such termination, never been issued.
5(e)(4) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors, without deduction of any
expenses incurred or any underwriting commissions or concessions paid or allowed
by the Corporation in connection therewith. In case any Options shall be issued
in connection with the issue and sale of other securities of the Corporation,
together comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued for such consideration as determined in good faith by
the Board of Directors of the Corporation.
5(e)(5) Record Date. In case the Corporation shall take a
record of the holders of its Common Stock for the purpose of entitling them (i)
to receive a dividend or other distribution payable in Common Stock, Options or
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 the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
5(e)(6) Treasury Shares. 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, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purpose of this Section
5(e).
(f) Exceptions to Conversion Price Adjustment. Notwithstanding
the foregoing, no adjustment to the Conversion Price shall be made pursuant to
this Section 5 in connection with the grant, issuance or sale of Common Stock,
Convertible Securities, warrants, options or other fights to subscribe for or
purchase Common Stock or Convertible Securities: (i) pursuant to employee stock
purchase or stock option ownership plans adopted by the Corporation for
employees, consultants and/or directors of the Corporation and its affiliates;
(ii) pursuant to the terms of any Convertible Securities, warrants, options or
other rights to subscribe for or purchase granted, issued or sold pursuant to
clause (ii) above; (iii) pursuant to the High Yield Debt and Equity Offering (as
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defined in a Subordinated Loan and Security Agreement, dated as of September 22,
1997, among KMC Telecom Inc. ("KMC") and KMC Telecom II, Inc. and AT&T
Commercial Finance Corporation, as in effect on the Series C Preferred Stock
Issue Date) or a subsequent debt offering occurring prior to December 31, 1998;
(iv) pursuant to the terms of any Convertible Securities, warrants, options or
other rights to subscribe for or purchase granted, issued or sold pursuant to
clauses (iii) above; or (v) pursuant to Section 10C of the Amended and Restated
Note Purchase and Investment Agreement, dated as of October 22, 1996, as
amended, by and among the Corporation, Nassau Capital Partners L.P., NAS
Partners I L.L.C. and Harold N. Kamine; provided that the aggregate number of
shares of Common Stock issued or issuable pursuant to clauses (i) and (ii) above
shall not exceed 15% of the Common Stock (on a Fully Diluted basis) outstanding
from time to time and the aggregate number of shares of Common Stock issued or
issuable pursuant to clause (iii) and (iv) above shall not exceed 11% of the
Common Stock (on a Fully Diluted basis) outstanding from time to time; and
further provided that for the purposes of this Section 5(f): (a) 221,500 shares
of Common Stock initially allocated under the 1997 Stock Option Plan will be
deemed outstanding regardless of the number of shares actually granted and
exercisable thereunder and (b) shares of Common Stock issued or issuable upon
exercise of options not among the 221,500 shares initially allocated pursuant to
the 1997 Stock Option Plan and which, when issued, were subject to clause (i) or
(ii) above, will not be deemed outstanding, regardless of whether or not they
have been granted or are exercisable.
(g) Subdivision or Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(h) Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or reclassification (but
subject to Section 7), lawful and adequate provisions shall be made whereby each
holder of a share or shares of Series D Preferred Stock shall thereupon have the
right to receive, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
receivable upon the conversion of such share or shares of Series D Preferred
Stock, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common Stock immediately theretofore
receivable upon such conversion had such reorganization or reclassification not
taken place, and in any such case appropriate provisions shall be made with
respect to the rights and interests of such holder to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Conversion Price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights.
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(i) Carryover. Notwithstanding any other provisions of this
Section 5, the Corporation shall not be required to make any adjustment to the
Conversion Price unless such adjustment would require an increase or decrease of
at least one percent (1%) in the Conversion Price. Any lesser adjustment shall
be carried forward and shall be made no later than the time of, and together
with, the next subsequent adjustment which, together with any adjustment or
adjustments so carried forward, shall amount to an increase or decrease of at
least one percent (1%) in the Conversion Price.
(j) Other Events. If the Corporation shall make any dividend
(excluding cash dividends payable out of accumulated earnings and profits) or
distribution on the Common Stock or issue any Common Stock, other capital stock
or other security of the Corporation or any rights or warrants to purchase or
acquire any such security, which transaction does not result in an adjustment to
the Conversion Price pursuant to the foregoing provisions of this Section 5, the
Board of Directors may consider whether such action is of such a nature that an
adjustment to the Conversion Price should equitably be made in respect of such
transaction. If the Board of Directors of the Corporation determines that an
adjustment to the Conversion Price should be made, an adjustment shall be made
effective as of such date, as determined by the Board of Directors of the
Corporation. The determination of the Board of Directors of the Corporation as
to whether such an adjustment to the Conversion Price should be made, and, if
so, as to what adjustment should be made and when, shall be final and binding on
the Corporation and all stockholders of the Corporation. The Corporation shall
be entitled to make such additional adjustments in the Conversion Price, in
addition to those required by the foregoing provisions of this Section 5, as
shall be necessary in order that any dividend or distribution in shares of
capital stock of the Corporation, subdivision, reclassification or combination
of shares of stock of the Corporation or any recapitalization of the Corporation
shall not be taxable to the holders of the Common Stock.
(k) Notice of Adjustment. Upon any adjustment of the
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, by delivery in person, certified or registered mail, return
receipt requested, or facsimile addressed to each holder of shares of Series D
Preferred Stock affected by such adjustment at the address of such holder as
shown on the books of the Corporation, which notice shall state the Conversion
Price resulting from such adjustment, setting forth in reasonable detail the
method upon which such calculation is based.
6. Voting Rights.
(a) The holders of Series D Preferred Stock, except as
otherwise required under Delaware law or as set forth below in this Section 6,
shall not be entitled or permitted to vote on any matter required or permitted
to be voted upon by the stockholders of the Corporation.
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(b) Subject to Section 7, without the prior consent of the
holders of two-thirds of the shares of the Series D Preferred Stock then
outstanding, voting as a separate class, the Corporation shall not:
(i) increase the number of shares of Series D Preferred Stock
authorized for issuance;
(ii) merge or consolidate with or into any other company,
person or entity, unless holders of each share of Series D Preferred Stock
receive consideration in an amount equal to at least the greater of (A) the
product of (x) the number of shares of Common Stock into which such share of
Series D Preferred Stock is then convertible and (y) the consideration to be
received by holders of each share of Common Stock pursuant to such merger or
consolidation and (B) the Liquidation Preference of such share of Series D
Preferred Stock plus all accumulated but unpaid dividends thereon (whether or
not declared);
(iii) amend, modify or repeal the powers, preferences or
rights of or the restrictions provided for the benefit of holders of the Series
D Preferred Stock or the Common Stock if such action would affect the Series D
Preferred Stock or the Common Stock adversely;
(c) Without the consent of each holder of Series D Preferred
Stock affected thereby, the Corporation shall not reduce the Liquidation
Preference of the Series D Preferred Stock or the rate at which dividends
accumulate thereon, or modify the dividend cumulation provisions of the Series D
Preferred Stock or the times and prices at which the Series D Preferred Stock
may be redeemed in a manner that would be adverse to the holders of Series D
Preferred Stock.
7. Optional Redemption. (a) The outstanding shares of Series D
Preferred Stock shall be subject to redemption, as hereinafter provided, at the
option of the Corporation, in whole but not in part, in connection with an
Acquisition Event. For purposes hereof, "Acquisition Event" shall mean any
merger or consolidation of the Corporation with any other company, person or
entity (whether or not the Corporation is the entity surviving in such
transaction) as a result of which the holders of shares of Common Stock
(determined on a fully diluted basis) will hold less than a majority of the
outstanding shares of common stock or other equity interests of the company,
person or entity resulting from such transaction (or any parent of such entity).
(b) For each share of Series D Preferred Stock redeemed
pursuant to this Section 7, the Corporation shall be obligated on the date fixed
for such redemption (the "Redemption Date"), which date shall not be earlier
than the date of consummation of the applicable Acquisition Event, to pay to the
holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such share duly endorsed in blank or
accompanied by an appropriate form of assignment) an amount (the "Redemption
Price") equal to the greater of (A) the product of (x) the number of shares of
Common Stock into which such share of Series D Preferred Stock is then
convertible and (y) the consideration to be received by holders of each share of
Common Stock pursuant to such Acquisition Event and (B) the Liquidation
Preference of such share of Series D Preferred Stock plus all accumulated but
unpaid dividends thereon (whether or not declared).
(c) Notice of any redemption of the Series D Preferred Stock
pursuant to this Section 7 (specifying the time and place of redemption, the
Redemption Price, the Conversion Price and the date on and after which shares of
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Series D Preferred Stock may no longer be converted) shall be mailed by
certified or registered mail, return receipt requested, to each holder of Series
D Preferred Stock, at the address of such holder shown on the Corporation's
records, not less than 30 nor more than 45 days prior to the Redemption Date.
(d) If the Corporation holds and sets aside money sufficient
to pay the Redemption Price of the Series D Preferred Stock on the Redemption
Date, then on and after the Redemption Date: (i) the shares of Series D
Preferred Stock shall no longer be convertible into shares of Common Stock; (ii)
the shares of Series D Preferred Stock will cease to be outstanding and
dividends on the Series D Preferred Stock will cease to be declared and paid,
whether or not certificates representing the Series D Preferred Stock have been
delivered to the Corporation; and (iii) all other rights of the holder in
respect thereof shall terminate (other than the right to receive the Redemption
Price upon delivery of such Series D Preferred Stock).
8. Reissuance of Series D Preferred Stock. Shares of Series D
Preferred Stock that have been issued and reacquired in any manner, including
shares purchased or redeemed or exchanged or converted, shall (upon compliance
with any applicable provisions of the laws of Delaware) have the status of
authorized and unissued shares of preferred stock undesignated as to series and
may be redesignated and reissued as part of any series of preferred stock (other
than Series D Preferred Stock).
9. Business Day. If any payment or conversion shall be
required by the terms hereof to be made on a day that is not a Business Day,
such payment or conversion shall be made on the immediately succeeding Business
Day.
10. Definitions. As used in this Certificate of Designation,
the following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"1997 Stock Option Plan" shall mean the 1997 Stock Purchase
and Option Plan for Key Employees of KMC Telecom Holdings, Inc. and Affiliates,
as the same may be amended from time to time.
"Board of Directors" shall have the meaning ascribed to it in
the first paragraph of this Resolution.
"Business Day" means any day except a Saturday, a Sunday, or
other day on which commercial banks in the State of New York or New Jersey are
authorized or required by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such Person's capital stock
(but excluding any debt security that is exchangeable for or convertible into
such capital stock).
"Common Stock" shall have the meaning ascribed to it in
Section 2 hereof.
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"Convertible Securities" shall mean any evidences of
indebtedness, shares or securities convertible into or exchangeable for Common
Stock.
"Corporation" shall have the meaning ascribed to it in the
first paragraph of this Resolution.
"Dividend Payment Date" means March 31, June 30, September 30
and December 31 of each year.
"Dividend Period" means the Initial Dividend Period and,
thereafter, each Quarterly Dividend Period.
"Fair Market Value" per share of Common Stock as of a
particular date (the "Determination Date") shall mean: (i) if the Common Stock
is listed or admitted for trading on a national securities exchange, then the
Fair Market Value shall be the average of the last 30 "daily sales prices" of
the Common Stock on the principal national securities exchange on which the
Common Stock is listed or admitted for trading on the last 30 Business Days
prior to the Determination Date, or if not listed or traded on any such
exchange, then the Fair Market Value shall be the average of the last 30 "daily
sales prices" of the Common Stock on the Nasdaq National Market on the last 30
Business Days prior to the Determination Date (the "daily sales price" shall be
the closing price for bona fide transactions of the Common Stock at the end of
each day); or (ii) if the Common Stock is not so listed or admitted to unlisted
trading privileges or if no such sale is made on at least 25 of such days, then
the Fair Market Value shall be as reasonably determined by an investment banking
firm of recognized national standing selected in good faith by the Company's
Board of Directors or a duly appointed committee of the Board of Directors
(which determination shall be reasonably described in the written notice
delivered to the holders of the Series D Preferred Stock).
"Fully Diluted" shall mean at any date as of which the number
of shares of Common Stock is to be determined, all shares of Common Stock
outstanding at such date and the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and warrants, options and other
rights to purchase (directly or indirectly) shares of Common Stock or
Convertible Securities (giving effect to the then current respective conversion
prices) outstanding on such date (to the extent the rights to convert, exchange
or exercise thereunder are presently exercisable).
"High Yield Debt and Equity Offering" shall have the meaning
ascribed to it in Section 5 hereof.
"Initial Dividend Period" means the dividend period commencing
on, and including, the Series D Preferred Stock Issue Date and ending on, and
excluding, the first Dividend Payment Date to occur thereafter.
"Junior Stock" shall have the meaning ascribed to it in
Section 2 hereof.
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"Liquidation Preference" shall have the meaning ascribed to it
in Section 1 hereof
"Option" shall mean rights, options, or warrants to subscribe
for purchase or otherwise acquire Convertible Securities or Common Stock.
"Parity Preferred Stock" means, collectively, the Series A
Preferred Stock, the Corporation's Series B Cumulative Convertible Preferred
Stock, par value $.01 per share, the Series C Preferred Stock, the Series D
Preferred Stock and any other series of preferred stock which is determined to
be "Parity Preferred Stock" by the Board of Directors.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, governmental body or other entity of any
kind.
"Qualified Public Offering" shall mean the offer for sale of
Common Stock pursuant to an effective registration statement filed by the
Corporation under the Securities Act of 1933, as amended, in any single
transaction or series of related transactions, in which the Corporation receives
aggregate gross proceeds (before deduction of underwriting discounts and
expenses of sale) of at least $40,000,000 in the aggregate; provided that the
per share price at which such shares are sold in the offering (before deduction
of underwriting discounts and expenses of sale) is at least four times the
conversion price of the Series A Preferred Stock which would then be in effect
if determined pursuant to the terms of the Series A Preferred Stock in effect on
the initial issuance date of the Series D Preferred Stock (whether or not any
shares of Series A Preferred Stock are then outstanding).
"Quarterly" shall mean the quarterly periods commencing on,
and including, each Dividend Payment Date and ending on, and excluding, each
next Dividend Payment Date occurring immediately thereafter, respectively.
"Realization Event" shall mean the occurrence of (i) the sale
of all or substantially all of the Common Stock or assets of the Corporation or
the consolidation or merger of the Corporation with one or more other
corporations, in any single transaction or series of related transactions, or
(ii) the closing of one or more public offerings of Common Stock in which the
Corporation receives aggregate gross proceeds (before deduction of underwriting
discounts and expenses of sale) of at least $40,000,000.
"Senior Preferred Stock" means, collectively, the Series E
Preferred Stock, and the Series F Preferred Stock and any other series of
preferred stock which is determined to be "Senior Preferred Stock" by the
Directors, provided that, no Capital Stock shall be designated as such without
the consent of the majority of the Holders of Series D Preferred Stock.
"Series A Preferred Stock" means the Corporation's Series A
Cumulative Convertible Preferred Stock, par value, $.0l per share.
"Series C Preferred Stock" means the Corporation's Series C
Cumulative Convertible Preferred Stock, par value, $.0l per share.
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"Series D Preferred Stock" shall have the meaning ascribed to
it in Section 1 hereof.
"Series D Preferred Stock Issue Date" means the first date on
which the Series D Preferred Stock is issued by the Corporation.
"Series E Preferred Stock" means the Series E Senior
Redeemable, Exchangeable, PIK Preferred Stock.
"Series F Preferred Stock" means the Series F Senior
Redeemable, Exchangeable, PIK Preferred Stock.
"Shareholders Agreement" means the Amended and Restated
Stockholders Agreement among KMC Telecom Holdings, Inc., Nassau Capital Partners
L.P., NAS Partners I L.L.C., Harold N. Kamine, KMC Telecommunications L.P., AT&T
Credit Corporation, General Electric Capital Corporation, Corestates Bank, N.A.
and Corestates Holdings, Inc., dated as of October 31, 1997, as amended by
Amendment No.1, dated as of January 7, 1998, to the Amended and Restated
Stockholders Agreement, dated as of October 31, 1997, Amendment No. 2, dated as
of January 26, 1998, to the Amended and Restated Stockholders Agreement, dated
as of October 31, 1997, Amendment No. 3, dated as of February 25, 1998, to the
Amended and Restated Stockholders Agreement, dated as of October 31, 1997,
Amendment No. 4, dated as of February 4, 1999, to the Amended and Restated
Stockholders Agreement, dated as of October 31, 1997, Amendment No. 5, dated as
of April 30, 1999, to the Amended and Restated Stockholders Agreement, dated as
of October 31, 1997.
IN WITNESS WHEREOF, KMC TELECOM HOLDINGS, INC., has caused
this certificate to be duly executed by its Chief Financial Officer this 30th
day of April, 1999.
KMC TELECOM HOLDINGS, INC.
By: /s/ James D. Grenfell
--------------------------------
Name: James D. Grenfell
Title: Chief Financial Officer
15
CERTIFICATE OF VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF OF THE
SERIES E SENIOR REDEEMABLE, EXCHANGEABLE, P1K PREFERRED STOCK
OF KMC TELECOM HOLDINGS, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
As contemplated by Sections 141 and 242 of the General
Corporation Law of the State of Delaware (the "DGCL"), the following resolution
was duly adopted by the Board of Directors of KMC Telecom Holdings, Inc., a
Delaware corporatin (the "Corporation"), by unanimous written consent, dated
April 30, 1999:
WHEREAS, pursuant to authority conferred upon the Board of
Directors by the Certificate of Incorporation, as amended, of said Corporation
(the "Certificate of Incorporation"), said Board of Directors, at a meeting duly
called and held on February 1, 1999, adopted a resolution providing for the
issuance of 175,000 authorized shares of Series E Senior Redeemable,
Exchangeable, P1K Preferred Stock (the "Series E Preferred Stock"), which
resolution is as follows:
WHEREAS, the Board of Directors is authorized, within the
limitations and restrictions stated in the Certificate of Incorporation, as
amended, to fix by resolution or resolutions the designation of each series of
preferred stock and the powers, designations, preferences and relative
participating, optional or other rights, if any, or the qualifications,
limitations or restrictions thereof, including, without limiting the generality
of the foregoing, such provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets, conversion or
exchange, and such other subjects or matters as may be fixed by resolution or
resolutions of the Board of Directors under the General Corporation Law of
Delaware; and
WHEREAS, it is the desire of the Board of Directors, pursuant
to its authority as aforesaid, to authorize and fix the terms of a series of
preferred stock and the number of shares constituting such series;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby
authorized such series of preferred stock on the terms and with the provisions
herein set forth:
I. CERTAIN DEFINITIONS.
As used herein, the following terms shall have the following
meanings (with terms defined in the singular having comparable meanings when
used in the plural and vice versa), unless the context otherwise requires:
<PAGE>
"Acquired Indebtedness" means Indebtedness of a Person
existing at the time such Person becomes a Restricted
Subsidiary or assumed in connection with an Asset Acquisition
by the Corporation or a Restricted Subsidiary and not Incurred
in connection with, or in anticipation of, such Person
becoming a Restricted Subsidiary or such Asset Acquisition;
PROVIDED that Indebtedness of such Person which is redeemed,
defeased, retired or otherwise repaid at the time of or
immediately upon consummation of the transactions by which
such Person becomes a Restricted Subsidiary or upon
consummation of such Asset Acquisition shall not be Acquired
Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Corporation and its
Restricted Subsidiaries for such period determined in
conformity with GAAP; PROVIDED that the following items shall
be excluded in computing Adjusted Consolidated Net Income
(without duplication): (i) the net income (or loss) of any
Person that is not a Restricted Subsidiary (or is an
Unrestricted Subsidiary), except to the extent of the amount
of dividends or other distributions actually paid to the
Corporation or any of its Restricted Subsidiaries by such
Person or an Unrestricted Subsidiary during such period; (ii)
solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause
(iii)(B) of the first paragraph of Section XI(B) (and in such
case, except to the extent includable pursuant to clause (i)
above), the net income (or loss) of any Person accrued prior
to the date it becomes a Restricted Subsidiary or is merged
into or consolidated with the Corporation or any of its
Restricted Subsidiaries or all or substantially all of the
property and assets of such Person are acquired by the
Corporation or any of its Restricted Subsidiaries; (iii) the
net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions
by such Restricted Subsidiary of such net income is not at the
time permitted by the operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to such Restricted
Subsidiary (except to the extent such restriction has been
legally waived); (iv) any gains or losses (on an after-tax
basis) attributable to Asset Sales including for purposes
hereof the items referred to in clauses (b), (c) and (e) of
the definition of
"Asset Sale" or the termination of discontinued operations;
(v) except for purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause
(iii)(B) of the first paragraph of Section XI(B), any amount
paid or accrued as dividends on Preferred Stock (including the
Series E Preferred Stock) of the Corporation or any Restricted
Subsidiary owned by Persons other than the Corporation and any
of its Restricted Subsidiaries; (vi) all extraordinary gains
and extraordinary losses; (vii) the cumulative effect of a
change in accounting principles since the High Yield Closing
Date; and (viii) at the irrevocable election of the
Corporation for each occurrence, any net after-tax income
(loss) from discontinued operations; PROVIDED that for
purposes of any subsequent Investment in the entity conducting
such discontinued operations pursuant to Section XI(B), such
entity shall be treated as an Unrestricted Subsidiary until
such discontinued operations have actually been disposed of.
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<PAGE>
"Adjusted Consolidated Net Tangible Assets" means the total
amount of assets of the Corporation and its Restricted
Subsidiaries (less applicable depreciation, amortization and
other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP),
after deducting therefrom (i) all current liabilities of the
Corporation and its Restricted Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and
other like intangibles, all as set forth on the most recent
quarterly or annual consolidated balance sheet of the
Corporation and its Restricted Subsidiaries, prepared in
conformity with GAAP.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under
direct or indirect common control with, such Person. For
purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person,
means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies
of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Corporation
or any of its Restricted Subsidiaries in any other Person
pursuant to which such Person shall become a Restricted
Subsidiary or shall be merged into or consolidated with the
Corporation or any of its Restricted Subsidiaries or (ii) an
acquisition by the Corporation or any of its Restricted
Subsidiaries of the property and assets of any Person other
than the Corporation or any of its Restricted Subsidiaries
that constitute substantially all of a division or line of
business of such Person.
"Asset Sale" means any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback
transaction) in one transaction or a series of related
transactions by the Corporation or any of its Restricted
Subsidiaries to any Person other than the Corporation or any
of its Restricted Subsidiaries of (i) all or any of the
Capital Stock of any Restricted Subsidiary, (ii) all or
substantially all of the property and assets of an operating
unit or business of the Corporation or any of its Restricted
Subsidiaries or (iii) any other property and assets (other
than the Capital Stock or other Investment in an Unrestricted
Subsidiary) of the Corporation or any of its Restricted
Subsidiaries outside the ordinary course of business of the
Corporation or such Restricted Subsidiary and, in each case,
that is not governed by Section IX; PROVIDED that "Asset Sale"
shall not include (a) sales or other dispositions of
inventory, receivables and other current assets, (b) sales or
other dispositions of assets for consideration at least equal
to the fair market value of the assets sold or disposed of, to
the extent that the consideration received would constitute
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<PAGE>
property or assets of the kind described in clause (i)(B) of
Section XI(F), (c) a disposition of cash or Temporary Cash
Investments, (d) any Restricted Payment that is permitted to
be made, and is made, in accordance with Section XI(B), (e)
sales or other dispositions of assets with a fair market value
(as certified in an Officers' Certificate) not in excess of $2
million (PROVIDED that any series of related sales or
dispositions in excess of $2 million shall be considered
"Asset Sales"), (t) the lease, assignment of a lease or
sub-lease of any real or personal property in the ordinary
course of business, (g) foreclosures on assets, (h) pledges of
assets or stock by the Corporation or any of its Restricted
Subsidiaries otherwise permitted under this Certificate of
Designations, including such pledges securing Indebtedness
under the Newcourt Facility or under the Lucent Facility, (i)
the issuance of the Warrants to Newcourt Finance and Lucent by
the Corporation and (j) the exercise of the Warrants by
Newcourt Finance and Lucent and the exercise of common stock
warrants by Newcourt Finance in respect of KMC Telecom, (k)
the issuance of the Preferred Stock Warrants to First Union by
the Corporation, and (l) the exercise of the Preferred Stock
Warrants by First Union.
"Average Life" means, at any date of determination with
respect to any debt security, the quotient obtained by
dividing (i) the sum of the products of (a) the number of
years from such date of determination to the dates of each
successive scheduled principal payment of such debt security
and (b) the amount of such principal payment by (ii) the sum
of all such principal payments.
"Board of Directors" means the Board of Directors of the
Corporation.
"Board Resolution" means a copy of a resolution, certified by
the Secretary or Assistant Secretary of the Corporation as
required by the context to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of
such certification, and delivered to the Transfer Agent.
"Business Day" means a day other than a Saturday, Sunday or
other day on which commercial banks in New York City are
authorized or required by law to close.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents
(however designated, whether voting or non-voting) in equity
of such Person, whether outstanding on the Closing Date or
issued thereafter, including, without limitation, all Common
Stock, Preferred Stock (including the Series E Preferred
Stock), partnership or membership interests and any other
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Capitalized Lease" means, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the
discounted present value of the rental obligations of such
Person as lessee, in conformity with GAAP, is required to be
capitalized on the balance sheet of such Person.
4
<PAGE>
"Capitalized Lease Obligations" means the amount of the
liability in respect of a Capitalized Lease that would at such
time be required to be capitalized and reflected as a
liability on a balance sheet prepared in accordance with GAAP.
"Change of Control" means such time as (i) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Exchange Act) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of more than 50%
of the total voting power of the Voting Stock of the
Corporation on a fully diluted basis and such ownership
represents a greater percentage of the total voting power of
the Voting Stock of the Corporation, on a fully diluted basis,
than is held by the Existing Stockholders on such date; or
(ii) individuals who on the Closing Date constitute the Board
of Directors (together with any new directors whose election
by the Board of Directors or whose nomination by the Board of
Directors for election by the Corporation's stockholders was
approved by a vote of at least a majority of the members of
the Board of Directors then in office who either were members
of the Board of Directors on the Closing Date or whose
election or nomination for election was so previously
approved) cease for any reason to constitute a majority of the
members of the Board of Directors then in office.
"Closing Date" means February 4, 1999.
"Commission" means the Securities and Exchange Commission and
any successor agency having similar powers.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Corporation and any other class of common stock
hereafter authorized by the Corporation from time to time.
"Consolidated EBITDA" means, for any period, Adjusted
Consolidated Net Income for such period plus, to the extent
such amount was deducted in calculating such Adjusted
Consolidated Net Income, (i) Consolidated Interest Expense,
(ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring
gains or losses or sales of assets), (iii) depreciation
expense, (iv) amortization expense and (v) all other non-cash
items reducing Adjusted Consolidated Net Income (other than
items that will require cash payments and for which an accrual
or reserve is, or is required by GAAP to be, made), less all
non-cash items increasing (or, in the case of a loss,
decreasing) Adjusted Consolidated Net Income, determined, with
respect to clauses (ii), (iii) and (iv), on a consolidated
basis for the Corporation and its Restricted Subsidiaries in
conformity with GAAP; PROVIDED that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not
5
<PAGE>
otherwise reduced in accordance with GAAP) by an amount equal
to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B)
the percentage ownership interest in the income of such
Restricted Subsidiary not owned on the last day of such period
by the Corporation or any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the
aggregate amount (without duplication) of interest in respect
of Indebtedness (including, without limitation, amortization
of original issue discount on any Indebtedness and the
interest portion of any deferred payment obligation,
calculated in accordance with the effective interest method of
accounting; all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest
Rate Agreements; and Indebtedness that is Guaranteed or
secured by the Corporation or any of its Restricted
Subsidiaries) and the interest component of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be
accrued by the Corporation and its Restricted Subsidiaries
during such period; EXCLUDING, HOWEVER, (i) any amount of such
interest of any Restricted Subsidiary if the net income of
such Restricted Subsidiary is excluded in the calculation of
Adjusted Consolidated Net Income pursuant to clause (iii) of
the definition thereof (but only in the same proportion as the
net income of such Restricted Subsidiary is excluded from the
calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof) and (ii) any premiums,
fees and expenses (and any amortization thereof) payable in
connection with the Lucent Facility, the Newcourt Facility and
the offering of the Series E Preferred Stock, the Series F
Preferred Stock and the Senior Discount Notes, all as
determined on a consolidated basis (without taking into
account Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date,
the ratio of (i) the aggregate amount of Indebtedness of the
Corporation and its Restricted Subsidiaries on a consolidated
basis outstanding on such Transaction Date to (ii) the
aggregate amount of Consolidated EBITDA for the then most
recent four fiscal quarters for which financial statements of
the Corporation have been provided to the Transfer Agent (such
four fiscal quarter period being the "Four Quarter Period");
PROVIDED that, in making the foregoing calculation, PRO FORMA
effect shall be given to the following events which occur from
the beginning of the Four Quarter Period through the
Transaction Date (the "Reference Period"): (i) the Incurrence
of the Indebtedness with respect to which the computation is
being made and (if applicable) the application of the net
proceeds therefrom, including to refinance other Indebtedness,
as if such Indebtedness was incurred, and the application of
such proceeds occurred, at the beginning of the Four Quarter
Period; (ii) the Incurrence, repayment or retirement of any
other Indebtedness by the Corporation and its Restricted
Subsidiaries since the first day of the Four Quarter Period as
if such Indebtedness was incurred, repaid or retired at the
6
<PAGE>
beginning of the Four Quarter Period; (iii) in the case of
Acquired Indebtedness, the related acquisition, as if such
acquisition occurred at the beginning of the Four Quarter
Period; (iv) any acquisition or disposition by the Corporation
and its Restricted Subsidiaries of any corporation or any
business or any assets out of the ordinary course of business,
whether by merger, stock purchase or sale or asset purchase or
sale or any related repayment of Indebtedness, in each case
since the first day of the Four Quarter Period, assuming such
acquisition or disposition had been consummated on the first
day of the Four Quarter Period and after giving PRO FORMA
effect to net cost savings that the Corporation reasonably
believes in good faith could have been achieved during the
Four Quarter Period as a result of such acquisition or
disposition (PROVIDED that both (A) such cost savings were
identified and quantified in an Officers' Certificate
delivered to the Transfer Agent at the time of the
consummation of the acquisition or disposition and (B) with
respect to each acquisition or disposition completed prior to
the 90th day preceding such date of determination, actions
were commenced or initiated by the Corporation within 90 days
of such acquisition or disposition to effect such cost savings
identified in such Officers' Certificate and with respect to
any other acquisition or disposition, such Officers'
Certificate sets forth the specific steps to be taken within
the 90 days after such acquisition or disposition to
accomplish such cost savings); and PROVIDED FURTHER that (x)
in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness computed on a PRO
FORMA basis and (A) bearing a floating interest rate shall be
computed as if the rate in effect on the date of computation
had been the applicable rate for the entire period and (B)
which was not outstanding during the period for which the
computation is being made but which bears, at the option of
the Corporation, a fixed or floating rate of interest shall be
computed by applying, at the option of the Corporation, either
the fixed or floating rate, and (y) in making such
computation, the Consolidated Interest Expense of the
Corporation attributable to interest on any Indebtedness under
a revolving credit facility computed on a PRO FORMA basis
shall be computed based upon the PRO FORMA average daily
balance of such Indebtedness during the applicable period; and
(v) the occurrence of any of the events described in clauses
(i)-(iv) above by any Person that has become a Restricted
Subsidiary or has been merged with or into the Corporation or
any Restricted Subsidiary during such Reference Period.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently
available quarterly or annual consolidated balance sheet of
the Corporation and its Restricted Subsidiaries (which shall
be as of a date not more than 90 days prior to the date of
such computation, and which shall not take into account
Unrestricted Subsidiaries), less any amounts attributable to
Disqualified Stock or any equity security convertible into or
exchangeable for Indebtedness, the cost of treasury stock and
the principal amount of any promissory notes receivable from
the sale of the Capital Stock of the Corporation or any of its
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<PAGE>
Restricted Subsidiaries, each item to be determined in
conformity with GAAP (excluding the effects of foreign
currency exchange adjustments under Financial Accounting
Standards Board Statement of Financial Accounting Standards
No. 52).
"Corporation" means KMC Telecom Holdings, Inc., a Delaware
corporation.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or
arrangement.
"Disqualified Stock" means any class or series of Capital
Stock of any Person that by its terms or otherwise is (i)
required to be redeemed prior to the Mandatory Redemption
Date, (ii) redeemable at the option of the holder of such
class or series of Capital Stock at any time prior to the
Mandatory Redemption Date or (iii) convertible into or
exchangeable for Capital Stock referred to in clause (i) or
(ii) above or Indebtedness having a scheduled maturity prior
to the Mandatory Redemption Date; PROVIDED that any Capital
Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require
such Person to repurchase or redeem such Capital Stock (or the
security for which such Capital Stock is convertible into or
exchangeable for) upon the occurrence of an "asset sale" or
"change of control" occurring prior to the Mandatory
Redemption Date shall not constitute Disqualified Stock if the
"asset sale" or "change of control" provisions applicable to
such Capital Stock (or the security for which such Capital
Stock is convertible into or exchangeable for) are no more
favorable to the holders of such Capital Stock (or the
security for which such Capital Stock is convertible into or
exchangeable for) than the provisions contained in Section
XI(F) and Article VIII below and such Capital Stock (or the
security for which such Capital Stock is convertible into or
exchangeable for) specifically provides that such Person will
not repurchase or redeem any such stock pursuant to such
provision prior to the Corporation's repurchase of such Series
E Preferred Stock as are required to be repurchased pursuant
to Section XI(F) and Article VIII below.
"Dividend Payment Date" means any Redemption Date, January 15,
April 15, July 15 and October 15 and any other date on which
dividends are payable or may be paid, as determined by the
Board of Directors.
"Dividend Record Date" means, with respect to each Dividend
Payment Date, the close of business on the date set forth next
to such Dividend Payment Date below:
DIVIDEND PAYMENT DATE DIVIDEND RECORD DATE
January 15 January 1
April 15 April 1
July 15 July 1
October 15 October 1
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<PAGE>
or such other record date as may be designated by the Board of Directors with
respect to dividends payable on such other Dividend Payment Date; PROVIDED,
HOWEVER, that such record date may not be more than 60 days or less than ten
days prior to such Dividend Payment Date. If any scheduled Dividend Record Date
is not a Business Day, then such Dividend Record Date shall be the Business Day
immediately preceding such scheduled Dividend Record Date.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Existing Stockholders" means Harold N. Kamine, his Affiliates
and Nassau.
"First Union" means First Union Investors, Inc., a North
Carolina corporation.
"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing
seller under no compulsion to sell and an informed and willing
buyer under no compulsion to buy, as determined in good faith
by the Board of Directors, whose determination shall be
conclusive if evidenced by a Board Resolution; PROVIDED that
for purposes of clause (vii) of the second paragraph of
Section XI(A), (x) the fair market value of any security
registered under the Exchange Act shall be the average of the
closing prices, regular way, of such security for the 20
consecutive trading days immediately preceding the sale of
Capital Stock and (y) in the event the aggregate fair market
value of any other property (other than cash or cash
equivalents) received by the Corporation exceeds $100 million,
the fair market value of such property shall be determined by
a nationally recognized investment banking firm or a
nationally recognized firm having expertise in the specific
area which is the subject of such determination and set forth
in their written opinion which shall be delivered to the
Transfer Agent.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the High Yield
Closing Date, including, without limitation, those 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 or in such other statements by such
other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained
or referred to in this Certificate of Designations shall be
computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of
determining compliance with the terms of the covenants and
with other provisions of this Certificate of Designations
shall be made without giving effect to (i) the amortization of
any expenses incurred in connection with the Lucent Facility,
the Newcourt Facility, the offering of the Senior Discount
Notes, the Series E Preferred Stock and the Series F Preferred
Stock and (ii) except as otherwise provided, the amortization
of any amounts required or permitted by Accounting Principles
Board Opinion Nos. 16 and 17.
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<PAGE>
"Guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any
Indebtedness of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase
or payment of such Indebtedness of such other Person (whether
arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities
or services (unless such purchase arrangements are on arm'
s-length terms and are entered into in the ordinary course of
business), to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness
of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); PROVIDED that the
term "Guarantee " shall not include endorsements for
collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"High Yield Closing Date" means January 29, 1998.
"Holder" means a registered holder of shares of Series E
Preferred Stock.
"Incur" means, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable
for or with respect to, or become responsible for, the payment
of, contingently or otherwise, such Indebtedness, including an
"Incurrence" of Acquired Indebtedness; PROVIDED that neither
the accrual of interest nor the accretion of original issue
discount shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date
of determination (without duplication), (i) all indebtedness
of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all obligations of such Person in
respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto, but
excluding trade letters of credit), (iv) all obligations of
such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than
six months after the date of placing such property in service
or taking delivery and title thereto or the completion of such
services, except Trade Payables and accrued current
liabilities arising in the ordinary course of business, (v)
all Capitalized Lease Obligations of such Person, (vi) all
Indebtedness referred to in clauses (i) through (v) hereof of
other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person;
PROVIDED that the amount of such Indebtedness shall be the
lesser of (A) the fair market value of such asset at such date
of determination and (B) the amount of such Indebtedness,
(vii) all Indebtedness of other Persons Guaranteed by such
Person to the extent such Indebtedness is Guaranteed by such
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Person and (viii) to the extent not otherwise included in this
definition, obligations under Currency Agreements and Interest
Rate Agreements. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date (or, in
the case of a revolving credit or other similar facility, the
total amount of funds outstanding on the date of
determination) of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise
to the obligation of the types described above, PROVIDED (A)
that the amount outstanding at any time of any Indebtedness
issued with original issue discount is the original issue
price of such Indebtedness, (B) that money borrowed and set
aside at the time of the Incurrence of any Indebtedness in
order to prefund the payment of the interest on such
Indebtedness shall not be deemed to be "Indebtedness" and (C)
that Indebtedness shall not include any liability for federal,
state, local or other taxes.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate
option agreement, interest rate swap agreement, interest rate
cap agreement, interest rate collar agreement, interest rate
hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" means, with respect to any Person, all
investments by such Person in other Persons in the form of any
direct or indirect advance, loan or other extension of credit
(including, without limitation, by way of Guarantee or similar
arrangement; but excluding advances to customers in the
ordinary course of business that are, in conformity with GAAP,
recorded as accounts receivable on the balance sheet of the
Corporation or its Restricted Subsidiaries and commissions,
travel and similar advances to officers and employees made in
the ordinary course of business) or capital contribution to
(by means of any transfer of cash or other property to others
or any payment for property or services for the account or use
of others), or any purchase or acquisition of Capital Stock,
bonds, notes, debentures or other similar instruments issued
by, such other Person and shall include (i) the designation of
a Restricted Subsidiary as an Unrestricted Subsidiary and (ii)
the fair market value of the Capital Stock (or any other
Investment), held by the Corporation or any of its Restricted
Subsidiaries, of (or in) any Person that has ceased to be a
Restricted Subsidiary, including, without limitation, by
reason of any transaction permitted by clause (iii) of Section
XI(D); PROVIDED that the fair market value of the Investment
remaining in any Person that has ceased to be a Restricted
Subsidiary shall not exceed the aggregate amount of
Investments previously made in such Person valued at the time
such Investments were made less the net reduction of such
Investments. For purposes of the definition of "Unrestricted
Subsidiary" and Section XI(B), (i) "Investment" shall include
the fair market value of the assets (net of liabilities (other
than liabilities to the Corporation or any of its Restricted
Subsidiaries)) of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted
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Subsidiary, (ii) the fair market value of the assets (net of
liabilities (other than liabilities to the Corporation or any
of its Restricted Subsidiaries)) of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary shall be considered a
reduction in outstanding Investments and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer.
"Investment Grade Securities" means (i) securities issued or
directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof, (ii) debt
securities or debt instruments with a rating of BBB + or
higher by S&P or Baal or higher by Moody's or the equivalent
of such rating by such rating organization, or, if no rating
by S&P or Moody's then exists, the equivalent of such rating
by any other nationally recognized securities rating agency,
but excluding any debt securities or instruments constituting
loans or advances among the Corporation and its Subsidiaries,
and (iii) investment in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii)
which fund may also hold cash pending investment and/or
distribution.
"Junior Securities" has the meaning provided in Article III
hereof.
"KMC Telecom" means KMC Telecom Inc, a Delaware corporation.
"KMC Telecom II" means KMC Telecom II, Inc., a Delaware
corporation.
"KMC Telecom III" means KMC Telecom III, Inc., a Delaware
corporation.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without
limitation, any conditional sale or other title retention
agreement or lease in the nature thereof or any agreement to
give any security interest).
"Lucent" means Lucent Technologies Inc., a Delaware
corporation.
"Lucent Facility" means the vendor financing facility between
Lucent, KMC Telecom III and KMC Telecom Leasing III LLC,
providing for aggregate borrowings of up to $600 million and
maturing on the eighth anniversary of the closing of such
credit facility.
"Mandatory Redemption Date" means February 1, 2011.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Nassau" means Nassau Capital Partners L.P., NAS Partners I
L.L.C. or their respective successors, and their Affiliates.
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"Net Cash Proceeds" means (a) with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or cash
equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but
not interest, component thereof when received in the form of
cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the
Corporation or any Restricted Subsidiary) and proceeds from
the conversion of other property received when converted to
cash or cash equivalents, net of (i) brokerage commissions and
other commissions, fees and expenses (including fees and
expenses of counsel, accountants and investment bankers)
related to such Asset Sale and any relocation expenses
incurred as a result thereof, (ii) provisions for all taxes
(whether or not such taxes will actually be paid or are
payable) as a result of such Asset Sale without regard to the
consolidated results of operations of the Corporation and its
Restricted Subsidiaries, taken as a whole, (iii) payments made
to repay Indebtedness or any other obligation outstanding at
the time of such Asset Sale that either (A) is secured by a
Lien on the property or assets sold or (B) is required to be
paid as a result of such sale and (iv) appropriate amounts to
be provided by the Corporation or any Restricted Subsidiary as
a reserve against any liabilities associated with such Asset
Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale,
all as determined in conformity with GAAP, and (b) with
respect to any issuance or sale of Capital Stock, the proceeds
of such issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the
Corporation or any Restricted Subsidiary) and proceeds from
the conversion of other property received when converted to
cash or cash equivalents, net of attorney's fees, accountants'
fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred
in connection with such issuance or sale and net of taxes paid
or payable as a result thereof.
"Newcourt Facility" means the Loan and Security Agreement
dated as of December 22, 1998 among KMC Telecom, KMC Telecom
II, and Newcourt Finance and any other lenders or borrowers
from time to time party thereto, collateral documents,
instruments, and agreements executed in connection therewith
and any amendments, supplements, modifications, extensions,
renewals, restatements, refinancings or refundings thereof.
"Newcourt Finance" means Newcourt Commercial Finance
Corporation, formerly known as AT&T Commercial Finance
Corporation, a Delaware corporation, and its successors.
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"Offer to Purchase" means an offer to purchase Series E
Preferred Stock by the Corporation from the Holders commenced
by mailing a notice to the Transfer Agent and each Holder
stating: (i) the covenant pursuant to which the offer is being
made and that all Series E Preferred Stock validly tendered
will be accepted for payment on a PRO RATA basis, together
with any other Parity Securities subject to similar offer to
purchase provisions; (ii) the purchase price and the date of
purchase (which shall be a Business Day no earlier than 30
days nor later than 60 days from the date such notice is
mailed) (the "Payment Date"); (iii) that any Series E
Preferred Stock not tendered will continue to accrue dividends
pursuant to its terms; (iv) that, unless the Corporation
defaults in the payment of the purchase price, any Series E
Preferred Stock accepted for payment pursuant to the Offer to
Purchase shall cease to accrue dividends on and after the
Payment Date; (v) that each Holder electing to have Series E
Preferred Stock purchased pursuant to the Offer to Purchase
will be required to surrender to the Transfer Agent at the
address specified in the notice prior to the close of business
on the Business Day immediately preceding the payment date
such holder's certificate representing such Series E Preferred
Stock, together with the form entitled "Option of the Holder
to Elect Purchase" appearing on the reverse side of such
Series E Preferred Stock certificate completed, (vi) that
Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on
the third Business Day immediately preceding the Payment Date,
a telegram, facsimile transmission or letter setting forth the
name of such Holder, the liquidation preference of Series E
Preferred Stock delivered for purchase and a statement that
such Holder is withdrawing its election to have such Series E
Preferred Stock purchased; and (vii) that Holders whose Series
E Preferred Stock is being purchased only in part will be
issued new Series E Preferred Stock equal in liquidation
preference to the unpurchased portion of the Series E
Preferred Stock surrendered. On the Payment Date, the
Corporation shall (i) accept for payment on a PRO RATA basis
Series E Preferred Stock, together with any other Parity
Securities subject to similar offer to purchase provisions, or
portions thereof tendered pursuant to an Offer to Purchase;
(ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Series E Preferred Stock, together with
any other Parity Securities subject to similar offer to
purchase provisions, or portions thereof so accepted; and
(iii) deliver, or cause to be delivered, to the Transfer Agent
all Series E Preferred Stock or portions thereof so accepted
together with an Officers' Certificate specifying shares of
the Series E Preferred Stock or portions thereof accepted for
payment by the Corporation. The Paying Agent shall promptly
mail to the Holders of Series E Preferred Stock so accepted
payment in an amount equal to the purchase price, and the
Transfer Agent shall promptly authenticate and mail to such
Holders new shares of Series E Preferred Stock equal in
liquidation preference to any unpurchased portion of the
Series E Preferred Stock surrendered. The Corporation will
publicly announce the results of an Offer to Purchase as soon
as practicable after the Payment Date. The Transfer Agent
shall act as the Paying Agent for an Offer to Purchase. The
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Corporation will comply with Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable, in the
event that the Corporation is required to repurchase Series E
Preferred Stock pursuant to an Offer to Purchase.
"Officer" means with respect to the Corporation, (i) the
Chairman of the Board, the Vice Chairman of the Board, the
President, the Chief Executive Officer, the Chief Financial
Officer or a Vice president, and (ii) the Treasurer or any
Assistant Treasurer, or the Secretary or any Assistant
Secretary of the Corporation.
"Officers Certificate" means a certificate signed by one
Officer listed in clause (i) of the definition thereof and one
Officer listed in clause (ii) of the definition thereof;
PROVIDED, HOWEVER, that any such certificate may be signed by
any two of the Officers listed in clause (i) of the definition
thereof in lieu of being signed by one Officer listed in
clause (i) of the definition thereof and one Officer listed in
clause (ii) of the definition thereof.
"Parity Securities" has the meaning specified in Article III
hereof.
"Permitted Investment" means (i) an Investment in the
Corporation or a Restricted Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted
Subsidiary or be merged or consolidated with or into or
transfer or convey all or substantially all its assets to, the
Corporation or a Restricted Subsidiary; PROVIDED that such
person's primary business is related, ancillary or
complementary to the businesses of the Corporation and its
Restricted Subsidiaries on the date of such Investment; (ii)
Temporary Cash Investments and Investment Grade Securities;
(iii) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to
be treated as expenses in accordance with GAAP and reasonable
advances to sales representatives; (iv) any Investment
acquired by the Corporation or any of its Restricted
Subsidiaries (x) in exchange for any other Investment or
accounts receivable held by the Corporation or any such
Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the
issuer of such other Investment or accounts receivable or (y)
as a result of a foreclosure by the Corporation or any of its
Restricted Subsidiaries with respect to any secured Investment
or other transfer of title with respect to any secured
Investment in default; (v) any Investment acquired in
consideration for the issuance of Junior Securities or the
proceeds of the issuance of Junior Securities to the extent
such amounts have not been previously applied to a Restricted
Payment pursuant to clause (iii)(B)(2) of the first paragraph
of Section XI(B) or clause (ii) of the second paragraph of
Section XI(B) or used to support the Incurrence of
Indebtedness pursuant to clause (viii) in accordance with
Section XI(A) and Investments acquired as a capital
contribution; (vi) Guarantees permitted by Section XI(A);
(vii) loans or advances to employees of the Corporation or any
Restricted Subsidiary that do not in the aggregate exceed at
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any one time outstanding $5.0 million; (viii) Currency
Agreements and Interest Rate Agreements permitted under
Section XI(A); (ix) Investments in prepaid expenses,
negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar
deposits; (x) Investments in debt securities or other
evidences of Indebtedness that are issued by companies engaged
in the Telecommunications Business; PROVIDED that when each
Investment pursuant to this clause (x) is made, the aggregate
amount of Investments outstanding under this clause (x) does
not exceed $3.0 million; (xi) Strategic Investments and
Investments in Permitted Joint Ventures in an amount not to
exceed $20.0 million at any one time outstanding; (xii) an
Investment in any Person the primary business of which is
related, ancillary or complementary to the business of the
Corporation and its Subsidiaries on the date of such
Investment in an amount not to exceed at any time in respect
of all such Investments outstanding the sum of (x) $200.0
million plus (y) 40% of the Corporation's Consolidated EBITDA,
if positive, for the immediately preceding four fiscal
quarters (valued in each case as provided in the definition of
"Investments"); (xiii) securities received in connection with
Asset Sales to the extent constituting non-cash consideration
permitted under Section XI(F); and (xiv) Investments in an
amount not to exceed $50.0 million at any time outstanding.
"Permitted Joint Venture" means any Unrestricted Subsidiary or
any other Person in which the Corporation or a Restricted
Subsidiary owns, directly or indirectly, an ownership interest
(other than a Restricted Subsidiary) and whose primary
business is related, ancillary or complementary to the
businesses of the Corporation and its Restricted Subsidiaries
at the time of determination.
"Person" means any individual, partnership, corporation,
business trust, joint stock company, limited liability
company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"Preferred Stock" means any and all shares, interests,
participations or other equivalents of the Corporation's
preferred stock, including any such security with any priority
over Common Stock with respect to dividends or upon
liquidation or similar events.
"Preferred Stock Warrants" means any warrants that may be
issued under the Preferred Stock Warrant Agreement.
"Preferred Stock Warrant Agreement" means the Warrant
Agreement, dated as of April 30, 1999, among the Corporation,
First Union and The Chase Manhattan Bank as warrant agent.
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"Public Equity Offering" means an underwritten primary public
offering of Common Stock of the Corporation pursuant to an
effective registration statement under the Securities Act.
"Purchase Agreement" means the Securities Purchase Agreement
dated as of February 4, 1999 among the Corporation, Newcourt
Finance and Lucent.
"Redemption Date", when used with respect to any Series E
Preferred Stock to be redeemed, means the date fixed for such
redemption by or pursuant to the terms of this Certificate of
Designations.
"Redemption Price" means, with respect to any share of Series
E Preferred Stock, the price at which such share of Series E
Preferred Stock is to be redeemed pursuant to the terms of
this Certificate of Designations.
"Regulated Holder" has the meaning provided in Article VII
(B)(i).
"Restricted Subsidiary" means any Subsidiary of the
Corporation other than an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, or any successor statute.
"Senior Discount Note Indenture" means the Indenture dated as
of January 29, 1998 between the Corporation and The Chase
Manhattan Bank, relating to the Senior Discount Notes, as such
Indenture may be amended, supplemented, extended, renewed,
replaced or otherwise modified from time to time.
"Senior Discount Notes" means the 12 1/2 % Senior Discount
Notes due 2008 issued by the Corporation under the Senior
Discount Note Indenture.
"Senior Securities" has the meaning provided in Article III
hereof.
"Shareholders Agreement" means the Amended and Restated
Stockholders Agreement among KMC Telecom Holdings, Inc.,
Nassau Capital Partners L.P., NAS Partners I L.L.C., Harold N.
Kamine, KMC Telecommunications L.P., AT&T Credit Corporation,
General Electric Capital Corporation, Corestates Bank, N.A.
and Corestates Holdings, Inc., dated as of October 31, 1997,
as amended by Amendment No.1, dated as of January 7, 1998, to
the Amended and Restated Stockholders Agreement, dated as of
October 31, 1997, Amendment No. 2, dated as of January 26,
1998, to the Amended and Restated Stockholders Agreement,
dated as of October 31, 1997, Amendment No. 3, dated as of
February 25, 1998, to the Amended and Restated Stockholders
Agreement, dated as of October 31, 1997, Amendment No. 4,
dated as of February 4, 1999, to the Amended and Restated
Stockholders Agreement, dated as of October 31, 1997,
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Amendment No. 5, dated as of April 30, 1999, to the Amended
and Restated Stockholders Agreement, dated as of October 31,
1997.
"Significant Subsidiary" means, any Subsidiary that would be a
"significant subsidiary" as defined in 17 CFR Part
210.1-01(w), promulgated pursuant to the Securities Act, as
such regulation is in effect on the date hereof.
"S&P" means Standard & Poor's Ratings Services, a Division of
McGraw Hill, Inc., and its successors.
"Stated Maturity" means (i) with respect to any debt security,
the date specified in such debt security as the fixed date on
which the final installment of principal of such debt security
is due and payable and (ii) with respect to any scheduled
installment of principal of or interest on any debt security,
the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Strategic Investments" means (a) Investments that the Board
of Directors has determined in good faith will enable the
Corporation or any of its Restricted Subsidiaries to obtain
additional business that it might not be able to obtain
without making such Investment and (b) Investments in entities
the principal function of which is to perform research and
development with respect to products and services that may be
used or useful in the Telecommunications Business; PROVIDED
that the Corporation or one of its Restricted Subsidiaries is
entitled or otherwise reasonably expected to obtain rights to
such products or services as a result of such Investment.
"Strategic Subordinated Indebtedness" means Indebtedness of
the Corporation Incurred to finance the acquisition of a
Person engaged in the Telecommunications Business that by its
terms, or by the terms of any agreement or instrument pursuant
to which such Indebtedness is outstanding, (i) is expressly
made subordinate in right of payment to the Senior Discount
Notes and (ii) provides that no payment of principal, premium
or interest on, or any other payment with respect to, such
Indebtedness may be made prior to the payment in full of all
of the Corporation's obligations under the Series E Preferred
Stock and the Senior Discount Notes; PROVIDED that such
Indebtedness may provide for and be repaid at any time from
the proceeds of the sale of Capital Stock (other than
Disqualified Stock) of the Corporation after the Incurrence of
such Indebtedness.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association, or other business entity (other than
a partnership) of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to
the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of
determination owned or controlled, directly or indirectly, by
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such Person or one or more of the other Subsidiaries of such
Person or a combination thereof and (ii) any partnership,
joint venture, limited liability company or similar entity of
which (x) more than 50% of the capital accounts, distribution
rights, total equity and voting interests or general or
limited partnership interests, as applicable, are owned or
controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of such Person or a combination
thereof whether in the form of membership, general, special or
limited partnership or otherwise and (y) such Person or any
Wholly Owned Restricted Subsidiary of such Person is a general
partner or otherwise controls such entity.
"Telecommunications Business" means the development, ownership
or operation of one or more telephone, telecommunications or
information systems or the provision of telephony,
telecommunications or information services (including, without
limitation, any voice, video transmission, data or Internet
services) and any related, ancillary or complementary
business.
"Temporary Cash Investment" means any of the following: (i)
direct obligations of the United States of America or any
agency thereof or obligations fully and unconditionally
guaranteed by the United States of America or any agency or
instrumentality thereof, (ii) time deposit accounts,
certificates of deposit, eurodollar time deposits and money
market deposits maturing within 180 days or less of the date
of acquisition thereof issued by a bank or trust company which
is organized under the laws of the United States of America,
any state thereof or any foreign country recognized by the
United States of America, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess
of $50 million (or the foreign currency equivalent thereof)
and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule
436 under the Securities Act) or any money market fund
sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not
more than 30 days for underlying securities of the types
described in clauses (i) and (ii) above entered into with a
bank meeting the qualifications described in clause (ii)
above, (iv) commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other
than an Affiliate of the Corporation) organized and in
existence under the laws of the United States of America, any
state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any
investment therein is made of "P-i"(or higher) according to
Moody's or "A-i"(or higher) according to S&P, (v) securities
with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by
any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority
thereof, and rated at least "A" by S&P or Moody's, and (vi)
investment funds investing 95% of their assets in securities
of the type described in clauses (i)-(v) above.
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"Trade Payables" means, with respect to any Person, any
accounts payable or any other indebtedness or monetary
obligation to trade creditors created, assumed or Guaranteed
by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition
of goods or services.
"Transaction Date" means, with respect to the Incurrence of
any Indebtedness by the Corporation or any of its Restricted
Subsidiaries, the date such Indebtedness is to be Incurred
and, with respect to any Restricted Payment, the date such
Restricted Payment is to be made.
"Transfer Agent" means Chase Mellon Shareholder Services,
L.L.C.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Corporation that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below; and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of
Directors may designate any Restricted Subsidiary (including
any newly acquired or newly formed Subsidiary of the
Corporation) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any
Lien on any property of, the Corporation or any Restricted
Subsidiary; PROVIDED that (A) any Guarantee by the Corporation
or any Restricted Subsidiary of any Indebtedness of the
Subsidiary being so designated shall be deemed an "Incurrence"
of such Indebtedness and an "Investment" by the Corporation or
such Restricted Subsidiary (or both, if applicable) at the
time of such designation; (B) either (I) the Subsidiary to be
so designated has total assets of $1,000 or less or (II) if
such Subsidiary has assets greater than $1,000, such
designation would be permitted in accordance with Section
XI(B); and (C) if applicable, the Incurrence of Indebtedness
and the Investment referred to in clause (A) of this proviso
would be permitted in accordance with Section XI(A) and
Section XI(B). The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary;
PROVIDED that all Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation would, if
Incurred at such time, have been permitted to be Incurred (and
shall be deemed to have been Incurred) for all purposes of
this Certificate of Designations. Any such designation by the
Board of Directors shall be evidenced to the Transfer Agent by
promptly filing with the Transfer Agent a copy of the Board
Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the
foregoing provisions.
"Voting Stock" means, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote
for the election of directors, managers or other voting
members of the governing body of such Person.
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"Warrant Agreement" means the warrant agreement, dated the
Closing Date, among the Corporation, Newcourt Finance, Lucent
and any Additional Purchaser (as described therein) and The
Chase Manhattan Bank, as warrant agent.
"Warrants" means any warrants that may be issued under the
Warrant Agreement.
"Wholly Owned" means, with respect to any Subsidiary of any
Person, the ownership of 95 % or more of the outstanding
Capital Stock of such Subsidiary (other than any director's
qualifying shares or Investments by foreign nationals mandated
by applicable law) by such Person or one or more Wholly Owned
Subsidiaries of such Person.
II. DESIGNATION.
The series of Preferred Stock authorized hereunder shall be
designated as the "Series E Senior Redeemable, Exchangeable, P1K Preferred
Stock" and is referred to herein as the "Series E Preferred Stock." The number
of shares constituting such series shall be 575,000. The par value of the Series
E Preferred Stock shall be $.01 per share of Series E Preferred Stock. Each
share of Series E Preferred Stock purchased from the Corporation shall have a
liquidation preference of $1,000. The Corporation may from time to time in its
discretion issue fractional shares of Series E Preferred Stock.
III. RANKING.
The Series E Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding-up and dissolution
of the Corporation, rank (i) senior to (A) all classes of Common Stock of the
Corporation, (B) each other class of Capital Stock or series of Preferred Stock
the terms of which expressly provide that it ranks junior to, and do not
expressly provide that it ranks senior to or on a parity with the Series E
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of the Corporation, (C) the
Corporation's Series A Cumulative Convertible Preferred Stock, Series C
Cumulative Convertible Preferred Stock, and Series D Cumulative Convertible
Preferred Stock (all securities described in this clause (i) collectively
referred to as "Junior Securities"); (ii) on a parity with (A) any class of
Capital Stock or series of Preferred Stock the terms of which expressly provide
that such class or series will rank on a parity with the Series E Preferred
Stock as to dividend distributions and distributions upon the liquidation,
winding-up and dissolution of the Corporation and (B) Series F Senior
Redeemable, Exchangeable, PIK Preferred Stock (all securities described in this
clause (ii) collectively referred to as "Parity Securities"); and (iii) junior
to each class of Capital Stock or series of Preferred Stock the terms of which
expressly provide that such class or series will rank senior to the Series E
Preferred Stock as to dividend distributions and distributions upon liquidation,
winding-up, and dissolution or the Corporation. The Series E Preferred Stock
will be subject to the issuance of series of Junior Securities and Parity
Securities, PROVIDED that the Corporation may not authorize, create or issue, or
increase the authorized amount of, any new class of Parity Securities or Senior
Securities (or any class of any security convertible into shares of any Parity
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Security or Senior Security) without the approval of the Holders of at least a
majority of the shares of Series E Preferred Stock then outstanding, voting or
consenting, as the case may be, separately as one class, except that, without
the approval of Holders of the Series E Preferred Stock, the Corporation may
issue shares of Senior Securities (or any class of any security convertible into
shares of any Senior Security) in exchange for, or the proceeds of which are
used to redeem or repurchase, (1) all (but not less than all) shares of Series E
Preferred Stock and Series F Preferred Stock then outstanding, or (2) the
Indebtedness of the Corporation. The Series E Preferred Stock and the Series F
Preferred Stock (together with any other Parity Securities) shall also with
respect to any redemption or repurchase by the Corporation of its Capital Stock,
rank senior to the Junior Securities, except as provided in Section 3 of the
Shareholders Agreement.
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IV. DIVIDENDS.
(A) Holders of Series E Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, dividends on the Series E Preferred Stock at a rate
per annum equal to 14.5% of the liquidation preference per share, payable
quarterly. All dividends will be cumulative, whether or not earned or declared,
accruing on a daily basis, whether or not there are profits, surplus or other
funds legally available for the payment of such dividends, from the date of
issuance of the Series E Preferred Stock and will be payable quarterly in
arrears on each Dividend Payment Date, commencing on April 15, 1999. On and
before January 15, 2004, the Corporation may pay dividends, at its option, in
cash or in additional fully paid and nonassessable shares of Series E Preferred
Stock having an aggregate liquidation preference equal to the amount of such
dividends rounded to the nearest $1.00. After January 15, 2004, dividends must
be paid in cash, unless the Corporation's debt securities prohibit such payment
or there are no funds legally available therefor, in which case dividends may be
paid in additional fully paid and nonassessable shares of Series E Preferred
Stock having an aggregate liquidation preference equal to the amount to such
dividends rounded to the nearest $1.00. If any dividend (or portion thereof)
payable on any Dividend Payment Date is not declared or paid in full on such
Dividend Payment Date, the amount of accrued and unpaid dividends will accrue at
the dividend rate on the Series E Preferred Stock, compounding quarterly, until
declared and paid in full.
(B) No full dividends may be declared or paid or funds set
apart for the payment of dividends on any Parity Securities for any period
unless full cumulative dividends shall have been or contemporaneously shall be
declared and paid in full on the Series E Preferred Stock. If full dividends are
not so paid, the Series E Preferred Stock shall share dividends pro rata with
the Parity Securities. No dividends may be paid or set apart for such payment on
Junior Securities (except dividends on Junior Securities in additional shares of
Junior Securities) and no Junior Securities or Parity Securities may be
repurchased, redeemed or otherwise retired nor may funds be set apart for
payment with respect thereto if full cumulative dividends shall not have been
paid on the Series E Preferred Stock.
(C) Each dividend paid on the Series E Preferred Stock shall
be payable to Holders of record as their names shall appear in the stock ledger
of the Corporation on the Dividend Record Date for such dividend, except that
dividends in arrears for any past Dividend Payment Date may be declared and paid
at any time without reference to such regular Dividend Payment Date to Holders
of record on a later dividend record date determined by the Board of Directors.
V. LIQUIDATION PREFERENCE.
(A) Upon any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, holders of Series E Preferred Stock will be
entitled to be paid, out of the assets of the Corporation available for
distribution, $1,000 per share, plus an amount in cash equal to accrued and
unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding-up (including an amount equal to a prorated dividend for the period from
the last Dividend Payment Date to the date fixed for liquidation, dissolution or
winding-up), before any distribution is made on any Junior Securities. If, upon
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any voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, the amounts payable with respect to the Series E Preferred Stock
and all other Parity Securities are not paid in full, the holders of the Series
E Preferred Stock and the Parity Securities will share equally and ratably in
any distribution of assets of the Corporation in proportion to the full
liquidation preference and accrued and unpaid dividends to which each is
entitled. After payment of the full amount of the liquidation preferences and
accrued and unpaid dividends to which they are entitled, the holders of Series E
Preferred Stock will not be entitled to any further participation in any
distribution of assets of the Corporation.
(B) For the purposes of this Article V only, neither the sale,
lease, 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 corporations shall be deemed to be a liquidation, dissolution or
winding-up of the Corporation.
VI. REDEMPTION.
(A) MANDATORY REDEMPTION. The Series E Preferred Stock shall
be subject to mandatory redemption (subject to the legal availability of funds
therefor and any contractual or other restrictions with respect thereto) in
whole on the Mandatory Redemption Date at a Redemption Price, payable in cash,
equal to the liquidation preference thereof on the Redemption Date plus all
accrued and unpaid dividends thereon to the Redemption Date.
(B) OPTIONAL REDEMPTION. The Series E Preferred Stock may be
redeemed at any time on or after April 15, 2004, at the Corporation's option, in
whole or in part, at the Redemption Prices (expressed as a percentage of the
liquidation preference thereof on the Redemption Date) set forth below, plus an
amount in cash equal to all accrued and unpaid dividends thereon to the
Redemption Date, if redeemed during the period beginning April 15 of each of the
years set forth below:
YEAR PERCENTAGE
2004 110.000%
2005 106.667%
2006 103.333%
2007 and thereafter 100.000%
In addition, at any time or from time to time, on or prior to
April 15, 2002, the Corporation may, at its option, redeem shares of Series E
Preferred Stock with the proceeds of one or more sales of the Corporation's
Capital Stock at a Redemption Price, payable in cash, equal to 110% of the
liquidation preference thereof on the Redemption Date, plus an amount in cash
equal to all accrued and unpaid dividends thereon to the Redemption Date,
provided that as of the date of any such redemption, the cumulative aggregate
liquidation preference of all shares of Series E Preferred Stock redeemed
pursuant to this provision on or prior to such date shall not exceed 35% of the
aggregate liquidation preference of shares of Series E Preferred Stock issued on
or prior to such date whether or not still outstanding on such date.
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No optional redemption may be authorized or made unless prior
thereto full unpaid cumulative dividends shall have been paid or a sum set apart
for such payment on the Series E Preferred Stock.
(C) PROCEDURE FOR REDEMPTION. (i) Not more than sixty (60) and
not less than thirty (30) days prior to the Redemption Date, written notice (the
"Redemption Notice") shall be given by the Corporation by first-class mail to
each Holder at such Holder's address as the same appears on the stock ledger of
the Corporation; PROVIDED, HOWEVER, that no failure to give such notice nor any
deficiency therein shall affect the validity of the procedure for the redemption
of any shares of Series E Preferred Stock to be redeemed, except as to the
Holders to whom the Corporation has failed to give such notice or except as to
the Holders whose notice was defective. The Redemption Notice shall state:
(a) the Redemption Price;
(b) the Redemption Date;
(c) that the Holder is to surrender to the Corporation, at the
place or places designated in such Redemption Notice, its certificates
representing the shares of Series E Preferred Stock to be redeemed; and
(d) the name of any bank or trust company performing the
duties referred to in Section VI(C)(iv) below.
(ii) On or before the Redemption Date, each Holder of Series E
Preferred Stock to be redeemed shall surrender the certificate or certificates
representing such shares of Series E Preferred Stock to the Corporation, in the
manner and at the place designated in the Redemption Notice, and on the
Redemption Date the full Redemption Price for such shares shall be payable in
cash to the Holder whose name appears in the stock ledger of the Corporation as
the owner thereof, and each surrendered certificate shall be returned to
authorized but unissued shares of Preferred Stock of the Corporation.
(iii) Unless the Corporation defaults in the payment in full
of the applicable Redemption Price, dividends on the Series E Preferred Stock
called for redemption shall cease to accrue on the Redemption Date, and the
Holders of such shares shall cease to have any further rights with respect
thereto on the Redemption Date, other than the right to receive the Redemption
Price.
(iv) If a Redemption Notice shall have been duly given or if
the Corporation shall have given to the bank or trust company hereinafter
referred to irrevocable authorization promptly to give such notice, and if on or
before the Redemption Date specified therein the funds necessary for such
redemption shall have been irrevocably and indefeasibly deposited by the
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Corporation with such bank or trust company in trust for the PRO RATA benefit of
the Holders of the Series E Preferred Stock called for redemption, then,
notwithstanding that any certificate for shares so called for redemption shall
not have been surrendered for cancellation, from and after the time of such
deposit, all shares so called, or to be so called pursuant to such irrevocable
authorization, for redemption shall be deemed no longer to be outstanding and
all rights with respect to such shares shall forthwith cease and terminate,
excepting only the right of the Holders thereof to receive from such bank or
trust company at any time after the time of such deposit the funds so deposited,
without interest. Any interest accrued on such funds shall be paid to the
Corporation from time to time. Any funds so set aside or deposited, as the case
may be, and unclaimed at the end of three years from such Redemption Date shall,
to the extent permitted by law, be released or repaid to the Corporation, after
which repayment the Holders of the shares to be redeemed shall look only to the
Corporation for payment thereof.
(v) In the event of partial redemptions of Series E Preferred
Stock, the shares to be redeemed will be determined PRO RATA or by lot, as
determined by the Corporation, except that the Corporation may redeem such
shares held by any holder of fewer than 100 shares without regard to such PRO
RATA redemption requirement. If any Series E Preferred Stock is to be redeemed
in part, the Redemption Notice that relates to such Series E Preferred Stock
shall state the portion of the liquidation preference to be redeemed. New shares
of Series E Preferred Stock having an aggregate liquidation preference equal to
the unredeemed portion shall be issued in the name of the Holder thereof upon
cancellation of the original Series E Preferred Stock.
(vi) Notwithstanding anything herein to the contrary, a
Redemption Notice will be revocable if (i) it states that it is revocable and
provides that a notice of revocation may be given not less than five days prior
to the Redemption Date by the Corporation in accordance with Article XVII hereof
and (ii) the Board of Directors determines that the availability of funds to pay
the Redemption Price is subject to the closing of a financing and, at the time
such Redemption Notice is given, such closing is subject to uncertainty.
VII. VOTING RIGHTS.
(A) The Holders of Series E Preferred Stock shall have no
voting rights except as set forth below and as otherwise provided by law.
(B)(i) If and whenever (1) dividends on the Series E Preferred
Stock are in arrears and remain unpaid with respect to four quarterly periods
(whether or not consecutive), (2) the Corporation fails to discharge any
redemption obligation with respect to the Series E Preferred Stock, (3) a breach
or violation by the Corporation of the provisions of Article X occurs, or the
Corporation fails to exchange Exchange Debentures for the Series E Preferred
Stock tendered for exchange on the exchange date, whether or not the Corporation
satisfies the conditions to permit such exchange, (4) the Corporation fails to
make a Change of Control Offer or cash payment with respect thereto if required
by the provisions of Article VIII or (5) a breach or violation of any provision
of Article IX or Article XI occurs and is not remedied within 30 days after
notice thereof to the Corporation by Holders of 25 % or more of the liquidation
preference of the Series E Preferred Stock then outstanding (each such event
referred to as a "Voting Rights Triggering Event"), then the number of directors
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then constituting the Board of Directors of the Corporation shall be increased
by one director and the Holders of a majority of the then outstanding shares of
Series E Preferred Stock, voting as a single class, shall be entitled to elect
one additional director at any annual meeting of shareholders or special meeting
held in place thereof, or at a special meeting of the Holders of Series E
Preferred Stock called as hereinafter provided. In the event that any Holder is
a "bank holding company" or a direct or indirect subsidiary thereof for the
purposes of the Bank Holding Company Act of 1956, as amended and the regulations
promulgated thereunder (collectively, the "BHC Act"), neither such Holder nor
any subsequent holder of the Series E Preferred Stock (each, a "Regulated
Holder") shall be entitled to exercise any voting rights hereunder, unless in
the reasonable judgment of such Regulated Holder, as evidenced by a written
notice to the Corporation from such Regulated Holder and if requested by the
Corporation an opinion of counsel to such Regulated Holder reasonably
satisfactory to the Corporation, such exercise would not violate the BHC Act.
Upon notice of any Voting Rights Triggering Event under this Article VII (B)(i),
such Regulated Holder shall promptly advise the Corporation in writing and each
other Regulated Holder of whether it is entitled to exercise its voting rights
hereunder.
(ii) Whenever a Voting Rights Triggering Event shall have
occurred, voting rights of the Holders of Series E Preferred Stock may be
exercised initially either at a special meeting of the Holders of Series E
Preferred Stock called as hereinafter provided, or at any annual meeting of
shareholders held for the purpose of electing directors, and thereafter at each
such annual meeting or by the written consent of the Holders of Series E
Preferred Stock, voting as a single class, pursuant to the Delaware General
Corporation Law. The term of office of any such elected director shall expire at
the next annual meeting of shareholders held for the purpose of electing
directors, subject to a new election of a director by the Holders of Series E
Preferred Stock, voting as a single class, at each successive annual meeting,
but such voting rights and the term of office of any such elected director shall
expire at such time as (A) all dividends accrued on Series E Preferred Stock
shall have been paid in full and (B) each failure, breach or default referred to
in paragraph VII(B) (i)(A)(2), (3), (4) and (5) above is remedied.
(iii) At any time after a Voting Rights Triggering Event shall
have occurred and such voting rights shall not already have been initially
exercised, a proper officer of the Corporation may, and upon the written request
of any Holder of Series E Preferred Stock (addressed to the Secretary at the
principal office of the Corporation) shall, call a special meeting of the
Holders of Series E Preferred Stock for the election of a director to be elected
by them, voting as a single class, as herein provided, such call to be made by
notice similar to that provided in the Bylaws for a special meeting of the
shareholders or as required by law.
(iv) Such meeting shall be held at the earliest practicable
date upon the notice required for annual meetings of shareholders at the place
for holding annual meetings of shareholders of the Corporation or, if none, at a
place designated by the Secretary of the Corporation. If such meeting shall not
be called by a proper officer of the Corporation within 30 days after the
personal service of such written request upon the Secretary of the Corporation,
or within 30 days after mailing the same within the United States, by registered
mail, addressed to the Secretary of the Corporation at its principal office
(such mailing to be evidenced by the registry receipt issued by the postal
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authorities), then the holders of record of 10% of the shares of Series E
Preferred Stock then outstanding, may designate in writing a Holder of Series E
Preferred Stock to call such meeting at the expense of the Corporation, and such
meeting may be called by such person so designated upon the notice required for
annual meetings of shareholders and shall be held at the same place as is
elsewhere provided in this paragraph VII(B)(iv) or at such other place as is
selected by such person so designated. Any Holder of Series E Preferred Stock
that would be entitled to vote at any such meeting shall have access to the
stock books of the Corporation for the purpose of causing a meeting of
shareholders to be called pursuant to the provisions of this paragraph.
Notwithstanding the provisions of this paragraph, however, no such special
meeting shall be called during a period within 90 days immediately preceding the
date fixed for the next annual meeting of shareholders.
(v) At any meeting held for the purpose of electing directors
at which the Holders of Series E Preferred Stock, voting as a single class,
shall have the right to elect a director as provided herein, the presence in
person or by proxy of the Holders of a majority of the then outstanding shares
of Series E Preferred Stock shall be required and be sufficient to constitute a
quorum of such class for the election of a director by such class. At any such
meeting or adjournment thereof, (x) the absence of a quorum of the Holders of
Series E Preferred Stock shall not prevent the election of directors other than
the director to be elected by such Holders and the absence of a quorum or
quorums of the holders of Capital Stock entitled to elect such other directors
shall not prevent the election of a director to be elected by the Holders of
Series E Preferred Stock, voting as a single class, and (y) in the absence of a
quorum of the holders of any class of stock entitled to vote for the election of
directors, a majority of the holders present in person or by proxy of such class
shall have the power to adjourn the meeting for the election of directors which
the holders of such class are entitled to elect, from time to time, without
notice (except as required by law) other than announcement at the meeting, until
a quorum shall be present.
(vi) The term of office of the director elected by the Holders
of Series E Preferred Stock, pursuant to paragraph VII(B)(i) in office at any
time when the aforesaid voting rights are vested in the Holders of Series E
Preferred Stock, shall terminate upon the election of his/her successor by the
Holders of the Series E Preferred Stock at any meeting of shareholders for the
purpose of electing directors. Upon any termination of the aforesaid voting
rights in accordance with paragraph VII(B)(ii), the term of office of the
director elected pursuant to paragraph VII(B)(i) then in office shall thereupon
terminate and upon such termination the number of directors constituting the
Board of Directors shall, without further action, be reduced by one, subject
always to the increase of the number of directors pursuant to paragraph
VII(B)(i) in case of the future right of the Holders of Series E Preferred Stock
to elect a director as provided herein.
(vii) If the director elected pursuant to paragraph VII(B)(ii)
shall cease to serve as director before his/her term shall expire, the Holders
of Series E Preferred Stock then outstanding, voting as a single class, at a
special meeting called as provided above, may elect a successor to hold office
for the unexpired terms of the director whose place shall be vacant.
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VIII. CHANGE OF CONTROL.
Upon the occurrence of a Change of Control, the Corporation
shall be required (subject to any contractual and other restrictions with
respect thereto and the legal availability of funds therefor) to make an Offer
to Purchase (the "Change of Control Offer") to each Holder of Series E Preferred
Stock to repurchase all or any part, at the Holder's option, of such Holder's
Series E Preferred Stock at a cash purchase price equal to 101% of the
liquidation preference thereof, plus an amount in cash equal to all accrued and
unpaid dividends (including an amount in cash equal to a prorated dividend for
the period from the immediately preceding Dividend Payment Date to the date of
purchase) (the "Change of Control Payment"). The Change of Control Offer must be
made within 30 days following the conclusion of all change of control offers for
the Corporation's debt securities, must remain open for at least 30 and not more
than 60 days and must comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable. Prior to commencing any Change
of Control Offer, the Corporation shall first consummate any change of control
offer to purchase required to be made to any holder of its Indebtedness. The
Corporation shall make the Change of Control Offer within 30 days following the
consummation of any mandatory offers to purchase and any other required
repayments of the Corporation's Indebtedness resulting from a change of control.
IX. CONSOLIDATION. MERGER AND SALE OF ASSETS.
The Corporation shall not consolidate with, merge with or
into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or substantially an
entirety in one transaction or a series of related transactions) to, any Person
or permit any Person to merge with or into the Corporation unless: (i) the
Corporation shall be the continuing Person, or the Person (if other than the
Corporation) formed by such consolidation or into which the Corporation is
merged or that acquired or leased such property and assets of the Corporation
shall be a corporation organized and validly existing under the laws of the
United States of America or any jurisdiction thereof and the Series E Preferred
Stock shall be converted into or exchanged for and shall become shares of such
successor company, having in respect of such successor company or resulting
company substantially the same powers, preferences and relative participating,
optional or other special rights and the qualifications, limitations or
restrictions thereon that the Series E Preferred Stock had immediately prior to
such transaction in respect of the Corporation; (ii) immediately after giving
effect to such transaction on a PRO FORMA basis, (A) the Corporation or any
Person becoming the successor or resulting company, as the case may be, shall
have a Consolidated Net Worth equal to or greater than the Consolidated Net
Worth of the Corporation immediately prior to such transaction or (B) the
Corporation or any Person becoming the successor or resulting company, as the
case may be, shall have a Consolidated Leverage Ratio no more than the greater
of (I) 6:1 and (II) the Consolidated Leverage Ratio of the Corporation
immediately prior to such transaction; PROVIDED that this clause (ii) shall not
apply to a consolidation or merger with or into a Wholly Owned Restricted
Subsidiary with a positive net worth; PROVIDED that, in connection with any such
merger or consolidation, no consideration (other than Capital Stock (other than
Disqualified Stock) in the surviving Person or the Corporation) shall be issued
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or distributed to the stockholders of the Corporation; and (iii) the Corporation
delivers to the Transfer Agent an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clause (ii)) and Opinion
of Counsel, in each case stating that such consolidation, merger or transfer
complies with this provision and that all conditions precedent provided for
herein relating to such transaction have been complied with; PROVIDED, HOWEVER,
that clause (ii) above does not apply if, in the good faith determination of the
Board of Directors of the Corporation, whose determination shall be evidenced by
a Board Resolution, the principal purpose of such transaction is to change the
state of incorporation of the Corporation and any such transaction shall not
have as one of its purposes the evasion of the foregoing limitations.
X. EXCHANGE.
(A) The Corporation may, at the sole option of the Board of
Directors (subject to the legal availability of funds therefor), exchange all,
but not less than all, of the shares of Series E Preferred Stock then
outstanding, including any shares of Series E Preferred Stock issued as payment
for dividends, for a new series of senior subordinated debentures of the
Corporation (the "Exchange Debentures") to be issued pursuant to an indenture
(the "Indenture") qualified under the Trust Indenture Act of 1939, as amended,
substantially in the form attached as an exhibit to the Purchase Agreement (a
copy of which shall be provided to any Holder upon written request to the
Secretary of the Corporation), at any time following the date on which such
exchange is permitted by the terms of the then-existing Indebtedness of the
Corporation and subject to the conditions contained in paragraph X(B) below. The
Exchange Debentures will be issued in registered form, without coupons, be duly
executed, authenticated as of the date on which the exchange is effective and
dated the date of exchange. In the event of an exchange, Holders of Series E
Preferred shall be entitled to receive on the date of exchange Exchange
Debentures having an aggregate principal amount equal to (i) the total of the
liquidation preference for each share of Series E Preferred exchanged, PLUS (ii)
an amount equal to all accrued but unpaid dividends payable on such share
(including a prorated dividend for the period from the immediately preceding
Dividend Payment Date to the date of exchange). In the event such exchange would
result in the issuance of Exchange Debentures in a principal amount which is
less than $1,000 or which is not an integral multiple of $1,000 (such principal
amount less than $1,000 or the difference between such principal amount and the
highest integral of $1,000 which is less than such principal amount, as the case
may be, is hereinafter referred to as the "Fractional Principal Amount"), the
Corporation may, subject to any restrictions in the terms of the then-existing
Indebtedness of the Corporation, at the option of the Board of Directors, pay
cash to each Holder of Series E Preferred in lieu of Fractional Principal
Amounts of Exchange Debentures otherwise issuable upon exchange of the Series E
Preferred Stock. The Person entitled to receive the Exchange Debentures issuable
upon exchange shall be treated for all purposes as the registered holder of such
Exchange Debentures as of the date of exchange. The Corporation will mail to
each Holder of Series E Preferred Stock written notice of its intention to
exchange no less than 20 nor more than 60 days prior to the date of exchange.
(B) As a condition of the right of the Corporation to issue
Exchange Debentures in exchange for the Series E Preferred Stock under paragraph
(A) above, on the date of exchange, (A) there shall be legally available funds
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sufficient therefor; (B) a registration statement relating to the Exchange
Debentures shall have been declared effective under the Securities Act prior to
such exchange and shall continue to be effective on the date of exchange, or the
Corporation shall have obtained a written opinion of its outside counsel
reasonably acceptable to Holders of a majority of the shares of Series E
Preferred Stock that an exemption from the registration requirements of the
Securities Act is available for such exchange and that upon receipt of such
Exchange Debentures pursuant to such an exchange made in accordance with such
exemption, each holder of an Exchange Debenture that is not an Affiliate of the
Corporation will not be subject to any restrictions imposed by the Securities
Act upon the resale of such Exchange Debenture, and such exemption is relied
upon by the Corporation for such exchange, (C) the Indenture and the trustee
thereunder shall have been qualified under the Trust Indenture Act of 1939, as
amended; (D) immediately after giving effect to such exchange, no default or
event of default would exist under any of the Corporation's existing
Indebtedness; and (E) the Corporation shall have delivered to the Trustee under
the Indenture a written opinion of counsel, dated the date of exchange,
regarding the satisfaction of the conditions set forth in clauses (A), (B) and
(C).
XI. COVENANTS.
(A) LIMITATION ON Indebtedness
(a) The Corporation shall not, and will not permit any of its
Restricted Subsidiaries to, Incur any Indebtedness (other than Indebtedness
existing on the Closing Date); provided that the Corporation may Incur
Indebtedness if, after giving effect to the Incurrence of such Indebtedness and
the receipt and application of the proceeds therefrom, the Consolidated Leverage
Ratio would be greater than zero and less than 6:1.
Notwithstanding the foregoing, the Corporation and any
Restricted Subsidiary (except as specified below) may Incur each and all of the
following: (i) Indebtedness outstanding at any time in an aggregate principal
amount not to exceed $400 million; (ii) Indebtedness in existence on the Closing
Date; (iii) Indebtedness of the Corporation to a Restricted Subsidiary and
Indebtedness of a Restricted Subsidiary to the Corporation or another Restricted
Subsidiary; PROVIDED that such Indebtedness is made pursuant to an intercompany
note and any event which results in any such Restricted Subsidiary ceasing to be
a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other
than to the Corporation or another Restricted Subsidiary) shall be deemed, in
each case, to constitute an Incurrence of such Indebtedness not permitted by
this clause (iii); (iv) Indebtedness issued in exchange for, or the net proceeds
of which are used to refinance or refund, then outstanding Indebtedness (other
than Indebtedness Incurred under clause (i), (iii), (v) or (ix) of this
paragraph) and any refinancings thereof in an amount not to exceed the amount so
refinanced or refunded (plus premiums, accrued interest, fees and expenses);
PROVIDED that such new Indebtedness, determined as of the date of Incurrence of
such new Indebtedness, does not mature or have a mandatory redemption or
repurchase date prior to the Stated Maturity of the Indebtedness to be
refinanced or refunded, and the Average Life of such new Indebtedness is at
least equal to the remaining Average Life of the Indebtedness to be refinanced
or refunded; (v) Indebtedness (A) in respect of performance, surety, appeal
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bonds and completion guarantees provided in the ordinary course of business; (B)
under Currency Agreements and Interest Rate Agreements; PROVIDED that such
agreements (a) are designed solely to protect the Corporation or its Restricted
Subsidiaries against fluctuations in foreign currency exchange rates or interest
rates and (b) do not increase the Indebtedness of the obligor outstanding at any
time (except to the extent Incurred under another clause hereof) other than as a
result of fluctuations in foreign currency exchange rates or interest rates or
by reason of fees, indemnities and compensation payable thereunder; and (C)
arising from agreements providing for indemnification, adjustment of purchase
price or similar obligations, or from Guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Corporation or any of
its Restricted Subsidiaries pursuant to such agreements, in each case Incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted Subsidiary
for the purpose of financing such acquisition), in a principal amount not to
exceed the gross proceeds actually received by the Corporation or any Restricted
Subsidiary in connection with such disposition; (vi) Indebtedness of the
Corporation, to the extent the net proceeds thereof are promptly (A) used to
purchase the Series E Preferred Stock and/or Series F Preferred Stock tendered
in an Offer to Purchase made as a result of a Change in Control or (B) deposited
to defease the Senior Discount Notes or used to redeem all the Series E
Preferred Stock or Series F Preferred Stock; (vii) Indebtedness Incurred to
finance the cost (including the cost of design, development, acquisition,
construction, installation, improvement, transportation or integration) to
acquire equipment, inventory or network assets (including acquisitions by way of
acquisitions of real property, leasehold improvements, Capitalized Leases and
acquisitions of the Capital Stock of a Person that becomes a Restricted
Subsidiary to the extent of the fair market value of the equipment, inventory or
network assets so acquired) by the Corporation or a Restricted Subsidiary after
the Closing Date; (viii) Indebtedness of the Corporation not to exceed, at any
one time outstanding, two times the sum of (A) the Net Cash Proceeds received by
the Corporation on or after the Closing Date from the issuance and sale of its
Capital Stock (other than Disqualified Stock) to a Person that is not a
Subsidiary of the Corporation, to the extent such Net Cash Proceeds have not
been used pursuant to clause (iii)(B)(2) of the first paragraph or clause (ii)
of the second paragraph of Section XI(B) or clause (v) of the definition of
"Permitted Investments" to make a Restricted Payment and (B) 80% of the fair
market value of property (other than cash and cash equivalents) received by the
Corporation after the Closing Date from the sale of its Capital Stock (other
than Disqualified Stock) to a Person that is not a Subsidiary of the
Corporation, to the extent such sale of Capital Stock has not been used pursuant
to clause (iii) of the second paragraph of Section XI(B) to make a Restricted
Payment; PROVIDED that such Indebtedness does not mature prior to the Mandatory
Redemption Date; (ix) Indebtedness Incurred by the Corporation or any of its
Restricted Subsidiaries constituting reimbursement obligations with respect to
letters of credit in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or self
insurance, or other Indebtedness with respect to reimbursement type obligations
regarding workers' compensation claims; PROVIDED, HOWEVER, that upon the drawing
of such letters of credit or the Incurrence of such Indebtedness, such
obligations are reimbursed within 30 days following such drawing or Incurrence;
(x) Indebtedness of Persons that are acquired by the Corporation or any of its
Restricted Subsidiaries or merged into a Restricted Subsidiary in accordance
with the terms of this Certificate of Designations; PROVIDED that such
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Indebtedness is not incurred in contemplation of such acquisition or merger; and
PROVIDED FURTHER that after giving effect to such acquisition or merger, either
(x) the Corporation would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Leverage Ratio test set forth in the
first sentence of this covenant or (y) the Consolidated Leverage Ratio is lower
(if greater than zero) or higher (if less than zero) than immediately prior to
such acquisition; (xi) Strategic Subordinated Indebtedness; and (xii)
Indebtedness under the Lucent Facility.
(b) Notwithstanding any other provision of this Section XI(A),
the maximum amount of Indebtedness that the Corporation or a Restricted
Subsidiary may Incur pursuant to this Section XI(A) shall not be deemed to be
exceeded, with respect to any outstanding Indebtedness due solely to the result
of fluctuations in the exchange rates of currencies. Accretion on an instrument
issued at a discount will not be deemed to constitute an Incurrence of
Indebtedness.
(c) For purposes of determining any particular amount of
Indebtedness pursuant to this Section XI(A), Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be treated as
Indebtedness. For purposes of determining compliance with this Section XI(A), in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described in the above clauses, the Corporation, in
its sole discretion, shall classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of such
clauses.
(B) LIMITATION ON RESTRICTED PAYMENTS
The Corporation shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make
any distribution on or with respect to its Junior Securities (other than (x)
dividends or distributions payable solely in shares of its Junior Securities
(other than Disqualified Stock) or in options, warrants or other rights to
acquire shares of such Junior Securities and (y) pro rata dividends or
distributions on Common Stock of Restricted Subsidiaries held by minority
stockholders) held by Persons other than the Corporation or any of its
Restricted Subsidiaries, (ii) purchase, redeem, retire or otherwise acquire for
value any shares of Junior Securities of (A) the Corporation or an Unrestricted
Subsidiary (including options, warrants or other rights to acquire such shares
of Junior Securities) held by any Person or (B) a Restricted Subsidiary other
than a Wholly Owned Restricted Subsidiary (including options, warrants or other
rights to acquire such shares of Junior Securities) held by any Affiliate of the
Corporation (other than a Wholly Owned Restricted Subsidiary), or (iii) make any
Investment, other than a Permitted Investment, in any Person (such payments or
any other actions described in clauses (i) through (iii) above being
collectively "Restricted Payments") if, at the time of, and after giving effect
to, the proposed Restricted Payment: (A) the Corporation could not Incur at
least $1.00 of Indebtedness under the first paragraph of Section XI(A), or (B)
the aggregate amount of all Restricted Payments (the amount, if other than in
cash, to be determined in good faith by the Board of Directors whose
determination shall be conclusive and evidenced by a Board Resolution) made
after the Closing Date shall exceed the sum of (1) 50% of the aggregate amount
of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net
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Income is a loss, minus 100% of the amount of such loss) (determined by
excluding income resulting from transfers of assets by the Corporation or a
Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a cumulative
basis during the period (taken as one accounting period) beginning on the first
day of the fiscal quarter immediately following the Closing Date and ending on
the last day of the last fiscal quarter preceding the Transaction Date for which
reports have been provided to the Transfer Agent PLUS (2) 100% of the aggregate
Net Cash Proceeds and the actual market value of marketable securities (on the
date the calculation hereunder is made) received by the Corporation after the
Closing Date from the issuance and sale permitted by this Certificate of
Designations of its Capital Stock (other than Disqualified Stock) to a Person
who is not a Subsidiary of the Corporation, including an issuance or sale
permitted by this Certificate of Designations of Indebtedness of the Corporation
for cash subsequent to the Closing Date upon the conversion of such Indebtedness
into Capital Stock (other than Disqualified Stock) of the Corporation, or from
the issuance to a Person who is not a Subsidiary of the Corporation of any
options, warrants or other rights to acquire Capital Stock of the Corporation
(in each case, exclusive of any Disqualified Stock or any options, warrants or
other rights that are redeemable at the option of the holder, or are required to
be redeemed, prior to the Mandatory Redemption Date), and the Net Cash Proceeds
from any capital contributions to the Corporation after the Closing Date from
Persons other than Subsidiaries of the Corporation, in each case excluding such
Net Cash Proceeds to the extent used to Incur Indebtedness pursuant to clause
(viii) of the second paragraph of Section XI(A) and excluding Net Cash Proceeds
from the issuance of Capital Stock to the extent used to make a Permitted
Investment in accordance with clause (v) of such defined term, plus (3) amounts
received from Investments (other than Permitted Investments) in any Person
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to the Corporation
or any Restricted Subsidiary or from the Net Cash Proceeds from the sale of any
such Investment (except, in each case, to the extent any such payment or
proceeds are included in the calculation of Adjusted Consolidated Net Income),
or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investments"), not to
exceed, in each case, the amount of Investments previously made by the
Corporation or any Restricted Subsidiary in such Person or Unrestricted
Subsidiary or (C) dividends on Series E Preferred Stock shall not have been paid
in full as provided in this Certificate of Designations.
The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with the
foregoing paragraph; (ii) the redemption, repurchase or other acquisition of
Junior Securities of the Corporation including premium, if any, and accrued and
unpaid dividends, with the proceeds of, or in exchange for, Junior Securities
(other than Disqualified Stock) of the Corporation; (iii) payments or
distributions, to dissenting stockholders pursuant to applicable law, pursuant
to or in connection with a consolidation, merger or transfer of assets that
complies with Article IX; (iv) the declaration or payment of dividends on the
Common Stock of the Corporation following a Public Equity Offering of such
Common Stock, of up to 6% per annum of the Net Cash Proceeds received by the
Corporation in such Public Equity Offering; (v) the repurchase, retirement or
other acquisition or retirement for value of any shares of Junior Securities of
the Corporation that are not registered under the Exchange Act and are held by
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any current or former employee, director or consultant (or their estates or the
beneficiaries of such estates) of the Corporation or any Subsidiary, not to
exceed (A) in any calendar year $2.0 million or (B) $5.0 million in the
aggregate; (vi) repurchases of Junior Securities deemed to occur upon exercise
of stock options if such Capital Stock represents a portion of the exercise
price of such options; (vii) repurchases of fractional shares of Junior
Securities in connection with the exercise of Warrants in accordance with the
Warrant Agreement and Preferred Stock Warrant Agreement or other warrants to
purchase the Corporation's Common Stock; and (viii) other Restricted Payments in
an aggregate amount not to exceed $2.0 million.
Each Restricted Payment permitted pursuant to the preceding
paragraph (other than the Restricted Payment referred to in clauses (ii) or (vi)
thereof, an exchange of Junior Securities for Junior Securities and an
Investment referred to in clause (iv) thereof) shall be included in calculating
whether the conditions of clause (iii)(B) of the first paragraph of this Section
XI(B) have been met with respect to any subsequent Restricted Payments. In the
event the proceeds of an issuance of Capital Stock of the Corporation are used
for the redemption, repurchase or other acquisition of Parity Securities, then
the Net Cash Proceeds of such issuance shall be included in clause (iii)(B) of
the first paragraph of this Section XI(B) only to the extent such proceeds are
not used for such redemption, repurchase or other acquisition of securities.
Any Restricted Payments made other than in cash shall be
valued at fair market value. The amount of any Investment "outstanding" at any
time shall be deemed to be equal to the amount of such Investment on the date
made, less the return of capital to the Corporation and its Restricted
Subsidiaries with respect to such Investment by distribution, sale or otherwise
(up to the amount of such Investment on the date made).
(C) LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES
The Corporation shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions
permitted by applicable law on any Capital Stock of such Restricted Subsidiary
owned by the Corporation or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Corporation or any other Restricted Subsidiary, (iii)
make loans or advances to the Corporation or any other Restricted Subsidiary or
(iv) transfer any of its property or assets to the Corporation or any other
Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances
or restrictions:
(i) existing on the Closing Date, in the Newcourt Facility,
the Lucent Facility, this Certificate of Designations or any other agreements in
effect on the Closing Date, and any extensions, refinancings, renewals or
replacements of such agreements; PROVIDED that the encumbrances and restrictions
in any such extensions, refinancings, renewals or replacements are no less
favorable in any material respect to the Holders than those encumbrances or
restrictions that are then in effect and that are being extended, refinanced,
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renewed or replaced; (ii) existing under or by reason of applicable law, rule,
regulation or order; (iii) existing with respect to any Person or the property
or assets of such Person acquired by the Corporation or any Restricted
Subsidiary, existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not applicable to
any Person or the property or assets of any Person other than such Person or the
property or assets of such Person so acquired; (iv) in the case of clause (iv)
of the first paragraph of this Section XI(C), (A) that restrict in a customary
manner the subletting, assignment or transfer of any property or asset that is a
lease, license, conveyance or contract or similar property or asset, (B)
existing by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Corporation or any
Restricted Subsidiary not otherwise prohibited by this Certificate of
Designations, (C) arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually or in the aggregate,
detract from the value of property or assets of the Corporation or any
Restricted Subsidiary in any manner material to the Corporation or any
Restricted Subsidiary or (D) purchase money obligations for property acquired in
the ordinary course of business that impose restrictions of the nature discussed
in clause (iv) above on the property so acquired; (v) with respect to the
Corporation or a Restricted Subsidiary and imposed pursuant to an agreement that
has been entered into for the sale of assets, including, without limitation,
customary restrictions on the disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary or the
Corporation; (vi) contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued (in each case other than
Indebtedness incurred under the Newcourt Facility) if (A) the encumbrance or
restriction applies only in the event of a payment default or a default with
respect to a financial covenant contained in such Indebtedness or agreement, (B)
the encumbrance or restriction is not materially more disadvantageous to the
Holders of the Series E Preferred Stock than is customary in comparable
financings (as determined by the Corporation) and (C) the Corporation determines
that any such encumbrance or restriction will not materially affect the
Corporation's ability to make dividend and mandatory redemption payments on the
Series E Preferred Stock; (vii) restrictions on cash or other deposits or net
worth imposed by customers under contracts entered into in the ordinary course
of business; (viii) customary provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business; and (ix) any
encumbrances or restrictions of the type referred to in clauses (i)-(iv) of the
first paragraph of this covenant imposed by any amendments, modifications,
renewals, restatements, increases, supplements, refundings, replacements or
refinancings of the contracts referred to in clauses (i) through (viii) above;
PROVIDED that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are, in the good faith
judgment of the Corporation, not materially more disadvantageous to the Holders
than those contained in the restriction prior to such amendment, modification,
restatement, renewal, increase, supplement, refunding, replacement or
refinancing. Nothing contained in this Section XI(C) shall prevent the
Corporation or any Restricted Subsidiary from restricting the sale or other
disposition of property or assets of the Corporation or any of its Restricted
Subsidiaries that secure Indebtedness of the Corporation or any of its
Restricted Subsidiaries.
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(D) LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES
The Corporation shall not sell, and shall not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of
Capital Stock of a Restricted Subsidiary (including options, warrants or other
rights to purchase shares of such Capital Stock) except (i) to the Corporation
or a Wholly Owned Restricted Subsidiary; (ii) issuances of director's qualifying
shares or sales to foreign nationals of shares of Capital Stock of foreign
Restricted Subsidiaries, to the extent required by applicable law; (iii) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect to such issuance or sale would have
been permitted to be made in accordance with Section XI(B) if made on the date
of such issuance or sale; or (iv) issuances or sales of common stock of a
Restricted Subsidiary, PROVIDED that the Corporation or any Restricted
Subsidiary applies an amount equal to the Net Cash Proceeds thereof in
accordance with Section XI(F).
(E) LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
The Corporation shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, enter into, renew or extend any
transaction (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any
Affiliate of the Corporation or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Corporation or such Restricted
Subsidiary than could be obtained, at the time of such transaction or, if such
transaction is pursuant to a written agreement, at the time of the execution of
the agreement providing therefor, in a comparable arm s-length transaction with
a Person that is not an Affiliate.
The foregoing limitation does not limit, and shall not apply
to (i) transactions (A) approved by a majority of the disinterested members of
the Board of Directors or (B) for which the Corporation or a Restricted
Subsidiary delivers to the Transfer Agent a written opinion of a nationally
recognized investment banking firm or a nationally recognized firm having
expertise in the specific area which is the subject of such determination
stating that the transaction is fair to the Corporation or such Restricted
Subsidiary from a financial point of view; (ii) any transaction solely between
the Corporation and any of its Restricted Subsidiaries or solely between
Restricted Subsidiaries; (iii) the payment of reasonable and customary regular
fees to, and indemnity provided on behalf of, officers, directors, employees or
consultants of the Corporation or its Restricted Subsidiaries; (iv) any payments
or other transactions pursuant to any tax-sharing agreement between the
Corporation and any other Person with which the Corporation files a consolidated
tax return or with which the Corporation is part of a consolidated group for tax
purposes; (v) any agreement as in effect as of the Closing Date or any amendment
thereto (so long as any such amendment is not disadvantageous to the Holders in
any material respect); (vi) the existence of, or the performance by the
Corporation or any of its Restricted Subsidiaries of its obligations under the
terms of, any stockholders agreement (including any registration rights
agreement or purchase agreement related thereto) to which it is a party as of
the Closing Date and any similar agreements which it may enter into thereafter
(so long as any such amendment is not disadvantageous to the Holders in any
material respect); or (vii) any Permitted Investments and Restricted Payments
not prohibited by Section XI(B). Notwithstanding the foregoing, any transaction
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or series of related transactions covered by the first paragraph of this Section
XI(E) and not covered by clauses (ii) through (vii) of this paragraph the
aggregate amount of which exceeds $3.0 million in value, must be approved or
determined to be fair in the manner provided for in clause (i)(A) or (B) above.
(F) LIMITATION ON ASSET SALES
The Corporation shall not, and shall not permit any Restricted
Subsidiary to, consummate any Asset Sale, unless (i) the consideration received
by the Corporation or such Restricted Subsidiary is at least equal to the fair
market value of the assets sold or disposed of and (ii) at least 75% of the
consideration received consists of cash or Temporary Cash Investments. For
purposes of this covenant, the following are deemed to be cash: (x) the
principal amount or accreted value (whichever is larger) of Indebtedness of the
Corporation or any Restricted Subsidiary with respect to which the Corporation
or such Restricted Subsidiary has either (A) received a written release or (B)
been released by operation of law, in either case, from all liability on such
Indebtedness in connection with such Asset Sale and (y) securities received by
the Corporation or any Restricted Subsidiary from the transferee that are
promptly converted by the Corporation or such Restricted Subsidiary into cash.
In the event and to the extent that the Net Cash Proceeds received by the
Corporation or any of its Restricted Subsidiaries from one or more Asset Sales
occurring on or after the Closing Date in any period of 12 consecutive months
exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of the
date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Corporation and its Subsidiaries has been
provided to the Transfer Agent), then the Corporation shall or shall cause the
relevant Restricted Subsidiary to (i) within 12 months after the date Net Cash
Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible Assets (A)
apply an amount equal to such excess Net Cash Proceeds to permanently repay
Indebtedness of the Corporation, repay Indebtedness of any Restricted Subsidiary
or redeem any Senior Securities, in each case owing to, or held by, a Person
other than the Corporation or any of its Restricted Subsidiaries or (B) invest
an equal amount, or the amount not so applied pursuant to clause (A) (or enter
into a definitive agreement committing to so invest within 12 months after the
date of such agreement), in property or assets (other than current assets) of a
nature or type or that are used in a business (or in a Person (other than a
natural person) having property and assets of a nature or type, or engaged in a
business) similar or related to the nature or type of the property and assets
of, or the business of, the Corporation and its Restricted Subsidiaries existing
on the date of such investment (as determined in good faith by the Board of
Directors whose determination shall be conclusive and evidenced by a Board
Resolution) and (ii) apply (no later than the end of the 12-month period
referred to in clause (i)) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraph of this
Section XI(F). The amount of such excess Net Cash Proceeds required to be
applied (or to be committed to be applied) during such 12-month period as set
forth in clause (i) of the preceding sentence and not applied as so required by
the end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate
amount of Excess Proceeds not theretofore subject to an Offer to Purchase
pursuant to this Section XI(F) totals at least $5 million, the Corporation must
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commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis, and an
offer to purchase any outstanding Parity Securities with similar provisions
requiring the Corporation to make an offer to purchase such securities, in an
aggregate liquidation preference of Series E Preferred Stock and such Parity
Securities equal to (A) with respect to the Series E Preferred Stock, the
product of such Excess Proceeds multiplied by a fraction, the numerator of which
is the liquidation preference of the outstanding shares of the Series E
Preferred Stock and the denominator of which is the sum of the outstanding
liquidation preference of the Series E Preferred Stock and such Parity
Securities (the product hereinafter referred to as the "Series E Preferred Stock
Amount"), and (B) with respect to the Parity Securities, the excess of the
Excess Proceeds over the Series E Preferred Stock Amount, at a purchase price
equal to 100% of the liquidation preference of the Series E Preferred Stock or
such Parity Securities, as the case may be, on the relevant Payment Date or such
other date set forth in the documentation governing the Parity Securities, plus,
in each case, accrued dividends (if any) to the Payment Date or such other date
set forth in the documentation governing the Parity Securities. If the aggregate
purchase price of the Preferred Stock tendered pursuant to the Offer to Purchase
is less than the Excess Proceeds, the remaining will be available for use by the
Corporation for general corporate purposes. Upon the consummation of any Offer
to Purchase in accordance with the terms of this Certificate of Designations,
the amount of Net Cash Proceeds from Asset Sales subject to any future Offer to
Purchase shall be deemed to be zero. Prior to commencing any Offer to Purchase,
the Corporation shall first consummate any offer to purchase required to be made
to any Holder of its Indebtedness.
(G) COMMISSION REPORTS AND REPORTS TO HOLDERS.
While the Series E Preferred Stock is outstanding, whether or
not the Corporation is then required to file reports with the Commission, the
Corporation shall deliver for filing with the Commission all such reports and
other information as it would be required to file with the Commission by
Sections 13(a) or 15(d) under the Exchange Act if it were subject thereto. All
references herein to reports "filed" with the Commission shall be deemed to
refer to the reports then most recently delivered for filing, whether or not
accepted by the Commission.
XII. MUTILATED OR MISSING SERIES E PREFERRED STOCK CERTIFICATES.
If any of the Series E Preferred Stock certificates shall be
mutilated, lost, stolen or destroyed, the Corporation shall issue, in exchange
and in substitution for and upon cancellation of the mutilated Series E
Preferred Stock certificate, or in lieu of and substitution for the Series E
Preferred Stock certificate lost, stolen or destroyed, a new Series E Preferred
Stock certificate of like tenor and representing an equivalent amount of shares
of Series E Preferred Stock, but only upon receipt of evidence of such loss,
theft or destruction of such Series E Preferred Stock certificate and indemnity,
if requested, satisfactory to the Corporation.
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XIII. REISSUANCE: PREEMPTIVE RIGHTS
(i) Shares of Series E Preferred Stock that have been issued
and reacquired in any manner, including shares purchased or redeemed, shall
(upon compliance with any applicable provisions of the laws of the State of
Delaware) have the status of authorized and unissued shares of Preferred Stock
undesignated as to series and may be redesignated and reissued as part of any
series of Preferred Stock.
(ii) No shares of Series E Preferred Stock shall have any
rights of preemption whatsoever as to any securities of the Corporation, or any
warrants, rights or options issued or granted with respect thereto, regardless
of how such securities or such warrants, rights or options may be designated,
issued or granted.
XIV. BUSINESS DAY.
If any payment or redemption shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment or
redemption shall be made on the immediately succeeding Business Day and no
further dividends shall accrued after the day payment was required.
XV. HEADINGS OF SUBDIVISIONS.
The headings of various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
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XVI. SEVERABILITY OF PROVISIONS.
If any right, preference or limitation of the Series E
Preferred Stock set forth in this Certificate of Designations (as may be amended
from time to time) is invalid, unlawful or incapable of being enforced by reason
of any rule or law or public policy, all other rights, preferences and
limitations set forth in this Certificate of Designations, as amended, which can
be given effect without the invalid, unlawful or unenforceable right, preference
or limitation shall, nevertheless remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent upon any
other such right, preference or limitation unless so expressed herein.
XVII. NOTICE
All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or when sent by telex or telecopier (with receipt confirmed),
provided a copy is also sent by express (overnight, if possible) courier,
addressed (i) in the case of a Holder of the Series E Preferred Stock, to such
holder's address of record shown on the records of the Corporation, and (ii) in
the case of the Corporation, to the Corporation's principal executive offices
(currently located on the date of the adoption of these resolutions at the
following address: KMC Telecom Holdings, Inc., 1545 Route 206, Suite 300,
Bedminster, New Jersey 07921) to the attention of the Corporation's Chief
Financial Officer.
XVIII. LIMITATIONS.
Except as may otherwise be required by law, the shares of
Series E Preferred Stock shall not have any powers, preferences or relative,
participating, optional or other special rights other than those specifically
set forth in this Certificate of Designations (as may be amended from time to
time) or otherwise in the Certificate of Incorporation of the Corporation.
XIX. TRANSFER AND LEGENDING OF SHARES.
No transfer of shares of the Series E Preferred Stock shall be
effective until such transfer is registered on the books of the Corporation. Any
shares of the Series E Preferred Stock so transferred must bear the following
legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR HAS IT BEEN
REGISTERED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE.
THIS SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR IN ANY
OTHER MANNER TRANSFERRED OR DISPOSED OF UNLESS (I) SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND THE
APPLICABLE RULES AND REGULATIONS THEREUNDER AND APPLICABLE
STATE SECURITIES LAWS OR BLUE SKY LAWS AND (II) PRIOR TO ANY
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SUCH TRANSFER, THE TRANSFEROR OR THE TRANSFEREE DELIVERS AN
OPINION OF COUNSEL (REASONABLY ACCEPTABLE TO THE CORPORATION)
TO THE TRANSFER AGENT AND THE CORPORATION, THAT SUCH TRANSFER
IS IN COMPLIANCE WITH THE SECURITIES ACT AND THE APPLICABLE
RULES AND REGULATIONS THEREUNDER.
The Corporation shall refuse to register any attempted
transfer of shares of Series E Preferred Stock not in compliance with this
Article XIX.
In the event the shares of Series E Preferred Stock are issued
as part of a unit together with Warrants, the shares of Series E Preferred Stock
and the Warrants shall not be separately transferable from each other until the
next Business Day after the issuance of such shares of Series E Preferred Stock
or until such other date as may be specified in a legend to the shares of Series
E Preferred Stock.
XX. AMENDMENTS AND WAIVERS
(A) Except as provided in this Article XX, any right,
preference, privilege or power of, or restriction provided for the benefit of,
the Series E Preferred Stock set forth herein may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Corporation
and the affirmative vote or written consent of the Holders of at least a
majority of the shares of Series E Preferred Stock then outstanding (excluding
any shares held by Affiliates of the Corporation, any Existing Stockholders or
any of their Affiliates), and any amendment or waiver so effected shall be
binding upon the Corporation and all Holders of the Series E Preferred Stock.
(B) Notwithstanding the foregoing, if any amendment is made to
the covenants of the Senior Discount Note Indenture, in accordance with the
provisions therein, then a conforming amendment may be made to the covenants set
forth in Article XI of this Certificate of Designations by the Corporation,
without the consent of any Holder, and any amendment so effected shall be
binding upon the Corporation and all Holders of the Series E Preferred Stock;
PROVIDED HOWEVER, that if in connection with making any such amendment to the
Senior Discount Note Indenture, the Corporation has paid consideration to the
holders of the Senior Discount Notes to obtain their consent to make such
amendment, then the Corporation shall pay each Holder consideration per $1,000
liquidation preference of Series E Preferred Stock equal to the consideration
per $1,000 principal amount of Senior Discount Notes paid to the holders of the
Senior Discount Notes. In connection with any such amendment, the Corporation
shall deliver to the Transfer Agent an Opinion of Counsel, reasonably acceptable
to it, that such amendment complies with the terms hereof. The Corporation shall
provide notice in accordance with Article XVII of this Certificate of
Designations of any amendment effected pursuant to this Section XX(B) to the
Holders of the Series E Preferred Stock.
42
<PAGE>
XXI. INCREASE OF AUTHORIZED AMOUNT OF SHARES.
Notwithstanding any other provision herein, the Board of
Directors may, from time to time, in its sole discretion, increase the number of
shares of Preferred Stock designated as Series E Preferred Stock under Article
II of this Certificate of Designations, up to the maximum amount of shares of
Preferred Stock authorized to be issued, without the consent of the holders of
any shares of its Capital Stock.
XXII. ISSUANCE OF ADDITIONAL SHARES OF SERIES E PREFERRED STOCK.
Except with respect to the issuance of shares of Series E
Preferred Stock to pay dividends on the Series E Preferred Stock or upon
conversion of the Series F Preferred Stock, the Corporation may not issue
additional shares of the Series E Preferred Stock to any purchaser unless (A) it
has obtained the consent of the Holders of a majority of the shares of Series E
Preferred Stock then outstanding and the holders of a majority of the shares of
Series F Preferred Stock then outstanding or (B)(i) the per share price paid for
such additional shares is at least equal to the per share price paid to the
Corporation for the shares of Series E Preferred Stock issued on the Closing
Date, (ii) the Corporation does not issue to such purchaser more than 1,136.4
Warrants per $1,000,000 of liquidation preference of Series E Preferred Stock,
(iii) (a) the Holders of Series E Preferred Stock issued on the Closing Date
retain their right to receive at least 147.73 Warrants, pursuant to Section 2.4
of the Warrant Agreement, per $100,000 of liquidation preference of Series E
Preferred Stock issued on the Closing Date and (b) the holders of Series F
Preferred Stock issued on the Closing Date retain their right to receive at
least 147.73 Warrants, pursuant to Section 2.4 of the Warrant Agreement, per
$100,000 of liquidation preference of Series F Preferred Stock issued on the
Closing Date and (iv) the aggregate amount of shares of Series E Preferred Stock
and Series F Preferred Stock issued (other than shares of Series E Preferred
Stock and Series F Preferred Stock issued to pay dividends thereon or shares of
Series E Preferred Stock issued upon conversion of the Series F Preferred Stock)
shall not exceed 150,000 shares.
Except with respect to the issuance of shares of Series F
Preferred Stock to pay dividends on the Series F Preferred Stock, the
Corporation shall not issue in excess of 40,000 shares of Series F Preferred
Stock, unless it has obtained the consent of the Holders of a majority of the
shares of Series E Preferred Stock then outstanding and the holders of a
majority of the shares of Series F Preferred Stock then outstanding.
43
<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed on this
day of 30th April, 1999.
KMC TELECOM HOLDINGS, INC.
/s/ James D. Grenfell
By: ------------------------------
Name: James D. Grenfell
Title Chief Financial Officer
Attested by:
- -----------------------
44
CERTIFICATE OF VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF OF THE
SERIES F SENIOR REDEEMABLE, EXCHANGEABLE, PIK PREFERRED STOCK
OF KMC TELECOM HOLDINGS, INC.
_________________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
_________________________________
As contemplated by Sections 141 and 242 of the General Corporation
Law of the State of Delaware (the "DGCL"), the following resolution was duly
adopted by the Board of Directors of KMC Telecom Holdings, Inc., a Delaware
corporation (the "Corporation"), by unanimous written consent, dated June 1,
1999:
WHEREAS, pursuant to authority conferred upon the Board of Directors
by the Certificate of Incorporation, as amended, of said Corporation (the
"Certificate of Incorporation"), said Board of Directors, at a meeting duly
called and held on February 1, 1999, adopted a resolution providing for the
issuance of 55,000 authorized shares of Series F Senior Redeemable,
Exchangeable, PIK Preferred Stock (the "Series F Preferred Stock"), which
resolution is as follows:
WHEREAS, the Board of Directors is authorized, within the limitations
and restrictions stated in the Certificate of Incorporation, as amended, to fix
by resolution or resolutions the designation of each series of preferred stock
and the powers, designations, preferences and relative participating, optional
or other rights, if any, or the qualifications, limitations or restrictions
thereof, including, without limiting the generality of the foregoing, such
provisions as may be desired concerning voting, redemption, dividends,
dissolution or the distribution of assets, conversion or exchange, and such
other subjects or matters as may be fixed by resolution or resolutions of the
Board of Directors under the General Corporation Law of Delaware; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to authorize and fix the terms of a series of preferred
stock and the number of shares constituting such series;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such
series of preferred stock on the terms and with the provisions herein set forth:
<PAGE>
2
I. CERTAIN DEFINITIONS.
As used herein, the following terms shall have the following meanings
(with terms defined in the singular having comparable meanings when used in the
plural and vice versa), unless the context otherwise requires:
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or assumed in connection
with an Asset Acquisition by the Corporation or a Restricted Subsidiary and
not Incurred in connection with, or in anticipation of, such Person
becoming a Restricted Subsidiary or such Asset Acquisition; PROVIDED that
Indebtedness of such Person which is redeemed, defeased, retired or
otherwise repaid at the time of or immediately upon consummation of the
transactions by which such Person becomes a Restricted Subsidiary or upon
consummation of such Asset Acquisition shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Corporation and its Restricted
Subsidiaries for such period determined in conformity with GAAP; PROVIDED
that the following items shall be excluded in computing Adjusted
Consolidated Net Income (without duplication): (i) the net income (or loss)
of any Person that is not a Restricted Subsidiary (or is an Unrestricted
Subsidiary), except to the extent of the amount of dividends or other
distributions actually paid to the Corporation or any of its Restricted
Subsidiaries by such Person or an Unrestricted Subsidiary during such
period; (ii) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (iii)(B) of the
first paragraph of Section XI(B) (and in such case, except to the extent
includable pursuant to clause (i) above), the net income (or loss) of any
Person accrued prior to the date it becomes a Restricted Subsidiary or is
merged into or consolidated with the Corporation or any of its Restricted
Subsidiaries or all or substantially all of the property and assets of such
Person are acquired by the Corporation or any of its Restricted
Subsidiaries; (iii) the net income of any Restricted Subsidiary to the
extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is not at
the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary (except to
the extent such restriction has been legally waived); (iv) any gains or
losses (on an after-tax basis) attributable to Asset Sales including for
purposes hereof the items referred to in clauses (b), (c) and (e) of the
definition of "Asset Sale" or the termination of discontinued operations;
(v) except for purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (iii)(B) of the first paragraph of
Section XI(B), any amount paid or accrued as dividends on Preferred Stock
(including the Series F Preferred Stock) of the Corporation or any
Restricted Subsidiary owned by Persons other than the Corporation and any
of its Restricted Subsidiaries; (vi) all extraordinary gains and
extraordinary losses; (vii) the cumulative effect of a change in accounting
principles since the High Yield Closing Date; and (viii) at the irrevocable
election of the Corporation for each occurrence, any net after-tax income
(loss) from discontinued operations; PROVIDED that for purposes of any
<PAGE>
3
subsequent Investment in the entity conducting such discontinued operations
pursuant to Section XI(B), such entity shall be treated as an Unrestricted
Subsidiary until such discontinued operations have actually been disposed
of.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Corporation and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the
extent resulting from write-ups of capital assets (excluding write-ups in
connection with accounting for acquisitions in conformity with GAAP), after
deducting therefrom (i) all current liabilities of the Corporation and its
Restricted Subsidiaries (excluding intercompany items) and (ii) all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, all as set forth on the most recent
quarterly or annual consolidated balance sheet of the Corporation and its
Restricted Subsidiaries, prepared in conformity with GAAP.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as applied to any Person,
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Corporation or any
of its Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary or shall be merged into or
consolidated with the Corporation or any of its Restricted Subsidiaries or
(ii) an acquisition by the Corporation or any of its Restricted
Subsidiaries of the property and assets of any Person other than the
Corporation or any of its Restricted Subsidiaries that constitute
substantially all of a division or line of business of such Person.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transaction) in one
transaction or a series of related transactions by the Corporation or any
of its Restricted Subsidiaries to any Person other than the Corporation or
any of its Restricted Subsidiaries of (i) all or any of the Capital Stock
of any Restricted Subsidiary, (ii) all or substantially all of the property
and assets of an operating unit or business of the Corporation or any of
its Restricted Subsidiaries or (iii) any other property and assets (other
than the Capital Stock or other Investment in an Unrestricted Subsidiary)
of the Corporation or any of its Restricted Subsidiaries outside the
ordinary course of business of the Corporation or such Restricted
Subsidiary and, in each case, that is not governed by Section IX; PROVIDED
that "Asset Sale" shall not include (a) sales or other dispositions of
inventory, receivables and other current assets, (b) sales or other
dispositions of assets for consideration at least equal to the fair market
value of the assets sold or disposed of, to the extent that the
consideration received would constitute property or assets of the kind
described in clause (i)(B) of Section XI(F), (c) a disposition of cash or
Temporary Cash Investments, (d) any Restricted Payment that is permitted to
be made, and is made, in accordance with Section XI(B), (e) sales or other
<PAGE>
4
dispositions of assets with a fair market value (as certified in an
Officers' Certificate) not in excess of $2 million (PROVIDED that any
series of related sales or dispositions in excess of $2 million shall be
considered "Asset Sales"), (f) the lease, assignment of a lease or
sub-lease of any real or personal property in the ordinary course of
business, (g) foreclosures on assets, (h) pledges of assets or stock by the
Corporation or any of its Restricted Subsidiaries otherwise permitted under
this Certificate of Designations, including such pledges securing
Indebtedness under the Newcourt Facility or under the Lucent Facility, (i)
the issuance of the Warrants to Newcourt Finance and Lucent by the
Corporation and (j) the exercise of the Warrants by Newcourt Finance and
Lucent and the exercise of common stock warrants by Newcourt Finance in
respect of KMC Telecom, (k) the issuance of the Preferred Stock Warrants to
First Union by the Corporation, and (l) the exercise of the Preferred Stock
Warrants by First Union.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security
and (b) the amount of such principal payment by (ii) the sum of all such
principal payments.
"Board of Directors" means the Board of Directors of the Corporation.
"Board Resolution" means a copy of a resolution, certified by the
Secretary or Assistant Secretary of the Corporation as required by the
context to have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification, and delivered to
the Transfer Agent.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required by
law to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all
Common Stock, Preferred Stock (including the Series F Preferred Stock),
partnership or membership interests and any other right to receive a share
of the profits and losses of, or distributions of assets of, the issuing
Person.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such
Person.
"Capitalized Lease Obligations" means the amount of the liability in
respect of a Capitalized Lease that would at such time be required to be
capitalized and reflected as a liability on a balance sheet prepared in
accordance with GAAP.
<PAGE>
5
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 50% of the total voting power of the Voting
Stock of the Corporation on a fully diluted basis and such ownership
represents a greater percentage of the total voting power of the Voting
Stock of the Corporation, on a fully diluted basis, than is held by the
Existing Stockholders on such date; or (ii) individuals who on the Closing
Date constitute the Board of Directors (together with any new directors
whose election by the Board of Directors or whose nomination by the Board
of Directors for election by the Corporation's stockholders was approved by
a vote of at least a majority of the members of the Board of Directors then
in office who either were members of the Board of Directors on the Closing
Date or whose election or nomination for election was so previously
approved) cease for any reason to constitute a majority of the members of
the Board of Directors then in office.
"Closing Date" means February 4, 1999.
"Commission" means the Securities and Exchange Commission and any
successor agency having similar powers.
"Common Stock" means the Common Stock, par value $.01 per share, of
the Corporation and any other class of common stock hereafter authorized by
the Corporation from time to time.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated
Interest Expense, (ii) income taxes (other than income taxes (either
positive or negative) attributable to extraordinary and non-recurring gains
or losses or sales of assets), (iii) depreciation expense, (iv)
amortization expense and (v) all other non-cash items reducing Adjusted
Consolidated Net Income (other than items that will require cash payments
and for which an accrual or reserve is, or is required by GAAP to be,
made), less all non-cash items increasing (or, in the case of a loss,
decreasing) Adjusted Consolidated Net Income, determined, with respect to
clauses (ii), (iii) and (iv), on a consolidated basis for the Corporation
and its Restricted Subsidiaries in conformity with GAAP; PROVIDED that, if
any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced
in accordance with GAAP) by an amount equal to (A) the amount of the
Adjusted Consolidated Net Income attributable to such Restricted Subsidiary
multiplied by (B) the percentage ownership interest in the income of such
Restricted Subsidiary not owned on the last day of such period by the
Corporation or any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate
amount (without duplication) of interest in respect of Indebtedness
(including, without limitation, amortization of original issue discount on
any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method of
<PAGE>
6
accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing; the net
costs associated with Interest Rate Agreements; and Indebtedness that is
Guaranteed or secured by the Corporation or any of its Restricted
Subsidiaries) and the interest component of Capitalized Lease Obligations
paid, accrued or scheduled to be paid or to be accrued by the Corporation
and its Restricted Subsidiaries during such period; EXCLUDING, HOWEVER, (i)
any amount of such interest of any Restricted Subsidiary if the net income
of such Restricted Subsidiary is excluded in the calculation of Adjusted
Consolidated Net Income pursuant to clause (iii) of the definition thereof
(but only in the same proportion as the net income of such Restricted
Subsidiary is excluded from the calculation of Adjusted Consolidated Net
Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in
connection with the Lucent Facility, the Newcourt Facility and the offering
of the Series E Preferred Stock, the Series F Preferred Stock and the
Senior Discount Notes, all as determined on a consolidated basis (without
taking into account Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the
ratio of (i) the aggregate amount of Indebtedness of the Corporation and
its Restricted Subsidiaries on a consolidated basis outstanding on such
Transaction Date to (ii) the aggregate amount of Consolidated EBITDA for
the then most recent four fiscal quarters for which financial statements of
the Corporation have been provided to the Transfer Agent (such four fiscal
quarter period being the "Four Quarter Period"); PROVIDED that, in making
the foregoing calculation, PRO FONNA effect shall be given to the following
events which occur from the beginning of the Four Quarter Period through
the Transaction Date (the "Reference Period"): (i) the Incurrence of the
Indebtedness with respect to which the computation is being made and (if
applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred, and the
application of such proceeds occurred, at the beginning of the Four Quarter
Period; (ii) the Incurrence, repayment or retirement of any other
Indebtedness by the Corporation and its Restricted Subsidiaries since the
first day of the Four Quarter Period as if such Indebtedness was incurred,
repaid or retired at the beginning of the Four Quarter Period; (iii) in the
case of Acquired Indebtedness, the related acquisition, as if such
acquisition occurred at the beginning of the Four Quarter Period; (iv) any
acquisition or disposition by the Corporation and its Restricted
Subsidiaries of any corporation or any business or any assets out of the
ordinary course of business, whether by merger, stock purchase or sale or
asset purchase or sale or any related repayment of Indebtedness, in each
case since the first day of the Four Quarter Period, assuming such
acquisition or disposition had been consummated on the first day of the
Four Quarter Period and after giving PRO FORMA effect to net cost savings
that the Corporation reasonably believes in good faith could have been
achieved during the Four Quarter Period as a result of such acquisition or
disposition (PROVIDED that both (A) such cost savings were identified and
quantified in an Officers' Certificate delivered to the Transfer Agent at
the time of the consummation of the acquisition or disposition and (B) with
respect to each acquisition or disposition completed prior to the 90th day
preceding such date of determination, actions were commenced or initiated
by the Corporation within 90 days of such acquisition or disposition to
<PAGE>
7
effect such cost savings identified in such Officers' Certificate and with
respect to any other acquisition or disposition, such Officers' Certificate
sets forth the specific steps to be taken within the 90 days after such
acquisition or disposition to accomplish such cost savings); and PROVIDED
FURTHER that (x) in making such computation, the Consolidated Interest
Expense attributable to interest on any Indebtedness computed on a PRO
FORMA basis and (A) bearing a floating interest rate shall be computed as
if the rate in effect on the date of computation had been the applicable
rate for the entire period and (B) which was not outstanding during the
period for which the computation is being made but which bears, at the
option of the Corporation, a fixed or floating rate of interest shall be
computed by applying, at the option of the Corporation, either the fixed or
floating rate, and (y) in making such computation, the Consolidated
Interest Expense of the Corporation attributable to interest on any
Indebtedness under a revolving credit facility computed on a PRO FORMA
basis shall be computed based upon the PRO FORMA average daily balance of
such Indebtedness during the applicable period; and (v) the occurrence of
any of the events described in clauses (i)-(iv) above by any Person that
has become a Restricted Subsidiary or has been merged with or into the
Corporation or any Restricted Subsidiary during such Reference Period.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly
or annual consolidated balance sheet of the Corporation and its Restricted
Subsidiaries (which shall be as of a date not more than 90 days prior to
the date of such computation, and which shall not take into account
Unrestricted Subsidiaries), less any amounts attributable to Disqualified
Stock or any equity security convertible into or exchangeable for
Indebtedness, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of the Capital Stock of the
Corporation or any of its Restricted Subsidiaries, each item to be
determined in conformity with GAAP (excluding the effects of foreign
currency exchange adjustments under Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 52).
"Corporation" means KMC Telecom Holdings, Inc., a Delaware
corporation.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior
to the Mandatory Redemption Date, (ii) redeemable at the option of the
holder of such class or series of Capital Stock at any time prior to the
Mandatory Redemption Date or (iii) convertible into or exchangeable for
Capital Stock referred to in clause (i) or (ii) above or Indebtedness
having a scheduled maturity prior to the Mandatory Redemption Date;
PROVIDED that any Capital Stock that would not constitute Disqualified
Stock but for provisions thereof giving holders thereof the right to
require such Person to repurchase or redeem such Capital Stock (or the
security for which such Capital Stock is convertible into or exchangeable
for) upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Mandatory Redemption Date shall not constitute
<PAGE>
8
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock (or the security for which such Capital
Stock is convertible into or exchangeable for) are no more favorable to the
holders of such Capital Stock (or the security for which such Capital Stock
is convertible into or exchangeable for) than the provisions contained in
Section XI(F) and Article VIII below and such Capital Stock (or the
security for which such Capital Stock is convertible into or exchangeable
for) specifically provides that such Person will not repurchase or redeem
any such stock pursuant to such provision prior to the Corporation's
repurchase of such Series F Preferred Stock as are required to be
repurchased pursuant to Section XI(F) and Article VIII below.
"Dividend Payment Date" means any Redemption Date, January 15, April
15, July 15 and October 15 and any other date on which dividends are
payable or may be paid, as determined by the Board of Directors.
"Dividend Record Date" means, with respect to each Dividend Payment
Date, the close of business on the date set forth next to such Dividend
Payment Date below:
DIVIDEND PAYMENT DATE DIVIDEND RECORD DATE
January 15 January 1
April 15 April 1
July 15 July 1
October 15 October 1
or such other record date as may be designated by the Board of Directors
with respect to dividends payable on such other Dividend Payment Date;
PROVIDED, HOWEVER, that such record date may not be more than 60 days or
less than ten days prior to such Dividend Payment Date. If any scheduled
Dividend Record Date is not a Business Day, then such Dividend Record Date
shall be the Business Day immediately preceding such scheduled Dividend
Record Date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Existing Stockholders" means Harold N. Kamine, his Affiliates and
Nassau.
"fair market value" means the price that would be paid in an arm'
s-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to
buy, as determined in good faith by the Board of Directors, whose
determination shall be conclusive if evidenced by a Board Resolution;
PROVIDED that for purposes of clause (vii) of the second paragraph of
Section XI(A), (x) the fair market value of any security registered under
the Exchange Act shall be the average of the closing prices, regular way,
of such security for the 20 consecutive trading days immediately preceding
the sale of Capital Stock and (jy) in the event the aggregate fair market
value of any other property (other than cash or cash equivalents) received
by the Corporation exceeds $100 million, the fair market value of such
property shall be determined by a nationally recognized investment banking
firm or a nationally recognized firm having expertise in the specific area
<PAGE>
9
which is the subject of such determination and set forth in their written
opinion which shall be delivered to the Transfer Agent.
"First Union" means First Union Investors, Inc., a North Carolina
corporation.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the High Yield Closing Date,
including, without limitation, those 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 or in such other statements by such
other entity as approved by a significant segment of the accounting
profession. All ratios and computations contained or referred to in this
Certificate of Designations shall be computed in conformity with GAAP
applied on a consistent basis, except that calculations made for purposes
of determining compliance with the terms of the covenants and with other
provisions of this Certificate of Designations shall be made without giving
effect to (i) the amortization of any expenses incurred in connection with
the Lucent Facility, the Newcourt Facility, the offering of the Senior
Discount Notes, the Series E Preferred Stock and the Series F Preferred
Stock and (ii) except as otherwise provided, the amortization of any
amounts required or permitted by Accounting Principles Board Opinion Nos.
16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other
Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services (unless such purchase arrangements
are on arm's-length terms and are entered into in the ordinary course of
business), to take-or-pay, or to maintain financial statement conditions or
otherwise) or (ii) entered into for purposes of assuring in any other
manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
PROVIDED that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"High Yield Closing Date" means January 29, 1998.
"Holder" means a registered holder of shares of Series F Preferred
Stock.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to,
or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an "Incurrence" of Acquired Indebtedness; PROVIDED
that neither the accrual of interest nor the accretion of original issue
discount shall be considered an Incurrence of Indebtedness.
<PAGE>
10
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person
for borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto, but excluding
trade letters of credit), (iv) all obligations of such Person to pay the
deferred and unpaid purchase price of property or services, which purchase
price is due more than six months after the date of placing such property
in service or taking delivery and title thereto or the completion of such
services, except Trade Payables and accrued current liabilities arising in
the ordinary course of business, (v) all Capitalized Lease Obligations of
such Person, (vi) all Indebtedness referred to in clauses (i) through (v)
hereof of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; PROVIDED that
the amount of such Indebtedness shall be the lesser of (A) the fair market
value of such asset at such date of determination and (B) the amount of
such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by
such Person to the extent such Indebtedness is Guaranteed by such Person
and (viii) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date (or, in the case of a revolving credit or other
similar facility, the total amount of funds outstanding on the date of
determination) of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation of the types
described above, PROVIDED (A) that the amount outstanding at any time of
any Indebtedness issued with original issue discount is the original issue
price of such Indebtedness, (B) that money borrowed and set aside at the
time of the Incurrence of any Indebtedness in order to prefund the payment
of the interest on such Indebtedness shall not be deemed to be
"Indebtedness" and (C) that Indebtedness shall not include any liability
for federal, state, local or other taxes.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate
collar agreement, interest rate hedge agreement, option or future contract
or other similar agreement or arrangement.
"Investment" means, with respect to any Person, all investments by
such Person in other Persons in the form of any direct or indirect advance,
loan or other extension of credit (including, without limitation, by way of
Guarantee or similar arrangement; but excluding advances to customers in
the ordinary course of business that are, in conformity with GAAP, recorded
as accounts receivable on the balance sheet of the Corporation or its
Restricted Subsidiaries and commissions, travel and similar advances to
officers and employees made in the ordinary course of business) or capital
contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such other Person and
shall include (i) the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary and (ii) the fair market value of the Capital Stock
(or any other Investment), held by the Corporation or any of its Restricted
<PAGE>
11
Subsidiaries, of (or in) any Person that has ceased to be a Restricted
Subsidiary, including, without limitation, by reason of any transaction
permitted by clause (iii) of Section XI(D); PROVIDED that the fair market
value of the Investment remaining in any Person that has ceased to be a
Restricted Subsidiary shall not exceed the aggregate amount of Investments
previously made in such Person valued at the time such Investments were
made less the net reduction of such Investments. For purposes of the
definition of "Unrestricted Subsidiary" and Section XI(B), (i) "Investment"
shall include the fair market value of the assets (net of liabilities
(other than liabilities to the Corporation or any of its Restricted
Subsidiaries)) of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary, (ii) the
fair market value of the assets (net of liabilities (other than liabilities
to the Corporation or any of its Restricted Subsidiaries)) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary shall be considered reduction in
outstanding Investments and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the
time of such transfer.
"Investment Grade Securities" means (i) securities issued or directly
and fully guaranteed or insured by the United States government or any
agency or instrumentality thereof, (ii) debt securities or debt instruments
with a rating of BBB+ or higher by S&P or Baal or higher by Moody's or the
equivalent of such rating by such rating organization, or, if no rating by
S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the
Corporation and its Subsidiaries, and (iii) investment in any fund that
invests exclusively in investment of the type described in clauses (i) and
(ii) which fund may also hold cash pending investment and/or distribution.
"Junior Securities" has the meaning provided in Article III hereof.
"KMC Telecom" means KMC Telecom Inc, a Delaware corporation. "KMC Telecom
II" means KMC Telecom II, Inc., a Delaware corporation. "KMC Telecom III"
means KMC Telecom III, Inc., a Delaware corporation.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional
sale or other title retention agreement or lease in the nature thereof or
any agreement to give any security interest).
"Lucent" means Lucent Technologies Inc., a Delaware corporation.
"Lucent Facility" means the vendor financing facility between Lucent
and KMC Telecom III and KMC Telecom Leasing III LLC, providing for
aggregate borrowings of up to $600 million and maturing on the eighth
anniversary of the closing of such credit facility.
"Mandatory Redemption Date" means February 1, 2011.
<PAGE>
12
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Nassau" means Nassau Capital Partners L.P., NAS Partners I L.L.C. or
their respective successors, and their Affiliates.
"Net Cash Proceeds" means (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the
extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent
such obligations are financed or sold with recourse to the Corporation or
any Restricted Subsidiary) and proceeds from the conversion of other
property received when converted to cash or cash equivalents, net of (i)
brokerage commissions and other commissions, fees and expenses (including
fees and expenses of counsel, accountants and investment bankers) related
to such Asset Sale and any relocation expenses incurred as a result
thereof, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without
regard to the consolidated results of operations of the Corporation and its
Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset
Sale that either (A) is secured by a Lien on the property or assets sold or
(B) is required to be paid as a result of such sale and (iv) appropriate
amounts to be provided by the Corporation or any Restricted Subsidiary as a
reserve against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP, and (b)with respect to any issuance or
sale of Capital Stock, the proceeds of such issuance or sale in the form of
cash or cash equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not
interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold
with recourse to the Corporation or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or
cash equivalents, net of attorney's fees, accountants' fees, underwriters'
or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or sale
and net of taxes paid or payable as a result thereof.
"Newcourt Capital" means Newcourt Capital USA, Inc., a Delaware
corporation.
"Newcourt Facility" means the Loan and Security Agreement dated as of
December 22, 1998 among KMC Telecom, KMC Telecom II, and Newcourt Finance
and any other lenders or borrowers from time to time party thereto,
collateral documents, instruments, and agreements executed in connection
therewith and any amendments, supplements, modifications, extensions,
renewals, restatements, refinancings or refundings thereof.
<PAGE>
13
"Newcourt Finance" means Newcourt Commercial Finance Corporation,
formerly known as AT&T Commercial Finance Corporation, a Delaware
corporation, and its successors.
"Offer to Purchase" means an offer to purchase Series F Preferred
Stock by the Corporation from the Holders commenced by mailing a notice to
the Transfer Agent and each Holder stating: (i) the covenant pursuant to
which the offer is being made and that all Series F Preferred Stock validly
tendered will be accepted for payment on a PRO RATA basis, together with
any other Parity Securities subject to similar offer to purchase
provisions; (ii) the purchase price and the date of purchase (which shall
be a Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed) (the "Payment Date"); (iii) that any Series F
Preferred Stock not tendered will continue to accrue dividends pursuant to
its terms; (iv) that, unless the Corporation defaults in the payment of the
purchase price, any Series F Preferred Stock accepted for payment pursuant
to the Offer to Purchase shall cease to accrue dividends on and after the
Payment Date; (v) that each Holder electing to have Series F Preferred
Stock purchased pursuant to the Offer to Purchase will be required to
surrender to the Transfer Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding
the payment date such holder's certificate representing such Series F
Preferred Stock, together with the form entitled "Option of the Holder to
Elect Purchase" appearing on the reverse side of such Series F Preferred
Stock certificate completed, (vi) that Holders will be entitled to withdraw
their election if the Paying Agent receives, not later than the close of
business on the third Business Day immediately preceding the Payment Date,
a telegram, facsimile transmission or letter setting forth the name of such
Holder, the liquidation preference of Series F Preferred Stock delivered
for purchase and a statement that such Holder is withdrawing its election
to have such Series F Preferred Stock purchased; and (vii) that Holders
whose Series F Preferred Stock is being purchased only in part will be
issued new Series F Preferred Stock equal in liquidation preference to the
unpurchased portion of the Series F Preferred Stock surrendered. On the
Payment Date, the Corporation shall (i) accept for payment on a PRO RATA
basis Series F Preferred Stock, together with any other Parity Securities
subject to similar offer to purchase provisions, or portions thereof
tendered pursuant to an Offer to Purchase; (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all Series F Preferred
Stock, together with any other Parity Securities subject to similar offer
to purchase provisions, or portions thereof so accepted; and (iii) deliver,
or cause to be delivered, to the Transfer Agent all Series F Preferred
Stock or portions thereof so accepted together with an Officers'
Certificate specifying shares of the Series F Preferred Stock or portions
thereof accepted for payment by the Corporation. The Paying Agent shall
promptly mail to the Holders of Series F Preferred Stock so accepted
payment in an amount equal to the purchase price, and the Transfer Agent
shall promptly authenticate and mail to such Holders new shares of Series F
Preferred Stock equal in liquidation preference to any unpurchased portion
of the Series F Preferred Stock surrendered. The Corporation will publicly
announce the results of an Offer to Purchase as soon as practicable after
the Payment Date. The Transfer Agent shall act as the Paying Agent for an
Offer to Purchase. The Corporation will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable, in the event that the
<PAGE>
14
Corporation is required to repurchase Series F Preferred Stock pursuant to
an Offer to Purchase.
"Officer" means with respect to the Corporation, (i) the Chairman of
the Board, the Vice Chairman of the Board, the President, the Chief
Executive Officer, the Chief Financial Officer or a Vice president, and
(ii) the Treasurer or any Assistant Treasurer, or the Secretary or any
Assistant Secretary of the Corporation.
"Officers' Certificate" means a certificate signed by one Officer
listed in clause (i) of the definition thereof and one Officer listed in
clause (ii) of the definition thereof; PROVIDED, HOWEVER, that any such
certificate may be signed by any two of the Officers listed in clause (i)
of the definition thereof in lieu of being signed by one Officer listed in
clause (i) of the definition thereof and one Officer listed in clause (ii)
of the definition thereof.
"Parity Securities" has the meaning specified in Article III hereof.
"Permitted Investment" means (i) an Investment in the Corporation or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated
with or into or transfer or convey all or substantially all its assets to,
the Corporation or a Restricted Subsidiary; PROVIDED that such person's
primary business is related, ancillary or complementary to the businesses
of the Corporation and its Restricted Subsidiaries on the date of such
Investment; (ii) Temporary Cash Investments and Investment Grade
Securities; (iii) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses in accordance with GAAP and reasonable advances to sales
representatives; (iv) any Investment acquired by the Corporation or any of
its Restricted Subsidiaries (x) in exchange for any other Investment or
accounts receivable held by the Corporation or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment
or accounts receivable or (y) as a result of a foreclosure by the
Corporation or any of its Restricted Subsidiaries with respect to any
secured Investment or other transfer of title with respect to any secured
Investment in default; (v) any Investment acquired in consideration for the
issuance of Junior Securities or the proceeds of the issuance of Junior
Securities to the extent such amounts have not been previously applied to a
Restricted Payment pursuant to clause (iii)(B)(2) of the first paragraph of
Section XI(B) or clause (ii) of the second paragraph of Section XI(B) or
used to support the Incurrence of Indebtedness pursuant to clause (viii) in
accordance with Section XI(A) and Investments acquired as a capital
contribution; (vi) Guarantees permitted by Section XI(A); (vii) loans or
advances to employees of the Corporation or any Restricted Subsidiary that
do not in the aggregate exceed at any one time outstanding $5.0 million;
(viii) Currency Agreements and Interest Rate Agreements permitted under
Section XI(A); (ix) Investments in prepaid expenses, negotiable instruments
held for collection and lease, utility and workers' compensation,
performance and other similar deposits; (x) Investments in debt securities
or other evidences of Indebtedness that are issued by companies engaged in
the Telecommunications Business; PROVIDED that when each Investment
<PAGE>
15
pursuant to this clause (x) is made, the aggregate amount of Investments
outstanding under this clause (x) does not exceed $3.0 million; (xi)
Strategic Investments and Investments in Permitted Joint Ventures in an
amount not to exceed $20.0 million at any one time outstanding; (xii) an
Investment in any Person the primary business of which is related,
ancillary or complementary to the business of the Corporation and its
Subsidiaries on the date of such Investment in an amount not to exceed at
any time in respect of all such Investments outstanding the sum of (x)
$200.0 million plus (y) 40% of the Corporation's Consolidated EBITDA, if
positive, for the immediately preceding four fiscal quarters (valued in
each case as provided in the definition of "Investments"); (xiii)
securities received in connection with Asset Sales to the extent
constituting non-cash consideration permitted under Section XI(F); and
(xiv) Investments in an amount not to exceed $50.0 million at any time
outstanding.
"Permitted Joint Venture" means any Unrestricted Subsidiary or any
other Person in which the Corporation or a Restricted Subsidiary owns,
directly or indirectly, an ownership interest (other than a Restricted
Subsidiary) and whose primary business is related, ancillary or
complementary to the businesses of the Corporation and its Restricted
Subsidiaries at the time of determination.
"Person" means any individual, partnership, corporation, business
trust, joint stock company, limited liability company, trust,
unincorporated association, joint venture, governmental authority or other
entity of whatever nature.
"Preferred Stock" means any and all shares, interests, participations
or other equivalents of the Corporation's preferred stock, including any
such security with any priority over Common Stock with respect to dividends
or upon liquidation or similar events.
"Preferred Stock Warrants" means any warrants that may be issued under
the Preferred Stock Warrant Agreement.
"Preferred Stock Warrant Agreement" means the Warrant Agreement, dated
as of April 30, 1999, among the Corporation, First Union and The Chase
Manhattan Bank as warrant agent.
"Public Equity Offering" means an underwritten primary public offering
of Common Stock of the Corporation pursuant to an effective registration
statement under the Securities Act.
"Purchase Agreement" means the Securities Purchase Agreement dated as
of February 4, 1999 among the Corporation, Newcourt Finance and Lucent.
"Redemption Date", when used with respect to any Series F Preferred
Stock to be redeemed, means the date fixed for such redemption by or
pursuant to the terms of this Certificate of Designations.
<PAGE>
16
"Redemption Price" means, with respect to any share of Series F
Preferred Stock, the price at which such share of Series F Preferred Stock
is to be redeemed pursuant to the terms of this Certificate of
Designations.
"Restricted Subsidiary" means any Subsidiary of the Corporation other
than an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor statute.
"Senior Discount Note Indenture" means the Indenture dated as of
January 29, 1998 between the Corporation and The Chase Manhattan Bank,
relating to the Senior Discount Notes, as such Indenture may be amended,
supplemented, extended, renewed, replaced or otherwise modified from time
to time.
"Senior Discount Notes" means the 12 1/2 % Senior Discount Notes due
2008 issued by the Corporation under the Senior Discount Note Indenture.
"Senior Securities" has the meaning provided in Article III hereof.
"Shareholders Agreement" means the Amended and Restated Stockholders
Agreement among KMC Telecom Holdings, Inc., Nassau Capital Partners L.P.,
NAS Partners I L.L.C., Harold N. Kamine, KMC Telecommunications L.P., AT&T
Credit Corporation, General Electric Capital Corporation, Corestates Bank,
N.A. and Corestates Holdings, Inc., dated as of October 31, 1997, as
amended by Amendment No.1, dated as of January 7, 1998, to the Amended and
Restated Stockholders Agreement, dated as of October 31, 1997, Amendment
No. 2, dated as of January 26, 1998, to the Amended and Restated
Stockholders Agreement, dated as of October 31, 1997, Amendment No. 3,
dated as of February 25, 1998, to the Amended and Restated Stockholders
Agreement, dated as of October 31, 1997, Amendment No. 4, dated as of
February 4, 1999, to the Amended and Restated Stockholders Agreement, dated
as of October 31, 1997, Amendment No. 5, dated as of April 30, 1999, to the
Amended and Restated Stockholders Agreement, dated as of October 31, 1997.
"Significant Subsidiary" means, any Subsidiary that would be a
"significant subsidiary" as defined in 17 CFR Part 210. 1-01(w),
promulgated pursuant to the Securities Act, as such regulation is in effect
on the date hereof.
"S&P" means Standard & Poor's Ratings Services, a Division of McGraw
Hill, Inc., and its successors.
"Stated Maturity" means (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii)
with respect to any scheduled installment of principal of or interest on
any debt security, the date specified in such debt security as the fixed
date on which such installment is due and payable.
<PAGE>
17
"Strategic Investments" means (a) Investments that the Board of
Directors has determined in good faith will enable the Corporation or any
of its Restricted Subsidiaries to obtain additional business that it might
not be able to obtain without making such Investment and (b) Investments in
entities the principal function of which is to perform research and
development with respect to products and services that may be used or
useful in the Telecommunications Business; PROVIDED that the Corporation or
one of its Restricted Subsidiaries is entitled or otherwise reasonably
expected to obtain rights to such products or services as a result of such
Investment.
"Strategic Subordinated Indebtedness" means Indebtedness of the
Corporation Incurred to finance the acquisition of a Person engaged in the
Telecommunications Business that by its terms, or by the terms of any
agreement or instrument pursuant to which such Indebtedness is outstanding,
(i) is expressly made subordinate in right of payment to the Senior
Discount Notes and (ii) provides that no payment of principal, premium or
interest on, or any other payment with respect to, such Indebtedness may be
made prior to the payment in full of all of the Corporation's obligations
under the Series F Preferred Stock and the Senior Discount Notes; PROVIDED
that such Indebtedness may provide for and be repaid at any time from the
proceeds of the sale of Capital Stock (other than Disqualified Stock) of
the Corporation after the Incurrence of such Indebtedness.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) of which
more than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time of
determination owned or controlled, directly or indirectly, by such Person
or one or more of the other Subsidiaries of such Person or a combination
thereof and (ii) any partnership, joint venture, limited liability company
or similar entity of which (x) more than 50% of the capital accounts,
distribution rights, total equity and voting interests or general or
limited partnership interests, as applicable, are owned or controlled,
directly or indirectly, by such Person or one or more of the other
Subsidiaries of such Person or a combination thereof whether in the form of
membership, general, special or limited partnership or otherwise and (y)
such Person or any Wholly Owned Restricted Subsidiary of such Person is a
general partner or otherwise controls such entity.
"Telecommunications Business" means the development, ownership or
operation of one or more telephone, telecommunications or information
systems or the provision of telephony, telecommunications or information
services (including, without limitation, any voice, video transmission,
data or Internet services) and any related, ancillary or complementary
business.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of
America or any agency or instrumentality thereof, (ii) time deposit
accounts, certificates of deposit, eurodollar time deposits and money
<PAGE>
18
market deposits maturing within 180 days or less of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States of America, and which bank or trust company
has capital, surplus and undivided profits aggregating in excess of $50
million (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined
in Rule 436 under the Securities Act) or any money-market fund sponsored by
a registered broker dealer or mutual fund distributor, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities
of the types described in clauses (i) and (ii) above entered into with a
bank meeting the qualifications described in clause (ii) above, (iv)
commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of the
Corporation) organized and in existence under the laws of the United States
of America, any state thereof or any foreign country recognized by the
United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P, (v) securities with maturities of six
months or less from the date of acquisition issued or fully and
unconditionally guaranteed by any state, commonwealth or territory of the
United States of America, or by any political subdivision or taxing
authority thereof, and rated at least "A" by S&P or Moody's, and (vi)
investment funds investing 95% of their assets in securities of the type
described in clauses (i)-(v) above.
"Trade Payables" means, with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries
arising in the ordinary course of business in connection with the
acquisition of goods or services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Corporation or any of its Restricted Subsidiaries, the
date such Indebtedness is to be Incurred and, with respect to any
Restricted Payment, the date such Restricted Payment is to be made.
"Transfer Agent" means Chase Mellon Shareholder Services, L.L.C.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Corporation
that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below; and (ii)
any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may
designate any Restricted Subsidiary (including any newly acquired or newly
formed Subsidiary of the Corporation) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien
on any property of, the Corporation or any Restricted Subsidiary; PROVIDED
that (A) any Guarantee by the Corporation or any Restricted Subsidiary of
any Indebtedness of the Subsidiary being so designated shall be deemed an
"Incurrence" of such Indebtedness and an "Investment" by the Corporation or
such Restricted Subsidiary (or both, if applicable) at the time of such
designation; (B) either (I) the Subsidiary to be so designated has total
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19
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted in accordance with Section
XI(B); and (C) if applicable, the Incurrence of Indebtedness and the
Investment referred to in clause (A) of this proviso would be permitted in
accordance with Section XI(A) and Section XI(B). The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
PROVIDED that all Indebtedness of such Unrestricted Subsidiary outstanding
immediately after such designation would, if Incurred at such time, have
been permitted to be Incurred (and shall be deemed to have been Incurred)
for all purposes of this Certificate of Designations. Any such designation
by the Board of Directors shall be evidenced to the Transfer Agent by
promptly filing with the Transfer Agent a copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying
that such designation complied with the foregoing provisions.
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Warrant Agreement" means the warrant agreement, dated the Closing
Date, among the Corporation, Newcourt Finance, Lucent and any Additional
Purchaser (as described therein) and The Chase Manhattan Bank, as warrant
agent.
"Warrants" means any warrants that may be issued under the Warrant
Agreement.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
the ownership of 95 % or more of the outstanding Capital Stock of such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) by such Person or one or more
Wholly Owned Subsidiaries of such Person.
II. DESIGNATION.
The series of Preferred Stock authorized hereunder shall be designated
as the "Series F Senior Redeemable, Exchangeable, PIK Preferred Stock" and is
referred to herein as the "Series F Preferred Stock." The number of shares
constituting such series shall be 55,000. The par value of the Series F
Preferred Stock shall be $.01 per share of Series F Preferred Stock. Each share
of Series F Preferred Stock purchased from the Corporation shall have a
liquidation preference of $1,000. The Corporation may from time to time in its
discretion issue fractional shares of Series F Preferred Stock.
III. RANKING.
The Series F Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding-up and dissolution
of the Corporation, rank (i) senior to (A) all classes of Common Stock of the
Corporation, (B) each other class of Capital Stock or series of Preferred Stock
the terms of which expressly provide that it ranks junior to, and do not
<PAGE>
20
expressly provide that it ranks senior to or on a parity with the Series F
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of the Corporation, (C) the
Corporation's Series A Cumulative Convertible Preferred Stock, Series C
Cumulative Convertible Preferred Stock, and Series D Cumulative Convertible
Preferred Stock (all securities described in this clause (i) collectively
referred to as "Junior Securities"); (ii) on a parity with (A) any class of
Capital Stock or series of Preferred Stock the terms of which expressly provide
that such class or series will rank on a parity with the Series F Preferred
Stock as to dividend distributions and distributions upon the liquidation,
winding-up and dissolution of the Corporation and (B) Series E Senior
Redeemable, Exchangeable, PIK Preferred Stock (all securities described in this
clause (ii) collectively referred to as "Parity Securities"); and (iii) junior
to each class of Capital Stock or series of Preferred Stock the terms of which
expressly provide that such class or series will rank senior to the Series F
Preferred Stock as to dividend distributions and distributions upon liquidation,
winding-up, and dissolution or the Corporation. The Series F Preferred Stock
will be subject to the issuance of series of Junior Securities and Parity
Securities, PROVIDED that the Corporation may not authorize, create or issue, or
increase the authorized amount of, any new class of Parity Securities or Senior
Securities (or any class of any security convertible into shares of any Parity
Security or Senior Security) without the approval of the Holders of at least a
majority of the shares of Series F Preferred Stock then outstanding, voting or
consenting, as the case may be, separately as one class, except that, without
the approval of Holders of the Series F Preferred Stock, the Corporation may
issue shares of Senior Securities (or any class of any security convertible into
shares of any Senior Security) in exchange for, or the proceeds of which are
used to redeem or repurchase, (1) all (but not less than all) shares of Series E
Preferred Stock and Series F Preferred Stock then outstanding, or (2) the
Indebtedness of the Corporation. The Series E Preferred Stock and the Series F
Preferred Stock (together with any other Parity Securities) shall also with
respect to any redemption or repurchase by the Corporation of its Capital Stock,
rank senior to the Junior Securities, except as provided in Section 3 of the
Shareholders Agreement.
IV. DIVIDENDS.
(A) Holders of Series F Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available therefor, dividends on the Series F Preferred Stock at a rate per
annum equal to 14.5% of the liquidation preference per share, payable quarterly.
All dividends will be cumulative, whether or not earned or declared, accruing on
a daily basis, whether or not there are profits, surplus or other funds legally
available for the payment of such dividends, from the date of issuance of the
Series F Preferred Stock and will be payable quarterly in arrears on each
Dividend Payment Date, commencing on April 15, 1999. On and before January 15,
2004, the Corporation may pay dividends, at its option, in cash or in additional
fully paid and nonassessable shares of Series F Preferred Stock having an
aggregate liquidation preference equal to the amount of such dividends rounded
to the nearest $1.00. After January 15, 2004, dividends must be paid in cash,
unless the Corporation's debt securities prohibit such payment or there are no
funds legally available therefor, in which case dividends may be paid in
additional fully paid and nonassessable shares of Series F Preferred Stock
having an aggregate liquidation preference equal to the amount of such dividends
rounded to the nearest $1.00. If any dividend (or portion thereof) payable on
any Dividend Payment Date is not declared or paid in full on such Dividend
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21
Payment Date, the amount of accrued and unpaid dividends will accrue at the
dividend rate on the Series F Preferred Stock, compounding quarterly, until
declared and paid in full.
(B) No full dividends may be declared or paid or funds set apart for
the payment of dividends on any Parity Securities for any period unless full
cumulative dividends shall have been or contemporaneously shall be declared and
paid in full on the Series F Preferred Stock. If full dividends are not so paid,
the Series F Preferred Stock shall share dividends PRO RATA with the Parity
Securities. No dividends may be paid or set apart for such payment on Junior
Securities (except dividends on Junior Securities in additional shares of Junior
Securities) and no Junior Securities or Parity Securities may be repurchased,
redeemed or otherwise retired nor may funds be set apart for payment with
respect thereto if full cumulative dividends shall not have been paid on the
Series F Preferred Stock.
(C) Each dividend paid on the Series F Preferred Stock shall be
payable to Holders of record as their names shall appear in the stock ledger of
the Corporation on the Dividend Record Date for such dividend, except that
dividends in arrears for any past Dividend Payment Date may be declared and paid
at any time without reference to such regular Dividend Payment Date to Holders
of record on a later dividend record date determined by the Board of Directors.
V. LIQUIDATION PREFERENCE.
(A) Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, holders of Series F Preferred Stock will be
entitled to be paid, out of the assets of the Corporation available for
distribution, $1,000 per share, plus an amount in cash equal to accrued and
unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding-up (including an amount equal to a prorated dividend for the period from
the last Dividend Payment Date to the date fixed for liquidation, dissolution or
winding-up), before any distribution is made on any Junior Securities. If, upon
any voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, the amounts payable with respect to the Series F Preferred Stock
and all other Parity Securities are not paid in full, the holders of the Series
F Preferred Stock and the Parity Securities will share equally and ratably in
any distribution of assets of the Corporation in proportion to the full
liquidation preference and accrued and unpaid dividends to which each is
entitled. After payment of the full amount of the liquidation preferences and
accrued and unpaid dividends to which they are entitled, the holders of Series F
Preferred Stock will not be entitled to any further participation in any
distribution of assets of the Corporation.
(B) For the purposes of this Article V only, neither the sale, lease,
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 corporations shall be deemed to be a liquidation, dissolution or
winding-up of the Corporation.
VI. REDEMPTION.
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22
(A) MANDATORY REDEMPTION. The Series F Preferred Stock shall be
subject to mandatory redemption (subject to the legal availability of funds
therefor and any contractual or other restrictions with respect thereto) in
whole on the Mandatory Redemption Date at a Redemption Price, payable in cash,
equal to the liquidation preference thereof on the Redemption Date plus all
accrued and unpaid dividends thereon to the Redemption Date.
(B) OPTIONAL REDEMPTION. The Series F Preferred Stock may be redeemed
at any time, at the Corporation's option, in whole or in part, at a Redemption
Price, payable in cash, equal to 110% of the liquidation preference thereof on
the Redemption Date, plus an amount in cash equal to all accrued and unpaid
dividends thereon to the Redemption Date.
No optional redemption may be authorized or made unless prior thereto
full unpaid cumulative dividends shall have been paid or a sum set apart for
such payment on the Series F Preferred Stock.
(C) PROCEDURE FOR REDEMPTION. (i) Not more than sixty (60) and not
less than thirty (30) days prior to the Redemption Date, written notice (the
"Redemption Notice") shall be given by the Corporation by first-class mail to
each Holder at such Holder's address as the same appears on the stock ledger of
the Corporation; PROVIDED, HOWEVER, that no failure to give such notice nor any
deficiency therein shall affect the validity of the procedure for the redemption
of any shares of Series F Preferred Stock to be redeemed, except as to the
Holders to whom the Corporation has failed to give such notice or except as to
the Holders whose notice was defective. The Redemption Notice shall state:
(a) the Redemption Price;
(b) the Redemption Date;
(c) that the Holder is to surrender to the Corporation, at the place
or places designated in such Redemption Notice, its certificates
representing the shares of Series F Preferred Stock to be redeemed; and
(d) the name of any bank or trust company performing the duties
referred to in Section VI(C)(iv) below.
(ii) On or before the Redemption Date, each Holder of Series F
Preferred Stock to be redeemed shall surrender the certificate or certificates
representing such shares of Series F Preferred Stock to the Corporation, in the
manner and at the place designated in the Redemption Notice, and on the
Redemption Date the full Redemption Price for such shares shall be payable in
cash to the Holder whose name appears in the stock ledger of the Corporation as
the owner thereof, and each surrendered certificate shall be returned to
authorized but unissued shares of Preferred Stock of the Corporation.
(iii) Unless the Corporation defaults in the payment in full of the
applicable Redemption Price, dividends on the Series F Preferred Stock called
for redemption shall cease to accrue on the Redemption Date, and the Holders of
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23
such shares shall cease to have any further rights with respect thereto on the
Redemption Date, other than the right to receive the Redemption Price.
(iv) If a Redemption Notice shall have been duly given or if the
Corporation shall have given to the bank or trust company hereinafter referred
to irrevocable authorization promptly to give such notice, and if on or before
the Redemption Date specified therein the funds necessary for such redemption
shall have been irrevocably and indefeasibly deposited by the Corporation with
such bank or trust company in trust for the PRO RATA benefit of the Holders of
the Series F Preferred Stock called for redemption, then, notwithstanding that
any certificate for shares so called for redemption shall not have been
surrendered for cancellation, from and after the time of such deposit, all
shares so called, or to be so called pursuant to such irrevocable authorization,
for redemption shall be deemed no longer to be outstanding and all rights with
respect to such shares shall forthwith cease and terminate, excepting only the
right of the Holders thereof to receive from such bank or trust company at any
time after the time of such deposit the funds so deposited, without interest.
Any interest accrued on such funds shall be paid to the Corporation from time to
time. Any funds so set aside or deposited, as the case may be, and unclaimed at
the end of three years from such Redemption Date shall, to the extent permitted
by law, be released or repaid to the Corporation, after which repayment the
Holders of the shares to be redeemed shall look only to the Corporation for
payment thereof.
(v) In the event of partial redemptions of Series F Preferred Stock,
the shares to be redeemed will be determined PRO RATA or by lot, as determined
by the Corporation, except that the Corporation may redeem such shares held by
any holder of fewer than 100 shares without regard to such PRO RATA redemption
requirement. If any Series F Preferred Stock is to be redeemed in part, the
Redemption Notice that relates to such Series F Preferred Stock shall state the
portion of the liquidation preference to be redeemed. New shares of Series F
Preferred Stock having an aggregate liquidation preference equal to the
unredeemed portion shall be issued in the name of the Holder thereof upon
cancellation of the original Series F Preferred Stock.
(vi) Notwithstanding anything herein to the contrary, a Redemption
Notice will be revocable if (i) it states that it is revocable and provides that
a notice of revocation may be given not less than five days prior to the
Redemption Date by the Corporation in accordance with Article XVII hereof and
(ii) the Board of Directors determines that the availability of funds to pay the
Redemption Price is subject to the closing of a financing and, at the time such
Redemption Notice is given, such closing is subject to uncertainty.
VII. VOTING RIGHTS.
(A) The Holders of Series F Preferred Stock shall have no voting
rights except as set forth below and as otherwise provided by law.
(B) (i) If and whenever (I) dividends on the Series F Preferred Stock
are in arrears and remain unpaid with respect to four quarterly periods (whether
or not consecutive), (2) the Corporation fails to discharge any redemption
obligation with respect to the Series F Preferred Stock, (3) a breach or
violation by the Corporation of the provisions of Article X occurs, or the
Corporation fails to exchange Exchange Debentures for the Series F Preferred
<PAGE>
24
Stock tendered for exchange on the exchange date, whether or not the Corporation
satisfies the conditions to permit such exchange, (4) the Corporation fails to
make a Change of Control Offer or cash payment with respect thereto if required
by the provisions of Article VIII or (5) a breach or violation of any provision
of Article IX or Article XI occurs and is not remedied within 30 days after
notice thereof to the Corporation by Holders of 25% or more of the liquidation
preference of the Series F Preferred Stock then outstanding (each such event
referred to as a "Voting Rights Triggering Event"), then the number of directors
then constituting the Board of Directors of the Corporation shall be increased
by one director and the Holders of a majority of the then outstanding shares of
Series F Preferred Stock, voting as a single class, shall be entitled to elect
one additional director at any annual meeting of shareholders or special meeting
held in place thereof, or at a special meeting of the Holders of Series F
Preferred Stock called as hereinafter provided.
(ii) Whenever a Voting Rights Triggering Event shall have occurred,
voting rights of the Holders of Series F Preferred Stock may be exercised
initially either at a special meeting of the Holders of Series F Preferred Stock
called as hereinafter provided, yr at any annual meeting of shareholders held
for the purpose of electing directors, and thereafter at each such annual
meeting or by the written consent of the Holders of Series F Preferred Stock,
voting as a single class, pursuant to the Delaware General Corporation Law. The
term of office of any such elected director shall expire at the next annual
meeting of shareholders held for the purpose of electing directors, subject to a
new election of a director by the Holders of Series F Preferred Stock, voting as
a single class, at each successive annual meeting, but such voting rights and
the term of office of any such elected director shall expire at such time as (A)
all dividends accrued on Series F Preferred Stock shall have been paid in full
and (B) each failure, breach or default referred to in paragraph VII(B)
(i)(A)(2), (3), (4) and (5) above is remedied.
(iii) At any time after a Voting Rights Triggering Event shall have
occurred and such voting rights shall not already have been initially exercised,
a proper officer of the Corporation may, and upon the written request of any
Holder of Series F Preferred Stock (addressed to the Secretary at the principal
office of the Corporation) shall, call a special meeting of the Holders of
Series F Preferred Stock for the election of a director to be elected by them,
voting as a single class, as herein provided, such call to be made by notice
similar to that provided in the Bylaws for a special meeting of the shareholders
or as required by law.
(iv) Such meeting shall be held at the earliest practicable date upon
the notice required for annual meetings of shareholders at the place for holding
annual meetings of shareholders of the Corporation or, if none, at a place
designated by the Secretary of the Corporation. If such meeting shall not be
called by a proper officer of the Corporation within 30 days after the personal
service of such written request upon the Secretary of the Corporation, or within
30 days after mailing the same within the United States, by registered mail,
addressed to the Secretary of the Corporation at its principal office (such
mailing to be evidenced by the registry receipt issued by the postal
authorities), then the holders of record of 10% of the shares of Series F
Preferred Stock then outstanding, may designate in writing a Holder of Series F
Preferred Stock to call such meeting at the expense of the Corporation, and such
meeting may be called by such person so designated upon the notice required for
annual meetings of shareholders and shall be held at the same place as is
elsewhere provided in this paragraph VII(B)(iv) or at such other place as is
selected by such person so designated. Any Holder of Series F Preferred Stock
<PAGE>
25
that would be entitled to vote at any such meeting shall have access to the
stock books of the Corporation for the purpose of causing a meeting of
shareholders to be called pursuant to the provisions of this paragraph.
Notwithstanding the provisions of this paragraph, however, no such special
meeting shall be called during a period within 90 days immediately preceding the
date fixed for the next annual meeting of shareholders.
(v) At any meeting held for the purpose of electing directors at which
the Holders of Series F Preferred Stock, voting as a single class, shall have
the right to elect a director as provided herein, the presence in person or by
proxy of the Holders of a majority of the then outstanding shares of Series F
Preferred Stock shall be required and be sufficient to constitute a quorum of
such class for the election of a director by such class. At any such meeting or
adjournment thereof, (x) the absence of a quorum of the Holders of Series F
Preferred Stock shall not prevent the election of directors other than the
director to be elected by such Holders and the absence of a quorum or quorums of
the holders of Capital Stock entitled to elect such other directors shall not
prevent the election of a director to be elected by the Holders of Series F
Preferred Stock, voting as a single class, and (y) in the absence of a quorum of
the holders of any class of stock entitled to vote for the election of
directors, a majority of the holders present in person or by proxy of such class
shall have the power to adjourn the meeting for the election of directors which
the holders of such class are entitled to elect, from time to time, without
notice (except as required by law) other than announcement at the meeting, until
a quorum shall be present.
(vi) The term of office of the director elected by the Holders of
Series F Preferred Stock, pursuant to paragraph VII(B)(i) in office at any time
when the aforesaid voting rights are vested in the Holders of Series F Preferred
Stock, shall terminate upon the election of his/her successor by the Holders of
the Series F Preferred Stock at any meeting of shareholders for the purpose of
electing directors. Upon any termination of the aforesaid voting rights in
accordance with paragraph VII(B)(ii), the term of office of the director elected
pursuant to paragraph VII(B)(i) then in office shall thereupon terminate and
upon such termination the number of directors constituting the Board of
Directors shall, without further action, be reduced by one, subject always to
the increase of the number of directors pursuant to paragraph VII(B)(i) in case
of the future right of the Holders of Series F Preferred Stock to elect a
director as provided herein.
(vii) If the director elected pursuant to paragraph VII(B)(ii) shall
cease to serve as director before his/her term shall expire, the Holders of
Series F Preferred Stock then outstanding, voting as a single class, at a
special meeting called as provided above, may elect a successor to hold office
for the unexpired terms of the director whose place shall be vacant.
VIII.CHANGE OF CONTROL.
Upon the occurrence of a Change of Control, the Corporation shall be
required (subject to any contractual and other restrictions with respect thereto
and the legal availability of funds therefor) to make an Offer to Purchase (the
"Change of Control Offer") to each Holder of Series F Preferred Stock to
repurchase all or any part, at the Holder's option, of such Holder's Series F
Preferred Stock at a cash purchase price equal to 101% of the liquidation
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26
preference thereof, plus an amount in cash equal to all accrued and unpaid
dividends (including an amount in cash equal to a prorated dividend for the
period from the immediately preceding Dividend Payment Date to the date of
purchase) (the "Change of Control Payment"). The Change of Control Offer must be
made within 30 days following the conclusion of all change of control offers for
the Corporation's debt securities, must remain open for at least 30 and not more
than 60 days and must comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable. Prior to commencing any Change
of Control Offer, the Corporation shall first consummate any change of control
offer to purchase required to be made to any holder of its Indebtedness. The
Corporation shall make the Change of Control Offer within 30 days following the
consummation of any mandatory offers to purchase and any other required
repayments of the Corporation's Indebtedness resulting from a change of control.
IX. CONSOLIDATION. MERGER AND SALE OF ASSETS.
The Corporation shall not consolidate with, merge with or into, or
sell, convey, transfer, lease or otherwise dispose of all or substantially all
of its property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into the Corporation unless: (i) the Corporation shall
be the continuing Person, or the Person (if other than the Corporation) formed
by such consolidation or into which the Corporation is merged or that acquired
or leased such property and assets of the Corporation shall be a corporation
organized and validly existing under the laws of the United States of America or
any jurisdiction thereof and the Series F Preferred Stock shall be converted
into or exchanged for and shall become shares of such successor company, having
in respect of such successor company or resulting company substantially the same
powers, preferences and relative participating, optional or other special rights
and the qualifications, limitations or restrictions thereon that the Series F
Preferred Stock had immediately prior to such transaction in respect of the
Corporation; (ii) immediately after giving effect to such transaction on a PRO
FORMA basis, (A) the Corporation or any Person becoming the successor or
resulting company, as the case may be, shall have a Consolidated Net Worth equal
to or greater than the Consolidated Net Worth of the Corporation immediately
prior to such transaction or (B) the Corporation or any Person becoming the
successor or resulting company, as the case may be, shall have a Consolidated
Leverage Ratio no more than the greater of (I) 6:1 and (II) the Consolidated
Leverage Ratio of the Corporation immediately prior to such transaction;
PROVIDED that this clause (ii) shall not apply to a consolidation or merger with
or into a Wholly Owned Restricted Subsidiary with a positive net worth; PROVIDED
that, in connection with any such merger or consolidation, no consideration
(other than Capital Stock (other than Disqualified Stock) in the surviving
Person or the Corporation) shall be issued or distributed to the stockholders of
the Corporation; and (iii) the Corporation delivers to the Transfer Agent an
Officers' Certificate (attaching the arithmetic computations to demonstrate
compliance with clause (ii)) and Opinion of Counsel, in each case stating that
such consolidation, merger or transfer complies with this provision and that all
conditions precedent provided for herein relating to such transaction have been
complied with; PROVIDED, HOWEVER, that clause (ii) above does not apply if, in
the good faith determination of the Board of Directors of the Corporation, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
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27
such transaction is to change the state of incorporation of the Corporation and
any such transaction shall not have as one of its purposes the evasion of the
foregoing limitations.
X. EXCHANGE.
(A) The Corporation may, at the sole option of the Board of Directors
(subject to the legal availability of funds therefor), exchange all, but not
less than all, of the shares of Series F Preferred Stock then outstanding,
including any shares of Series F Preferred Stock issued as payment for
dividends, for a new series of senior subordinated debentures of the Corporation
(the "Exchange Debentures") to be issued pursuant to an indenture (the
"Indenture") qualified under the Trust Indenture Act of 1939, as amended,
substantially in the form attached as an exhibit to the Purchase Agreement (a
copy of which shall be provided to any Holder upon written request to the
Secretary of the Corporation), at any time following the date on which such
exchange is permitted by the terms of the then-existing Indebtedness of the
Corporation and subject to the conditions contained in paragraph X(B) below. The
Exchange Debentures will be issued in registered form, without coupons, be duly
executed, authenticated as of the date on which the exchange is effective and
dated the date of exchange. In the event of an exchange, Holders of Series F
Preferred shall be entitled to receive on the date of exchange Exchange
Debentures having an aggregate principal amount equal to (i) the total of the
liquidation preference for each share of Series F Preferred exchanged, PLUS (ii)
an amount equal to all accrued but unpaid dividends payable on such share
(including a prorated dividend for the period from the immediately preceding
Dividend Payment Date to the date of exchange). In the event such exchange would
result in the issuance of Exchange Debentures in a principal amount which is
less than $1,000 or which is not an integral multiple of $1,000 (such principal
amount less than $1,000 or the difference between such principal amount and the
highest integral of $1,000 which is less than such principal amount, as the case
may be, is hereinafter referred to as the "Fractional Principal Amount"), the
Corporation may, subject to any restrictions in the terms of the then-existing
Indebtedness of the Corporation, at the option of the Board of Directors, pay
cash to each Holder of Series F Preferred in lieu of Fractional Principal
Amounts of Exchange Debentures otherwise issuable upon exchange of the Series F
Preferred Stock. The Person entitled to receive the Exchange Debentures issuable
upon exchange shall be treated for all purposes as the registered holder of such
Exchange Debentures as of the date of exchange. The Corporation will mail to
each Holder of Series F Preferred Stock written notice of its intention to
exchange no less than 20 nor more than 60 days prior to the date of exchange.
(B) As a condition of the right of the Corporation to issue Exchange
Debentures in exchange for the Series F Preferred Stock under paragraph (A)
above, on the date of exchange, (A) there shall be legally available funds
sufficient therefor; (B) a registration statement relating to the Exchange
Debentures shall have been declared effective under the Securities Act prior to
such exchange and shall continue to be effective on the date of exchange, or the
Corporation shall have obtained a written opinion of its outside counsel
reasonably acceptable to Holders of a majority of the shares of Series F
Preferred Stock that an exemption from the registration requirements of the
Securities Act is available for such exchange and that upon receipt of such
Exchange Debentures pursuant to such an exchange made in accordance with such
exemption, each holder of an Exchange Debenture that is not an Affiliate of the
Corporation will not be subject to any restrictions imposed by the Securities
Act upon the resale of such Exchange Debenture, and such exemption is relied
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28
upon by the Corporation for such exchange, (C) the Indenture and the trustee
thereunder shall have been qualified under the Trust Indenture Act of 1939, as
amended; (D) immediately after giving effect to such exchange, no default or
event of default would exist under any of the Corporation's existing
Indebtedness; and (E) the Corporation shall have delivered to the Trustee under
the Indenture a written opinion of counsel, dated the date of exchange,
regarding the satisfaction of the conditions set forth in clauses (A), (B) and
(C).
XI. COVENANTS.
(A) LIMITATION ON INDEBTEDNESS
(a) The Corporation shall not, and will not permit any of its
Restricted Subsidiaries to, Incur any Indebtedness (other than Indebtedness
existing on the Closing Date); PROVIDED that the Corporation may Incur
Indebtedness if, after giving effect to the Incurrence of such Indebtedness and
the receipt and application of the proceeds therefrom, the Consolidated Leverage
Ratio would be greater than zero and less than 6:1.
Notwithstanding the foregoing, the Corporation and any Restricted
Subsidiary (except as specified below) may Incur each and all of the following:
(i) Indebtedness outstanding at any time in an aggregate principal amount not to
exceed $400 million; (ii) Indebtedness in existence on the Closing Date; (iii)
Indebtedness of the Corporation to a Restricted Subsidiary and Indebtedness of a
Restricted Subsidiary to the Corporation or another Restricted Subsidiary;
PROVIDED that such Indebtedness is made pursuant to an intercompany note and any
event which results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such Indebtedness (other than to the
Corporation or another Restricted Subsidiary) shall be deemed, in each case, to
constitute an Incurrence of such Indebtedness not permitted by this clause
(iii); (iv) Indebtedness issued in exchange for, or the net proceeds of which
are used to refinance or refund, then outstanding Indebtedness (other than
Indebtedness Incurred under clause (i), (iii), (v) or (ix) of this paragraph)
and any refinancings thereof in an amount not to exceed the amount so refinanced
or refunded (plus premiums, accrued interest, fees and expenses); PROVIDED that
such new Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature or have a mandatory redemption or repurchase date
prior to the Stated Maturity of the Indebtedness to be refinanced or refunded,
and the Average Life of such new Indebtedness is at least equal to the remaining
Average Life of the Indebtedness to be refinanced or refunded; (v) Indebtedness
(A) in respect of performance, surety, appeal bonds and completion guarantees
provided in the ordinary course of business; (B) under Currency Agreements and
Interest Rate Agreements; PROVIDED that such agreements (a) are designed solely
to protect the Corporation or its Restricted Subsidiaries against fluctuations
in foreign currency exchange rates or interest rates and (b) do not increase the
Indebtedness of the obligor outstanding at any time (except to the extent
Incurred under another clause hereof) other than as a result of fluctuations in
foreign currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder; and (C) arising from agreements
providing for indemnification, adjustment of purchase price or similar
obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Corporation or any of its
Restricted Subsidiaries pursuant to such agreements, in each case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
(other than Guarantees of Indebtedness Incurred by any Person acquiring all or
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29
any portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by the Corporation or any Restricted Subsidiary in
connection with such disposition; (vi) Indebtedness of the Corporation, to the
extent the net proceeds thereof are promptly (A) used to purchase the Series E
Preferred Stock and/or Series F Preferred Stock tendered in an Offer to Purchase
made as a result of a Change in Control or (B) deposited to defease the Senior
Discount Notes or used to redeem all the Series E Preferred Stock or Series F
Preferred Stock; (vii) Indebtedness Incurred to finance the cost (including the
cost of design, development, acquisition, construction, installation,
improvement, transportation or integration) to acquire equipment, inventory or
network assets (including acquisitions by way of acquisitions of real property,
leasehold improvements, Capitalized Leases and acquisitions of the Capital Stock
of a Person that becomes a Restricted Subsidiary to the extent of the fair
market value of the equipment, inventory or network assets so acquired) by the
Corporation or a Restricted Subsidiary after the Closing Date; (viii)
Indebtedness of the Corporation not to exceed, at any one time outstanding, two
times the sum of (A) the Net Cash Proceeds received by the Corporation on or
after the Closing Date from the issuance and sale of its Capital Stock (other
than Disqualified Stock) to a Person that is not a Subsidiary of the
Corporation, to the extent such Net Cash Proceeds have not been used pursuant to
clause (iii)(B)(2) of the first paragraph or clause (ii) of the second paragraph
of Section XI(B) or clause (v) of the definition of "Permitted Investments" to
make a Restricted Payment and (B) 80% of the fair market value of property
(other than cash and cash equivalents) received by the Corporation after the
Closing Date from the sale of its Capital Stock (other than Disqualified Stock)
to a Person that is not a Subsidiary of the Corporation, to the extent such sale
of Capital Stock has not been used pursuant to clause (iii) of the second
paragraph of Section XI(B) to make a Restricted Payment; PROVIDED that such
Indebtedness does not mature prior to the Mandatory Redemption Date; (ix)
Indebtedness Incurred by the Corporation or any of its Restricted Subsidiaries
constituting reimbursement obligations with respect to letters of credit in the
ordinary course of business, including, without limitation, letters of credit in
respect of workers' compensation claims or self insurance, or other Indebtedness
with respect to reimbursement type obligations regarding workers' compensation
claims; PROVIDED, HOWEVER, that upon the drawing of such letters of credit or
the Incurrence of such Indebtedness, such obligations are reimbursed within 30
days following such drawing or Incurrence; (x) Indebtedness of Persons that are
acquired by the Corporation or any of its Restricted Subsidiaries or merged into
a Restricted Subsidiary in accordance with the terms of this Certificate of
Designations; PROVIDED that such Indebtedness is not incurred in contemplation
of such acquisition or merger; and PROVIDED FURTHER that after giving effect to
such acquisition or merger, either (x) the Corporation would be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Consolidated
Leverage Ratio test set forth in the first sentence of this covenant or (y) the
Consolidated Leverage Ratio is lower (if greater than zero) or higher (if less
than zero) than immediately prior to such acquisition; (xi) Strategic
Subordinated Indebtedness; and (xii) Indebtedness under the Lucent Facility.
(b) Notwithstanding any other provision of this Section XI(A), the
maximum amount of Indebtedness that the Corporation or a Restricted Subsidiary
may Incur pursuant to this Section XI(A) shall not be deemed to be exceeded,
with respect to any outstanding Indebtedness due solely to the result of
fluctuations in the exchange rates of currencies. Accretion on an instrument
<PAGE>
30
issued at a discount will not be deemed to constitute an Incurrence of
Indebtedness.
(c) For purposes of determining any particular amount of Indebtedness
pursuant to this Section XI(A), Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be treated as Indebtedness.
For purposes of determining compliance with this Section XI(A), in the event
that an item of Indebtedness meets the criteria of more than one of the types of
Indebtedness described in the above clauses, the Corporation, in its sole
discretion, shall classif~' such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses.
(B) LIMITATION ON RESTRICTED PAYMENTS
The Corporation shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make
any distribution on or with respect to its Junior Securities (other than (x)
dividends or distributions payable solely in shares of its Junior Securities
(other than Disqualified Stock) or in options, warrants or other rights to
acquire shares of such Junior Securities and (y) pro rata dividends or
distributions on Common Stock of Restricted Subsidiaries held by minority
stockholders) held by Persons other than the Corporation or any of its
Restricted Subsidiaries, (ii) purchase, redeem, retire or otherwise acquire for
value any shares of Junior Securities of(A) the Corporation or an Unrestricted
Subsidiary (including options, warrants or other rights to acquire such shares
of Junior Securities) held by any Person or (B) a Restricted Subsidiary other
than a Wholly Owned Restricted Subsidiary (including options, warrants or other
rights to acquire such shares of Junior Securities) held by any Affiliate of the
Corporation (other than a Wholly Owned Restricted Subsidiary), or (iii) make any
Investment, other than a Permitted Investment, in any Person (such payments or
any other actions described in clauses (i) through (iii) above being
collectively "Restricted Payments") if, at the time of, and after giving effect
to, the proposed Restricted Payment: (A) the Corporation could not Incur at
least $1.00 of Indebtedness under the first paragraph of Section XI(A), or (B)
the aggregate amount of all Restricted Payments (the amount, if other than in
cash, to be determined in good faith by the Board of Directors whose
determination shall be conclusive and evidenced by a Board Resolution) made
after the Closing Date shall exceed the sum of(l) 50% of the aggregate amount of
the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net
Income is a loss, minus 100% of the amount of such loss) (determined by
excluding income resulting from transfers of assets by the Corporation or a
Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a cumulative
basis during the period (taken as one accounting period) beginning on the first
day of the fiscal quarter immediately following the Closing Date and ending on
the last day of the last fiscal quarter preceding the Transaction Date for which
reports have been provided to the Transfer Agent plus (2) 100% of the aggregate
Net Cash Proceeds and the actual market value of marketable securities (on the
date the calculation hereunder is made) received by the Corporation after the
Closing Date from the issuance and sale permitted by this Certificate of
Designations of its Capital Stock (other than Disqualified Stock) to a Person
who is not a Subsidiary of the Corporation, including an issuance or sale
permitted by this Certificate of Designations of Indebtedness of the Corporation
for cash subsequent to the Closing Date upon the conversion of such Indebtedness
into Capital Stock (other than Disqualified Stock) of the Corporation, or from
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31
the issuance to a Person who is not a Subsidiary of the Corporation of any
options, warrants or other rights to acquire Capital Stock of the Corporation
(in each case, exclusive of any Disqualified Stock or any options, warrants or
other rights that are redeemable at the option of the holder, or are required to
be redeemed, prior to the Mandatory Redemption Date), and the Net Cash Proceeds
from any capital contributions to the Corporation after the Closing Date from
Persons other than Subsidiaries of the Corporation, in each case excluding such
Net Cash Proceeds to the extent used to Incur Indebtedness pursuant to clause
(viii) of the second paragraph of Section XI(A) and excluding Net Cash Proceeds
from the issuance of Capital Stock to the extent used to make a Permitted
Investment in accordance with clause (v) of such defined term, PLUS (3) amounts
received from Investments (other than Permitted Investments) in any Person
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to the Corporation
or any Restricted Subsidiary or from the Net Cash Proceeds from the sale of any
such Investment (except, in each case, to the extent any such payment or
proceeds are included in the calculation of Adjusted Consolidated Net Income),
or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investments"), not to
exceed, in each case, the amount of Investments previously made by the
Corporation or any Restricted Subsidiary in such Person or Unrestricted
Subsidiary or (C) dividends on Series F Preferred Stock shall not have been paid
in full as provided in this Certificate of Designations.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase or other acquisition of Junior
Securities of the Corporation including premium, if any, and accrued and unpaid
dividends, with the proceeds of, or in exchange for, Junior Securities (other
than Disqualified Stock) of the Corporation; (iii) payments or distributions, to
dissenting stockholders pursuant to applicable law, pursuant to or in connection
with a consolidation, merger or transfer of assets that complies with Article
IX; (iv) the declaration or payment of dividends on the Common Stock of the
Corporation following a Public Equity Offering of such Common Stock, of up to 6%
per annum of the Net Cash Proceeds received by the Corporation in such Public
Equity Offering; (v) the repurchase, retirement or other acquisition or
retirement for value of any shares of Junior Securities of the Corporation that
are not registered under the Exchange Act and are held by any current or former
employee, director or consultant (or their estates or the beneficiaries of such
estates) of the Corporation or any Subsidiary, not to exceed (A) in any calendar
year $2.0 million or (B) $5.0 million in the aggregate; (vi) repurchases of
Junior Securities deemed to occur upon exercise of stock options if such Capital
Stock represents a portion of the exercise price of such options; (vii)
repurchases of fractional shares of Junior Securities in connection with the
exercise of Warrants in accordance with the Warrant Agreement and Preferred
Stock Warrant Agreement or other warrants to purchase the Corporation's Common
Stock; and (viii) other Restricted Payments in an aggregate amount not to exceed
$2.0 million.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clauses (ii) or (vi) thereof,
an exchange of Junior Securities for Junior Securities and an Investment
referred to in clause (iv) thereof) shall be included in calculating whether the
conditions of clause (iii)(B) of the first paragraph of this Section XI(B) have
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32
been met with respect to any subsequent Restricted Payments. In the event the
proceeds of an issuance of Capital Stock of the Corporation are used for the
redemption, repurchase or other acquisition of Parity Securities, then the Net
Cash Proceeds of such issuance shall be included in clause (iii)(B) of the first
paragraph of this Section XI(B) only to the extent such proceeds are not used
for such redemption, repurchase or other acquisition of securities.
Any Restricted Payments made other than in cash shall be valued at
fair market value. The amount of any Investment "outstanding" at any time shall
be deemed to be equal to the amount of such Investment on the date made, less
the return of capital to the Corporation and its Restricted Subsidiaries with
respect to such Investment by distribution, sale or otherwise (up to the amount
of such Investment on the date made).
(C) LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES
The Corporation shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions
permitted by applicable law on any Capital Stock of such Restricted Subsidiary
owned by the Corporation or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Corporation or any other Restricted Subsidiary, (iii)
make loans or advances to the Corporation or any other Restricted Subsidiary or
(iv) transfer any of its property or assets to the Corporation or any other
Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
(i) existing on the Closing Date, in the Newcourt Facility, the Lucent Facility,
this Certificate of Designations or any other agreements in effect on the
Closing Date, and any extensions, refinancings, renewals or replacements of such
agreements; PROVIDED that the encumbrances and restrictions in any such
extensions, refinancings, renewals or replacements are no less favorable in any
material respect to the Holders than those encumbrances or restrictions that are
then in effect and that are being extended, refinanced, renewed or replaced;
(ii) existing under or by reason of applicable law, rule, regulation or order;
(iii) existing with respect to any Person or the property or assets of such
Person acquired by the Corporation or any Restricted Subsidiary, existing at the
time of such acquisition and not incurred in contemplation thereof, which
encumbrances or restrictions are not applicable to any Person or the property or
assets of any Person other than such Person or the property or assets of such
Person so acquired; (iv) in the case of clause (iv) of the first paragraph of
this Section XI(C), (A) that restrict in a customary maimer the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Corporation or any Restricted Subsidiary not
otherwise prohibited by this Certificate of Designations, (C) arising or agreed
to in the ordinary course of business, not relating to any Indebtedness, and
that do not, individually or in the aggregate, detract from the value of
property or assets of the Corporation or any Restricted Subsidiary in any maimer
material to the Corporation or any Restricted Subsidiary or (D) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature discussed in clause (iv) above on the property so
acquired; (v) with respect to the Corporation or a Restricted Subsidiary and
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33
imposed pursuant to an agreement that has been entered into for the sale of
assets, including, without limitation, customary restrictions on the disposition
of all or substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary or the Corporation; (vi) contained in the terms of
any Indebtedness or any agreement pursuant to which such Indebtedness was issued
(in each case other than Indebtedness incurred under the Newcourt Facility) if
(A) the encumbrance or restriction applies only in the event of a payment
default or a default with respect to a financial covenant contained in such
Indebtedness or agreement, (B) the encumbrance or restriction is not materially
more disadvantageous to the Holders of the Series F Preferred Stock than is
customary in comparable financings (as determined by the Corporation) and (C)
the Corporation determines that any such encumbrance or restriction will not
materially affect the Corporation's ability to make dividend and mandatory
redemption payments on the Series F Preferred Stock; (vii) restrictions on cash
or other deposits or net worth imposed by customers under contracts entered into
in the ordinary course of business; (viii) customary provisions in joint venture
agreements and other similar agreements entered into in the ordinary course of
business; and (ix) any encumbrances or restrictions of the type referred to in
clauses (i)-(iv) of the first paragraph of this covenant imposed by any
amendments, modifications, renewals, restatements, increases, supplements,
refundings, replacements or refinancings of the contracts referred to in clauses
(i) through (viii) above; PROVIDED that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are, in the good faith judgment of the Corporation, not materially
more disadvantageous to the Holders than those contained in the restriction
prior to such amendment, modification, restatement, renewal, increase,
supplement, refunding, replacement or refinancing. Nothing contained in this
Section XI(C) shall prevent the Corporation or any Restricted Subsidiary from
restricting the sale or other disposition of property or assets of the
Corporation or any of its Restricted Subsidiaries that secure Indebtedness of
the Corporation or any of its Restricted Subsidiaries.
(D) LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
The Corporation shall not sell, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell, any shares of Capital
Stock of a Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) except (i) to the Corporation or a Wholly
Owned Restricted Subsidiary; (ii) issuances of director's qualifying shares or
sales to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would have been permitted
to be made in accordance with Section XI(B) if made on the date of such issuance
or sale; or (iv) issuances or sales of common stock of a Restricted Subsidiary,
PROVIDED that the Corporation or any Restricted Subsidiary applies an amount
equal to the Net Cash Proceeds thereof in accordance with Section XI(F).
(E) LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
The Corporation shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, enter into, renew or extend any
transaction (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any
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34
Affiliate of the Corporation or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Corporation or such Restricted
Subsidiary than could be obtained, at the time of such transaction or, if such
transaction is pursuant to a written agreement, at the time of the execution of
the agreement providing therefor, in a comparable arm's-length transaction with
a Person that is not an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Corporation or a Restricted Subsidiary
delivers to the Transfer Agent a written opinion of a nationally recognized
investment banking firm or a nationally recognized firm having expertise in the
specific area which is the subject of such determination stating that the
transaction is fair to the Corporation or such Restricted Subsidiary from a
financial point of view; (ii) any transaction solely between the Corporation and
any of its Restricted Subsidiaries or solely between Restricted Subsidiaries;
(iii) the payment of reasonable and customary regular fees to, and indemnity
provided on behalf of, officers, directors, employees or consultants of the
Corporation or its Restricted Subsidiaries; (iv) any payments or other
transactions pursuant to any tax-sharing agreement between the Corporation and
any other Person with which the Corporation files a consolidated tax return or
with which the Corporation is part of a consolidated group for tax purposes; (v)
any agreement as in effect as of the Closing Date or any amendment thereto (so
long as any such amendment is not disadvantageous to the Holders in any material
respect); (vi) the existence of, or the performance by the Corporation or any of
its Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement (including any registration rights agreement or purchase
agreement related thereto) to which it is a party as of the Closing Date and any
similar agreements which it may enter into thereafter (so long as any such
amendment is not disadvantageous to the Holders in any material respect); or
(vii) any Permitted Investments and Restricted Payments not prohibited by
Section XI(B). Notwithstanding the foregoing, any transaction or series of
related transactions covered by the first paragraph of this Section XI(E) and
not covered by clauses (ii) through (vii) of this paragraph the aggregate amount
of which exceeds $3.0 million in value, must be approved or determined to be
fair in the manner provided for in clause (i)(A) or (B) above.
(F) LIMITATION ON ASSET SALES
The Corporation shall not, and shall not permit any Restricted
Subsidiary to, consummate any Asset Sale, unless (i) the consideration received
by the Corporation or such Restricted Subsidiary is at least equal to the fair
market value of the assets sold or disposed of and (ii) at least 75% of the
consideration received consists of cash or Temporary Cash Investments. For
purposes of this covenant, the following are deemed to be cash: (x) the
principal amount or accreted value (whichever is larger) of Indebtedness of the
Corporation or any Restricted Subsidiary with respect to which the Corporation
or such Restricted Subsidiary has either (A) received a written release or (B)
been released by operation of law, in either case, from all liability on such
Indebtedness in connection with such Asset Sale and (y) securities received by
the Corporation or any Restricted Subsidiary from the transferee that are
promptly converted by the Corporation or such Restricted Subsidiary into cash.
In the event and to the extent that the Net Cash Proceeds received by the
Corporation or any of its Restricted Subsidiaries from one or more Asset Sales
occurring on or after the Closing Date in any period of 12 consecutive months
exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of the
date closest to the commencement of such 12-month period for which a
<PAGE>
35
consolidated balance sheet of the Corporation and its Subsidiaries has been
provided to the Transfer Agent), then the Corporation shall or shall cause the
relevant Restricted Subsidiary to (i) within 12 months after the date Net Cash
Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible Assets (A)
apply an amount equal to such excess Net Cash Proceeds to permanently repay
Indebtedness of the Corporation, repay Indebtedness of any Restricted Subsidiary
or redeem any Senior Securities, in each case owing to, or held by, a Person
other than the Corporation or any of its Restricted Subsidiaries or (B) invest
an equal amount, or the amount not so applied pursuant to clause (A) (or enter
into a definitive agreement committing to so invest within 12 months after the
date of such agreement), in property or assets (other than current assets) of a
nature or type or that are used in a business (or in a Person (other than a
natural person) having property and assets of a nature or type, or engaged in a
business) similar or related to the nature or type of the property and assets
of, or the business of, the Corporation and its Restricted Subsidiaries existing
on the date of such investment (as determined in good faith by the Board of
Directors whose determination shall be conclusive and evidenced by a Board
Resolution) and (ii) apply (no later than the end of the 12-month period
referred to in clause (i)) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraph of this
Section XI(F). The amount of such excess Net Cash Proceeds required to be
applied (or to be committed to be applied) during such 12-month period as set
forth in clause (i) of the preceding sentence and not applied as so required by
the end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
Section XI(F) totals at least $5 million, the Corporation must commence, not
later than the fifteenth Business Day of such month, and consummate an Offer to
Purchase from the Holders on a pro rata basis, and an offer to purchase any
outstanding Parity Securities with similar provisions requiring the Corporation
to make an offer to purchase such securities, in an aggregate liquidation
preference of Series F Preferred Stock and such Parity Securities equal to (A)
with respect to the Series F Preferred Stock, the product of such Excess
Proceeds multiplied by a fraction, the numerator of which is the liquidation
preference of the outstanding shares of the Series F Preferred Stock and the
denominator of which is the sum of the outstanding liquidation preference of the
Series F Preferred Stock and such Parity Securities (the product hereinafter
referred to as the "Series F Preferred Stock Amount"), and (B) with respect to
the Parity Securities, the excess of the Excess Proceeds over the Series F
Preferred Stock Amount, at a purchase price equal to 100% of the liquidation
preference of the Series F Preferred Stock or such Parity Securities, as the
case may be, on the relevant Payment Date or such other date set forth in the
documentation governing the Parity Securities, plus, in each case, accrued
dividends (if any) to the Payment Date or such other date set forth in the
documentation governing the Parity Securities. If the aggregate purchase price
of the Preferred Stock tendered pursuant to the Offer to Purchase is less than
the Excess Proceeds, the remaining will be available for use by the Corporation
for general corporate purposes. Upon the consummation of any Offer to Purchase
in accordance with the terms of this Certificate of Designations, the amount of
Net Cash Proceeds from Asset Sales subject to any future Offer to Purchase shall
be deemed to be zero. Prior to commencing any Offer to Purchase, the Corporation
shall first consummate any offer to purchase required to be made to any Holder
of its Indebtedness.
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36
(G) COMMISSION REPORTS AND REPORTS TO HOLDERS.
While the Series F Preferred Stock is outstanding, whether or not the
Corporation is then required to file reports with the Commission, the
Corporation shall deliver for filing with the Commission all such reports and
other information as it would be required to file with the Commission by
Sections 13(a) or 15(d) under the Exchange Act if it were subject thereto. All
references herein to reports "filed" with the Commission shall be deemed to
refer to the reports then most recently delivered for filing, whether or not
accepted by the Commission.
XII. MUTILATED OR MISSING SERIES F PREFERRED STOCK CERTIFICATES.
If any of the Series F Preferred Stock certificates shall be
mutilated, lost, stolen or destroyed, the Corporation shall issue, in exchange
and in substitution for and upon cancellation of the mutilated Series F
Preferred Stock certificate, or in lieu of and substitution for the Series F
Preferred Stock certificate lost, stolen or destroyed, a new Series F Preferred
Stock certificate of like tenor and representing an equivalent amount of shares
of Series F Preferred Stock, but only upon receipt of evidence of such loss,
theft or destruction of such Series F Preferred Stock certificate and indemnity,
if requested, satisfactory to the Corporation.
XIII.REISSUANCE; PREEMPTIVE RIGHTS
(i) Shares of Series F Preferred Stock that have been issued and
reacquired in any manner, including shares purchased or redeemed, shall (upon
compliance with any applicable provisions of the laws of the State of Delaware)
have the status of authorized and unissued shares of Preferred Stock
undesignated as to series and may be redesignated and reissued as part of any
series of Preferred Stock.
(ii) No shares of Series F Preferred Stock shall have any rights of
preemption whatsoever as to any securities of the Corporation, or any warrants,
rights or options issued or granted with respect thereto, regardless of how such
securities or such warrants, rights or options may be designated, issued or
granted.
XIV. BUSINESS DAY.
If any payment or redemption shall be required by the terms hereof to
be made on a day that is not a Business Day, such payment or redemption shall be
made on the immediately succeeding Business Day and no further dividends shall
accrued after the day payment was required.
XV. HEADINGS OF SUBDIVISIONS.
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37
The headings of various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
XVI. SEVERABILITY OF PROVISIONS.
If any right, preference or limitation of the Series F Preferred Stock
set forth in this Certificate of Designations (as may be amended from time to
time) is invalid, unlawful or incapable of being enforced by reason of any rule
or law or public policy, all other rights, preferences and limitations set forth
in this Certificate of Designations, as amended, which can be given effect
without the invalid, unlawful or unenforceable right, preference or limitation
shall, nevertheless remain in full force and effect, and no right, preference or
limitation herein set forth shall be deemed dependent upon any other such right,
preference or limitation unless so expressed herein.
XVII.NOTICE.
All notices, requests, demands, and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand or when sent by telex or telecopier (with receipt confirmed), provided a
copy is also sent by express (overnight, if possible) courier, addressed (i) in
the case of a Holder of the Series F Preferred Stock, to such holder's address
of record shown on the records of the Corporation, and (ii) in the case of the
Corporation, to the Corporation's principal executive offices (currently located
on the date of the adoption of these resolutions at the following address: KMC
Telecom Holdings, Inc., 1545 Route 206, Suite 300, Bedminster, New Jersey 07921)
to the attention of the Corporation's Chief Financial Officer.
XVIII.LIMITATIONS.
Except as may otherwise be required by law, the shares of Series F
Preferred Stock shall not have any powers, preferences or relative,
participating, optional or other special rights other than those specifically
set forth in this Certificate of Designations (as may be amended from time to
time) or otherwise in the Certificate of Incorporation of the Corporation.
XIX. TRANSFER AND LEGENDING OF SHARES.
No transfer of shares of the Series F Preferred Stock shall be
effective until such transfer is registered on the books of the Corporation. Any
shares of the Series F Preferred Stock so transferred must bear the following
legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR HAS IT BEEN
REGISTERED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE.
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38
THIS SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR IN ANY
OTHER MANNER TRANSFERRED OR DISPOSED OF UNLESS (I) SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND THE
APPLICABLE RULES AND REGULATIONS THEREUNDER AND APPLICABLE
STATE SECURITIES LAWS OR BLUE SKY LAWS AND (II) PRIOR TO ANY
SUCH TRANSFER, THE TRANSFEROR OR THE TRANSFEREE DELIVERS AN
OPINION OF COUNSEL (REASONABLY ACCEPTABLE TO THE CORPORATION)
TO THE TRANSFER AGENT AND THE CORPORATION, THAT SUCH TRANSFER
IS IN COMPLIANCE WITH THE SECURITIES ACT AND THE APPLICABLE
RULES AND REGULATIONS THEREUNDER.
THE SHARES OF SERIES F PREFERRED STOCK REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A COVENANT OF LUCENT TECHNOLOGIES,
INC. ("LUCENT") IN A SECURITIES PURCHASE AGREEMENT DATED AS OF
FEBRUARY 4,1999 WHICH PROHIBITS LUCENT FROM TRANSFERRING THIS
SERIES OF PREFERRED STOCK PRIOR TO THE EARLIER OF (i) AUGUST
4, 2000 OR (ii) ONE YEAR AFTER A HIGH YIELD OFFERING BY KMC
TELECOM HOLDINGS, INC. YIELDING GROSS PROCEEDS OF AT LEAST $50
MILLION. EXCEPT AS OTHERWISE PROVIDED IN AMENDMENT NO. 1 TO
THE PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT DATED AS OF
JUNE 1, 1999, BY AND AMONG THE COMPANY, FIRST UNION INVESTORS,
INC., NEWCOURT FINANCE, AND LUCENT,
The Corporation shall refuse to register any attempted transfer of
shares of Series F Preferred Stock not in compliance with this Article XIX.
In the event the shares of Series F Preferred Stock are issued as part
of a unit together with Warrants, the shares of Series F Preferred Stock and the
Warrants shall not be separately transferable from each other until the next
Business Day after the issuance of such shares of Series F Preferred Stock or
until such other date as may be specified in a legend to the shares of Series F
Preferred Stock.
XX. AMENDMENTS AND WAIVERS
(A) Except as provided in this Article XX, any right, preference, privilege
or power of, or restriction provided for the benefit of, the Series F Preferred
Stock set forth herein may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only with the written consent of the Corporation and the
affirmative vote or written consent of the Holders of at least a majority of the
shares of Series F Preferred Stock then outstanding (excluding any shares held
<PAGE>
39
by Affiliates of the Corporation, any Existing Stockholders or any of their
Affiliates), and any amendment or waiver so effected shall be binding upon the
Corporation and all Holders of the Series F Preferred Stock.
(B) Notwithstanding the foregoing, if any amendment is made to the
covenants of the Senior Discount Note Indenture, in accordance with the
provisions therein, then a conforming amendment may be made to the covenants set
forth in Article XI of this Certificate of Designations by the Corporation,
without the consent of any Holder; and any amendment so effected shall be
binding upon the Corporation and all Holders of the Series F Preferred Stock,
PROVIDED HOWEVER, that if in connection with making any such amendment to the
Senior Discount Note Indenture, the Corporation has paid consideration to the
holders of the Senior Discount Notes to obtain their consent to make such
amendment, then the Corporation shall pay each Holder consideration per $1,000
liquidation preference of Series F Preferred Stock equal to the consideration
per $1,000 principal amount of Senior Discount Notes paid to the holders of the
Senior Discount Notes. In connection with any such amendment, the Corporation
shall deliver to the Transfer Agent an Opinion of Counsel, reasonably acceptable
to it, that such amendment complies with the terms hereof. The Corporation shall
provide notice in accordance with Article XVII of this Certificate of
Designations of any amendment effected pursuant to this Section XX(B) to the
Holders of the Series F Preferred Stock.
XXI. CONVERSION.
Upon the Business Day after the earlier of (i) the date that is sixty
days after the date on which the Corporation closes an underwritten primary
offering of at least $200 million of its Common Stock pursuant to an effective
registration statement under the Securities Act or (ii) February 4, 2001 (such
Business Day hereinafter referred to as, the "Conversion Date"), the Series F
Preferred Stock will automatically convert into the right to receive Series E
Preferred Stock having a liquidation preference equal to the liquidation
preference of the Series F Preferred Stock). Each such share of Series E
Preferred Stock issued upon conversion of the Series F Preferred Stock and
surrender of the certificates representing the Series F Preferred Stock shall
accrue dividends as provided in the Series E Certificate of Designations from
the last date on which dividends were paid on the Series F Preferred Stock.
On or after the Conversion Date, each Holder shall surrender the
certificate(s) representing its shares of Series F Preferred Stock, accompanied
by transfer instrument(s) satisfactory to the Corporation and sufficient to
transfer the Series F Preferred Stock being so converted to the Corporation free
of any lien or other adverse interest, at any of the offices or agencies
maintained for such purpose by the conversion agent designated by the
Corporation (the "Conversion Agent") and shall give written notice to the
Corporation that the Holder is surrendering its certificates of Series F
Preferred Stock for conversion into shares of Series E Preferred Stock pursuant
to this Article XXI of this Certificate of Designations. The initial Conversion
Agent shall be the Transfer Agent. Such notice shall also state the name(s),
together with address(es), in which the certificate(s) for shares of Series E
Preferred Stock shall be issued. As promptly as practicable after the surrender
of such shares of Series F Preferred Stock as aforesaid, the Corporation shall
issue and deliver at the office of such Conversion Agent to such Holder, or on
such Holder's written order, certificate(s) representing the number of full
<PAGE>
40
shares of Series E Preferred Stock issuable upon the conversion of such shares
in accordance with the provisions hereof. Each conversion shall be deemed to
have been effected immediately prior to the close of business on the date on
which shares of Series F Preferred Stock shall have been surrendered as
aforesaid, and the Person(s) in whose name(s) any certificate(s) for shares of
Series E Preferred Stock shall be issuable upon such conversion shall be deemed
to have become the holder(s) of record of the Series E Preferred Stock
represented thereby at such time, unless the stock transfer books of the
Corporation shall be closed on the date on which shares of Series F Preferred
Stock are so surrendered for conversion, in which event such conversion shall be
deemed to have been effected immediately prior to the close of business on the
next succeeding day on which such stock transfer books are open, and such
person(s) shall be deemed to have become such holder(s) of record of the Series
E Preferred Stock at the close of business on such later day.
The Corporation shall at all times reserve a sufficient number of
shares of Series E Preferred Stock to be issued upon conversion of the Series F
Preferred Stock pursuant to this Article XXI.
XXII.INCREASE OF AUTHORIZED AMOUNT OF SHARES.
Notwithstanding any other provision herein, the Board of Directors
may, from time to time, in its sole discretion, increase the number of shares of
Preferred Stock designated as Series F Preferred Stock under Article II of this
Certificate of Designations, up to the maximum amount of shares of Preferred
Stock authorized to be issued, without the consent of the holders of any shares
of its Capital Stock.
The Corporation shall at all times reserve a sufficient number of
authorized but unissued shares of Series F Preferred Stock to provide for the
payment of all dividends that may accrue on the shares of Series F Preferred
Stock then outstanding in additional shares of Series F Preferred Stock.
XXIII.ISSUANCE OF ADDITIONAL SHARES OF SERIES F PREFERRED STOCK.
Except with respect to the issuance of shares of Series E Preferred
Stock to pay dividends on the Series E Preferred Stock or upon conversion of the
Series F Preferred Stock, the Corporation may not issue additional shares of the
Series E Preferred Stock to any purchaser unless (A) it has obtained the consent
of the Holders of a majority of the shares of Series F Preferred Stock then
outstanding and the holders of a majority of the shares of Series E Preferred
Stock then outstanding or (B)(i) the per share price paid for such additional
shares is at least equal to the per share price paid to the Corporation for the
shares of Series E Preferred Stock issued on the Closing Date, (ii) the
Corporation does not issue to such purchaser more than 1,136.4 Warrants per
$1,000,000 of liquidation preference of Series E Preferred Stock, (iii) (a) the
holders of Series E Preferred Stock issued on the Closing Date retain their
right to receive at least 147.73 Warrants, pursuant to Section 2.4 of the
<PAGE>
41
Warrant Agreement, per $100,000 of liquidation preference of Series E Preferred
Stock issued on the Closing Date and (b) the Holders of Series F Preferred Stock
issued on the Closing Date retain their right to receive at least 147.73
Warrants, pursuant to Section 2.4 of the Warrant Agreement, per $100,000 of
liquidation preference of Series F Preferred Stock issued on the Closing Date
and (iv) the aggregate amount of all shares of Series E Preferred Stock and
Series F Preferred Stock issued (other than shares of Series E Preferred Stock
and Series F Preferred Stock issued to pay dividends thereon or shares of Series
E Preferred Stock issued upon conversion of the Series F Preferred Stock) shall
not exceed 150,000 shares.
Except with respect to the issuance of shares of Series F Preferred
Stock to pay dividends on the Series F Preferred Stock, the Corporation shall
not issue in excess of 40,000 shares of Series F Preferred Stock, unless it has
obtained the consent of the Holders of a majority of the shares of Series F
Preferred Stock then outstanding and the Holders of a majority of the shares of
Series E Preferred Stock then outstanding.
<PAGE>
42
IN WITNESS WHEREOF, this Certificate has been signed on this 1st day
of June, 1999.
KMC TELECOM HOLDINGS, INC.
By: /s/ James D. Grenfell
-------------------------
Name: James D. Grenfell
Title: Chief Financial Officer
================================================================================
KMC TELECOM HOLDINGS, INC.,
as Issuer,
KMC TELECOM FINANCING, INC.
as Guarantor,
and
THE CHASE MANHATTAN BANK,
as Trustee
First Supplemental Indenture
Dated as of May 24, 1999
12 1/2% Senior Discount Notes due 2008
================================================================================
<PAGE>
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of May 24, 1999, among KMC
TELECOM HOLDINGS, INC., a Delaware corporation, as issuer (the "COMPANY"), KMC
TELECOM FINANCING, INC., a Delaware corporation and a Restricted Subsidiary of
the Company, as guarantor (the "GUARANTOR"), and THE CHASE MANHATTAN BANK, as
trustee (the "TRUSTEE").
RECITALS OF THE COMPANY
WHEREAS, the Company and the Trustee have entered into that certain
indenture dated as of January 29, 1998 (the "SENIOR DISCOUNT NOTES INDENTURE"),
pursuant to which the Company issued in the original aggregate principal amount
at maturity of $460,800,000 12 1/2% Senior Discount Notes due 2008 (thE "SENIOR
DISCOUNT NOtes");
WHEREAS, the Company covenanted and agreed pursuant to the terms of
the Senior Discount Notes Indenture not to permit any Restricted Subsidiary (as
defined in the Senior Discount Notes Indenture), directly or indirectly, to
guarantee any indebtedness of the Company which is equal or subordinate in right
of payment with the Senior Discount Notes unless such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Senior
Discount Notes Indenture to provide for a Guarantee of the payment of the Senior
Discount Notes by such Restricted Subsidiary;
WHEREAS, the Guarantor is a Restricted Subsidiary of the Company;
WHEREAS, the Company, the Guarantor and the Trustee have entered into
that certain indenture dated as of the date hereof (as amended, restated,
supplemented or otherwise modified from time to time, the "INDENTURE"), pursuant
to which the Company is issuing on the date hereof $275,000,000 in aggregate
principal amount of 13 1/2% Senior Notes due 2009 (thE "NOtes") which are equal
in right of payment with the Senior Discount Notes; and
WHEREAS, the Notes are guaranteed by the Guarantor pursuant to the
terms of the Indenture.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto agree,
for the equal and proportionate benefit of all Holders of the Senior Discount
Notes, as follows:
<PAGE>
2
ARTICLE I
RATIFICATION; DEFINITIONS
SECTION 1.01. FIRST SUPPLEMENTAL INDENTURE. This First Supplemental
Indenture is supplemental to, and is entered into in accordance with Section
9.01 of the Senior Discount Notes Indenture, and except as modified, amended and
supplemented by this First Supplemental Indenture, the provisions of the Senior
Discount Notes Indenture are in all respects ratified and confirmed and shall
remain in full force and effect; and
SECTION 1.02. DEFINITIONS. Unless the context shall otherwise require,
all terms which are defined in Section 1.01 of the Senior Discount Notes
Indenture shall have the same meanings, respectively, in this First Supplemental
Indenture as such terms are given in said Section 1.01 of the Senior Discount
Notes Indenture.
ARTICLE II
GUARANTEE OF SENIOR DISCOUNT NOTES
SECTION 2.01. GUARANTEE. (a) Subject to the provisions of this
Supplemental Indenture, the Guarantor hereby fully, unconditionally and
irrevocably guarantees (hereinafter referred to as the "SUBSIDIARY GUARANTEE")
to each holder of the Senior Discount Notes (each, a "HOLDER" and collectively,
the "HOLDERS") and to the Trustee on behalf of itself and such Holders:
(i) the due and punctual payment of the Accreted Value or principal
amount at maturity of, premium, if any, on and interest on each Senior
Discount Note outstanding as of the date hereof, when and as the same shall
become due and payable, whether at maturity, by acceleration or otherwise,
the due and punctual payment of interest on the overdue principal of and
interest, if any, on such Senior Discount Notes, to the extent lawful, and
the due and punctual performance of all other obligations of the Company to
the Holders or the Trustee, all in accordance with the terms of such Senior
Discount Note and the Senior Discount Note Indenture; and
(ii) in the case of any extension of time of payment or renewal of any
such Senior Discount Note or any of such other obligations, that the same
will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, at Stated Maturity, by acceleration or
otherwise.
<PAGE>
3
(b) The Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of merger or bankruptcy of
the Company, any right to require a proceeding first against the Company, the
benefit of discussion, protest or notice with respect to any such Senior
Discount Note or the debt evidenced thereby and all demands whatsoever, and
covenants that this Subsidiary Guarantee will not be discharged as to any such
Senior Discount Note except by payment in full of the Accreted Value or
principal amount at maturity thereof and interest thereon in the manner
contemplated by the terms of the Senior Discount Notes Indenture. For the
purposes of this First Supplemental Indenture, the maturity of the obligations
guaranteed hereby may be accelerated as set forth under Article Six of the
Senior Discount Notes Indenture (hereinafter referred to as "ARTICLE SIX"). In
the event of any declaration of acceleration of such obligations as provided in
such Article Six, such obligations (whether or not due and payable) shall
forthwith become due and payable by the Guarantor for the purpose of this First
Supplemental Indenture. In addition, without limiting the foregoing provisions,
upon the effectiveness of an acceleration under Article Six, the Trustee may
make a demand for payment on the Senior Discount Notes under this Subsidiary
Guarantee. Notwithstanding the foregoing, this Subsidiary Guarantee by the
Guarantor shall automatically terminate upon the earlier of (i) the payment in
full of the Accreted Value or principal amount at maturity of, premium, if any,
and interest on all outstanding Senior Discount Notes and (ii) the termination
of the guarantee of the Notes by the Guarantor in accordance with Section 11.01
of the Indenture, unless such termination under Section 11.01 of the Indenture
results from a payment by the Guarantor under the Note Guarantee. If the Trustee
or the Holder is required by any court or otherwise to return to the Company or
the Guarantor, or any custodian, receiver, liquidator, trustee, sequestrator or
other similar official acting in relation to the Company or the Guarantor, any
amount paid to the Trustee or such Holder in respect of a Senior Discount Note,
this Subsidiary Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect. The Guarantor further agrees, to the
fullest extent that it may lawfully do so, that, as between it, on the one hand,
and the Holders and the Trustee, on the other hand, the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article Six for
the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction
or other prohibition extant under any applicable bankruptcy law preventing such
acceleration in respect of the obligations guaranteed hereby.
<PAGE>
4
(c) Until such time as the Senior Discount Notes outstanding as of the
date hereof are fully and finally paid, including all interest, premium,
principal and liquidated damages with respect thereto, the Guarantor hereby
irrevocably waives any claim or other rights which it may now or hereafter
acquire against the Company that arise from the existence, payment, performance
or enforcement of its obligations under this Subsidiary Guarantee and this
Supplemental Indenture, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, any right to
participate in any claim or remedy of the Holders against the Company or any
collateral which any such Holder or the Trustee on behalf of such Holder
hereafter acquires, whether or not such claim, remedy or right arises in equity,
or under contract, statute or common law, including, without limitation, the
right to take or receive from the Company, directly or indirectly, in cash or
other property or by set-off or in any other manner, payment or security on
account of such claim or other rights. If any amount shall be paid to the
Guarantor in violation of the preceding sentence and the Accreted Value or
principal amount at maturity of, premium, if any, and accrued interest on the
Senior Discount Notes or any other amounts payable by the Company under the
Senior Discount Notes Indenture shall not have been paid in full, such amount
shall be deemed to have been paid to the Guarantor for the benefit of, and held
in trust for the benefit of, the Holders and the Trustee, and shall forthwith be
paid to the Trustee for the benefit of itself and the Holders to be credited and
applied upon the principal of, premium, if any, and accrued interest on the
Senior Discount Notes.
(d) This Subsidiary Guarantee shall not be valid or become obligatory
for any purpose with respect to a Senior Discount Note until the certificate of
authentication on the Note shall have been signed by or on behalf of the Trustee
pursuant to the terms of the Indenture.
SECTION 2.02. OBLIGATIONS UNCONDITIONAL. (a) Subject to Section 2.05,
nothing contained in this First Supplemental Indenture or in the Senior Discount
Notes is intended to or shall impair, as among the Guarantor, the Trustee and
the Holders, the obligation of the Guarantor, which is absolute and
unconditional, upon failure by the Company, to pay to the Holders the Accreted
Value or principal amount at maturity of, premium, if any, and interest on the
Senior Discount Notes outstanding as of the date hereof as and when the same
shall become due and payable in accordance with their terms or any other amounts
payable by the Company under the Senior Discount Notes Indenture, or is intended
to or shall affect the relative rights of the Holders, the Trustee and creditors
of the Guarantor, nor shall anything herein or therein prevent the Holders of
such Senior Discount Notes or the Trustee on their behalf from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture.
(b) Without limiting the foregoing, nothing contained in this First
Supplemental Indenture will restrict the right of the Trustee or the Holders to
take any action to declare this Subsidiary Guarantee to be due and payable prior
to the Stated Maturity of the Senior Discount Notes or to pursue any rights or
remedies hereunder.
SECTION 2.03. NOTICE TO TRUSTEE. The Guarantor shall give prompt
written notice to the Trustee of any fact known to the Guarantor which would
prohibit the making of any payment to or by the Trustee in respect of this
Subsidiary Guarantee pursuant to the provisions of this First Supplemental
Indenture.
<PAGE>
5
SECTION 2.04. THIS ARTICLE NOT TO PREVENT EVENTS OF DEFAULT. The
failure to make a payment on account of the Accreted Value or principal amount
at maturity of, premium, if any, or interest on the Senior Discount Notes by
reason of any provision of this First Supplemental Indenture will not be
construed as preventing the occurrence of an Event of Default.
SECTION 2.05. NET WORTH LIMITATION. Notwithstanding any other
provision of the Senior Discount Notes Indenture, this First Supplemental
Indenture or the Senior Discount Notes and this Subsidiary Guarantee, this First
Supplemental Indenture shall not be enforceable against the Guarantor in an
amount in excess of the net worth of the Guarantor at the time that
determination of such net worth is, under applicable law, relevant to the
enforceability of the Note Guarantee pursuant to the terms of the Indenture and
the Collateral Pledge and Security Agreement. Such net worth shall include any
claim or future claim of the Guarantor against the Company for reimbursement and
any claim against any grantor of a Guarantee for contribution.
ARTICLE III
MISCELLANEOUS
SECTION 3.01. NOTICES. Any notice or communication shall be
sufficiently given if in writing and delivered in person or mailed by first
class mail, commercial courier service or telecopier communication, addressed as
follows:
IF TO THE COMPANY OR THE GUARANTOR:
KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, New Jersey 07921
Telecopier Number: (908) 719-8775
Attention: Chief Financial Officer
With a copy to:
Kelley Drye & Warren LLP
101 Park Avenue
New York, NY 10178
Attention: Alan M. Epstein, Esq.
<PAGE>
6
<PAGE>
7
and a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017 - 3954
Attention: Arthur D. Robinson, Esq.
IF TO THE TRUSTEE:
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001-2697
Telecopier Number: (212) 946-8159/8160
Attention: Capital Markets Fiduciary Services
With a copy to:
Pryor Cashman Sherman & Flynn, LLP
410 Park Avenue
New York, NY 10022
Attention: Eric Hellige, Esq.
The Company, the Guarantor or the Trustee by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
SECTION 3.02. SUCCESSORS AND ASSIGNS. All covenants and agreements of
the Company, the Guarantor and the Trustee in this First Supplemental Indenture
shall bind their respective successors.
SECTION 3.03. COUNTERPARTS. This First Supplemental Indenture 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 First
Supplemental Indenture.
SECTION 3.04. GOVERNING LAW. This First Supplemental Indenture shall
be governed by and construed in accordance with the internal laws of the State
of New York.
SECTION 3.05. SEPARABILITY. In case any provision in this First
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
<PAGE>
8
SECTION 3.06. EFFECTIVE DATE. This First Supplemental Indenture shall
become effective as of the date hereof.
SECTION 3.07. INCORPORATION INTO INDENTURE. All provisions of this
First Supplemental Indenture shall be deemed to be incorporated in, and made
part of, the Senior Discount Notes Indenture; and the Senior Discount Notes
Indenture, as amended and supplemented by this First Supplemental Indenture,
shall be read, taken and construed as one and the same instrument.
SECTION 3.08. THE TRUSTEE. The Trustee shall not be responsible for or
in respect of the validity or sufficiency of this First Supplemental Indenture
or for or in respect of the recitals contained herein, all of which are made
solely by the Company.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, all as of the date first written
above.
KMC TELECOM HOLDINGS, INC.
By: /s/ James D. Grenfell
-----------------------------
Name: James D. Grenfell
Title: Executive Vice President
Chief Financial Officer
KMC TELECOM FINANCING, INC.
as Guarantor
By: /s/ James D. Grenfell
-----------------------------
Name: James D. Grenfell
Title: Executive Vice President
Chief Financial Officer
THE CHASE MANHATTAN BANK,
as Trustee
By: /s/ P. Kelly
-----------------------------
Name: Patricia Kelly
Title: Vice President
SECURITIES PURCHASE AGREEMENT
dated as of
April 30, 1999
between
KMC TELECOM HOLDINGS, INC.
and
FIRST UNION INVESTORS, INC.
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I. DEFINITIONS......................................................1
SECTION 1.01. Definitions..........................................1
ARTICLE II. PURCHASE AND SALE OF SECURITIES.................................4
SECTION 2.01. Commitment to Purchase...............................4
SECTION 2.02. The Closing..........................................4
SECTION 2.03. Use of Proceeds......................................5
SECTION 2.04. Allocation of Consideration..........................5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE ISSUER...................5
SECTION 3.01. Organization, Standing, etc..........................5
SECTION 3.02. Capitalization.......................................6
SECTION 3.03. Authorization; Non-Contravention.....................7
SECTION 3.04. Binding Effect.......................................7
SECTION 3.05. Governmental Regulation..............................8
SECTION 3.06. Solicitation.........................................8
SECTION 3.07. Authorization to Do Business.........................8
SECTION 3.08. Compliance with Laws.................................9
SECTION 3.09. Litigation...........................................9
SECTION 3.10. Properties...........................................9
SECTION 3.11. Tax Matters..........................................9
SECTION 3.12. Patents and Trademarks...............................9
SECTION 3.13. Labor Matters........................................9
SECTION 3.14. Environmental Matters...............................10
SECTION 3.15. Insurance...........................................10
SECTION 3.16. Year 2000...........................................10
SECTION 3.17. Certain Existing Agreements.........................11
SECTION 3.18. Financial Information...............................11
SECTION 3.19. Disclosure..........................................11
SECTION 3.20. Investment Company Act..............................11
SECTION 3.21. Brokers.............................................11
i
<PAGE>
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER................12
SECTION 4.01. Organization........................................12
SECTION 4.02. Authority; No Other Action..........................12
SECTION 4.03. No Conflict.........................................12
SECTION 4.04. Binding Effect......................................12
SECTION 4.05. No Defaults.........................................12
SECTION 4.06. Private Placement...................................12
ARTICLE V. CONDITIONS PRECEDENT TO CLOSING.................................13
SECTION 5.01. Conditions to the Purchaser's Obligations...........13
SECTION 5.02. Conditions to Issuer's Obligations..................14
ARTICLE VI. COVENANTS......................................................15
SECTION 6.01. Covenants of the Issuer.............................15
ARTICLE VII. MISCELLANEOUS.................................................16
SECTION 7.01. Notices.............................................16
SECTION 7.02. No Waivers..........................................17
SECTION 7.03. Successors and Assigns..............................17
SECTION 7.04. New York Law........................................17
SECTION 7.05. Counterparts; Effectiveness.........................17
SECTION 7.06. Entire Agreement....................................17
SECTION 7.07. Expenses............................................18
ii
<PAGE>
EXHIBITS
- --------
Exhibit A Certificate of Amendment to Certificate of Designations of Series A
Preferred Stock
Exhibit B Certificate of Amendment to Certificate of Designations of Series C
Preferred Stock
Exhibit C Certificate of Amendment to Certificate of Designations of Series D
Preferred Stock
Exhibit D Certificate of Amendment to Certificate of Designations of Series E
Preferred Stock
Exhibit E Certificate of Amendment to Certificate of Designations of Series F
Preferred Stock
Exhibit F Form of Amendment No. 5 to the Stockholders Agreement
Exhibit G Form of Preferred Stock Registration Rights Agreement
SCHEDULES
- ---------
Schedule 3.01 - Organization; Capital Stock; Subsidiaries
Schedule 3.02 - Capitalization of Issuer
Schedule 3.08 - Compliance with Laws
Schedule 3.09 - Litigation
Schedule 3.10 - Liens on Property
Schedule 3.14 - Environmental Matters
Schedule 3.17 - Encumbrances and Restrictions
iii
<PAGE>
SECURITIES PURCHASE AGREEMENT (this "Agreement") dated as of April 30,
1999 between KMC Telecom Holdings, Inc., a Delaware corporation (the "Issuer"),
and First Union Investors, Inc., a North Carolina corporation (the "Purchaser").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Amendment No. 5" means Amendment No. 5 to the Stockholders Agreement
in the form attached to this Agreement as Exhibit F.
"Certificates of Amendment" means the Certificates of Amendment to the
Certificates of Designations with respect to the Series A Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred
Stock and the Series F Preferred Stock, in substantially the forms attached to
this Agreement as Exhibits A, B, C, D and E, respectively.
"Certificate of Designations" means the Certificate of Designations
with respect to the Series E Preferred Stock as previously filed with the
Secretary of State of Delaware, as amended by the Certificate of Correction
dated February 19, 1999 and filed with the Secretary of State of Delaware on
March 3, 1999, as further amended by the Certificate of Amendment with respect
to the Series E Preferred Stock (Exhibit D to this Agreement) dated as of the
date hereof.
"Charter" means the Amended and Restated Certificate of Incorporation
of the Issuer, as amended as of the Closing Date.
"Closing" has the meaning set forth in Section 2.02.
"Closing Date" has the meaning set forth in Section 2.02.
"Common Stock" means the Common Stock, par value $.01 per share, of
the Issuer.
"Environmental Laws" shall mean any applicable law concerning releases
into any part of the natural environment, or protection of natural resources,
the environment and public and employee health and safety including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. ss. 9601 et seq.), the Hazardous Materials Transportation Act (49
1
<PAGE>
U.S.C. ss. 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
ss. 6901 et seq.), the Clean Water Act (33 U.S.C. ss. 1251 et seq.), the Clean
Air Act (33 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (15
U.S.C. ss. 7401 et seq.), and the Occupational Safety and Health Act (29 U.S.C.
ss. 651 et seq.), as such laws have been and may be amended or supplemented
through the Closing Date, and the regulations promulgated pursuant thereto, and
any applicable state or local statutes, and the regulations promulgated pursuant
thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute.
"Existing Warrant Agreement" means the Warrant Agreement dated
February 4, 1999, as amended on April 29, 1999, between the Company, Newcourt
Commercial Finance Corporation, Lucent Technologies Inc., the Purchaser and The
Chase Manhattan Bank relating to the Existing Warrants.
"Existing Warrants" means the 52,272 existing warrants issued to
Newcourt and Lucent pursuant to the Existing Preferred Warrant Agreement.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Closing Date, including, without
limitation, those 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 or in
such other statements by such other entity as approved by a significant segment
of the accounting profession.
"Lien" means any lien, claim, charge, pledge, mortgage, security
interest or other encumbrance. "Loan and Security Agreement" means the Loan and
Security Agreement, dated as of February 4, 1999, among KMC Telecom III, Inc.,
KMC Telecom Leasing III LLC, certain lenders from time to time parties thereto,
Lucent and the Collateral Agent (as defined therein).
"Lucent" means Lucent Technologies Inc., a Delaware corporation.
"Material Adverse Effect" means a material adverse effect, or any
event, occurrence, state of circumstances or facts or development involving a
prospective material adverse effect, on the business, operations, assets,
condition (financial or otherwise), results of operations, properties, assets,
value or prospects of the Issuer and its Subsidiaries taken as a whole.
"Newcourt" means Newcourt Commercial Finance Corporation, a Delaware
corporation.
"Person" means an individual, general partnership, limited
partnership, corporation, limited liability company, trust, joint stock company,
association, joint venture or any other entity or organization, whether or not a
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legal entity, including a government or political subdivision or an agency or
instrumentality thereof.
"Preferred Stock" means the shares of Series E Preferred Stock issued
to the Purchaser under this Agreement.
"Preferred Stock Registration Rights Agreement" means the Preferred
Stock Registration Rights Agreement dated as of the date hereof between the
Issuer and the Purchaser in the form attached to this Agreement as Exhibit G.
"Regulation D" means Regulation D under the Securities Act.
"Securities" means, collectively, the Series E Unit, the shares of
Preferred Stock and the Warrants comprising the Series E Unit, and the warrants
to be issued under the Existing Warrant Agreement, all of which will be sold by
the Issuer and purchased by the Purchaser as set forth in Section 2.01.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred Stock" has the meaning set forth in Section 3.02.
"Series C Preferred Stock" has the meaning set forth in Section 3.02.
"Series D Preferred Stock" has the meaning set forth in Section 3.02.
"Series E Preferred Stock" has the meaning set forth in Section 3.02.
"Series E Unit" has the meaning set forth in Section 2.01.
"Series F Certificate of Designations" means the Certificate of
Designations with respect to the Series F Preferred Stock as previously filed
with the Secretary of State of Delaware, as amended by the Certificate of
Amendment with respect to the Series F Preferred Stock dated as of the date
hereof (Exhibit E to this Agreement).
"Series F Preferred Stock" has the meaning set forth in Section 3.02.
"Springing Warrants" means the 227,273 warrants which may be issued
pursuant to Section 2.4 of the Existing Warrant Agreement.
"Stockholders Agreement" means the Amended and Restated Stockholders
Agreement dated as of October 31, 1997, as previously amended by Amendments No.
1, No. 2, No. 3 and No. 4, among the Issuer, Nassau Capital Partners L.P., NAS
Partners 1 L.L.C., Harold N. Kamine, KMC Telecommunications L.P., Newcourt
Commercial Finance Corporation, as successor to AT&T Credit Corporation, General
Electric Capital Corporation, First Union National Bank, as successor to
CoreStates Bank, N.A. and CoreStates Holdings, Inc.
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"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of capital stock entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof, or at least a majority of the ownership interests,
and the power to direct the policies, management and affairs thereof, is at the
time owned or controlled, directly or indirectly, by such Person or one or more
of the other Subsidiaries of such Person or a combination thereof.
"Taxes" shall mean all taxes, charges, fees, levies or other
assessments, including, without limitation, all net income, gross receipts,
capital, sales, use, ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation, property and
estimated taxes, customs, duties, fees, assessments and charges of any kind
whatsoever, together with any interest and any penalties, fines, additions to
tax or additional amounts imposed by any public or governmental taxing authority
(domestic or foreign) and shall include any transferee liability in respect of
Taxes.
"Tax Returns" shall mean all returns, declarations, reports,
estimates, information returns and statements required to be filed in respect of
any Taxes.
"Warrant Agreement" means the warrant agreement, dated the date
hereof, between the Issuer, the Purchaser and The Chase Manhattan Bank, as
warrant agent.
"Warrant Registration Rights Agreement" means the warrant registration
rights agreement, dated the date hereof, between the Issuer and the Purchaser.
"Warrants" means the warrants to purchase shares of Common Stock to be
issued pursuant to the Warrant Agreement; each warrant entitling the holder
thereof to purchase 0.471756 shares of Common Stock.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.01. COMMITMENT TO PURCHASE. (a) Subject to the terms and
conditions hereinafter stated, upon the basis of the representations and
warranties of the Purchaser herein contained, the Issuer agrees to issue and
sell to the Purchaser and, upon the basis of the representations and warranties
of the Issuer herein contained, the Purchaser agrees to purchase from the Issuer
the Series E Unit, which consists of (i) an aggregate of 35,000 shares of Series
E Preferred Stock, and (ii) 94,513 Warrants (the "Series E Unit"), on the date
hereof for the aggregate purchase price of $32,950,470.
(b) Subject to the terms and conditions hereinafter stated, upon the
basis of the representations and warranties of the Purchaser herein contained,
the Issuer agrees to issue and sell to the Purchaser and, upon the basis of the
representations and warranties of the Issuer herein contained, the Purchaser
agrees to purchase from the Issuer 33,419 warrants under the Existing Warrant
Agreement, on the date hereof for the aggregate purchase price, $2,049,530 by
complying with the requirements of Section 2.5 of the Existing Warrant
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Agreement. The Purchaser will, immediately upon issuance of such warrants to the
Purchaser, transfer all such warrants purchased under the Existing Warrant
Agreement to Newcourt for no additional consideration from, and at no cost or
expense to Newcourt.
SECTION 2.02. THE CLOSING. (a) Subject to the fulfillment or waiver of
the conditions set forth in Article V hereof, the purchase and sale of the
Securities, as set forth in Section 2.01 (the "Closing"), shall take place at
the offices of Kelley Drye & Warren LLP at 10:00 a.m. on the date hereof or on
such other date and at such other location as the Issuer and the Purchaser shall
agree. The date and time of the Closing are referred to herein as the "Closing
Date."
(b) At the Closing, the Purchaser shall deliver to the Issuer, by wire
transfer (of immediately available funds) to an account designated by the Issuer
in writing delivered to the Purchaser, the consideration referred to in Section
2.01(c).
(c) At the Closing, the Issuer shall deliver to the Purchaser, against
payment of the consideration set forth in Section 2.01(c), certificates
evidencing the Series E Unit (including the Preferred Stock and Warrants
referred to therein), and certificates evidencing the Warrants issued pursuant
to section 2.01(b), in each case registered in the name of the Purchaser.
SECTION 2.03. USE OF PROCEEDS. The proceeds from the issuance of the
Series E Unit will be used to make equity contributions and Qualified
Intercompany Loans (as defined in the Loan and Security Agreement) to KMC
Telecom III, Inc. and to pay fees and expenses relating to the transactions
contemplated by this Agreement.
SECTION 2.04. ALLOCATION OF CONSIDERATION. The Issuer and the
Purchaser hereby agree that the allocation of the consideration described in
Section 2.01(a) for the Preferred Stock and the Warrants comprising the Series E
Unit shall be as follows: $27,154,150 of the consideration shall be allocated to
the Preferred Stock, and $5,796,320 of the consideration shall be allocated to
the Warrants. In light of the highly conditional nature of the purchase rights
provided for in the Springing Warrants, the parties agree that for income tax
purposes only, none of the consideration paid by the Purchaser under this
Agreement will be allocated to the Springing Warrants.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE ISSUER
The Issuer represents and warrants to the Purchaser as follows as of
the Closing Date:
SECTION 3.01. ORGANIZATION, STANDING, ETC. (a) The Issuer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority under such laws to own or lease and operate its properties and to
carry on its business as now conducted. The Issuer is duly qualified or licensed
to do business as a foreign corporation in good standing in each jurisdiction in
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which the nature of the business transacted by it or the character of the
properties owned or leased by it requires it to so qualify or be licensed,
except where the failure to so qualify or be licensed or be in good standing
would not have a Material Adverse Effect. The copies of the Issuer's Charter,
bylaws and other organizational documents and instruments (in each case, as
amended and/or restated through the date hereof), heretofore made available to
the Purchaser, are true, complete and correct copies thereof.
(b) Each Subsidiary of the Issuer is duly organized and validly
existing under the laws of the jurisdiction of its formation, and has all
corporate or other power and authority to own its properties and conduct its
business as now conducted. All the outstanding shares of capital stock of each
corporate Subsidiary of the Issuer have been duly authorized and validly issued
and are fully paid and nonassessable and, except as disclosed on SCHEDULE 3.01
hereto, are owned directly or indirectly by the Issuer free and clear of all
liens, security interests, charges and encumbrances. The Issuer does not own any
interest in any other company or entity other than the Subsidiaries set forth on
SCHEDULE 3.01. Except as set forth on SCHEDULE 3.01 hereto, there are no
outstanding options, warrants, rights, agreements or commitments to any third
party to subscribe for or purchase any equity security of any Subsidiary or to
cause any Subsidiary to issue any such equity security.
SECTION 3.02. CAPITALIZATION. (a) The Issuer's authorized capital
stock consists of 3,000,000 shares of Common Stock and 1,128,800 shares of
preferred stock. Of the 1,128,800 authorized shares of preferred stock (i)
123,800 shares have been designated as Series A Cumulative Convertible Preferred
Stock (the "Series A Preferred Stock") all of which are currently outstanding,
(ii) 350,000 shares have been designated as Series C Cumulative Convertible
Preferred Stock (the "Series C Preferred Stock") of which 175,000 shares are
currently outstanding, (iii) 25,000 shares have been designated as Series D
Cumulative Convertible Preferred Stock (the "Series D Preferred Stock") of which
none are currently outstanding, (iv) 575,000 shares have been designated as the
Series E Senior Redeemable, Exchangeable, PIK Preferred Stock (the "Series E
Preferred Stock"), of which 60,695 shares will be outstanding upon the
consummation of the purchase of the Series E Unit pursuant to this Agreement and
55,000 shares have been reserved for issuance upon conversion of the Series F
Preferred Stock, and (v) 55,000 shares have been designated as Series F Senior
Redeemable, Exchangeable, PIK Preferred Stock (the "Series F Preferred Stock"),
of which 41,112 shares are currently outstanding. Of the 3,000,000 authorized
shares of Common Stock: (i) 837,876 shares are issued and outstanding, (ii)
600,000 shares have been reserved for issuance upon conversion of the Series A
Preferred Stock, (iii) 333,333 shares have been reserved for issuance upon
conversion of the Series C Preferred Stock, (iv) 10,000 shares have been
reserved for issuance upon exercise of a warrant held by General Electric
Capital Corporation, (v) 100,385 shares have been reserved for issuance upon
exercise of warrants issued in connection with the Issuer's offering of its 12
1/2% Senior Discount Notes, (vi) 195,000 shares have been reserved for issuance
upon exercise of the Warrants, the Existing Warrants and the Springing Warrants,
(vii) 262,750 shares have been reserved for issuance pursuant to options granted
under the 1998 Stock Purchase and Option Plan for Key Employees of KMC Telecom
Holdings, Inc. and Affiliates and (viii) no shares are held in treasury. No
other shares of capital stock have been issued or reserved for issuance for any
purpose. All of the outstanding shares of capital stock of the Issuer have been
duly authorized and validly issued, are fully paid and nonassessable, free of
preemptive rights and have been offered and issued without violation of the
Securities Act or any preemptive rights of any person. SCHEDULE 3.02 hereto
accurately sets forth, as of the date hereof, the number of issued and
outstanding shares of Common Stock held by each person known by the Issuer to
own beneficially or of record any shares of the Issuer's capital stock.
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(b) Except as disclosed on SCHEDULE 3.02 hereto: (i) there are no
issued or outstanding securities that are convertible into or exchangeable for
shares of the Issuer's capital stock ("Convertible Securities"); (ii) there are
no issued or outstanding subscriptions, options, warrants or other rights to
purchase or acquire any shares of the capital stock of the Issuer or any
Convertible Securities ("Option Rights") other than the Warrants; (iii) the
Issuer is not a party to any agreement or understanding pursuant to which it is
obligated to purchase or redeem any shares of its capital stock or any
Convertible Securities or Option Rights, other than pursuant to the redemption
provisions in respect of the Series E Preferred Stock and the Series F Preferred
Stock set forth in the Certificate of Designations and the Series F Certificate
of Designations, respectively, and is not otherwise under any obligation to
repurchase, redeem or otherwise acquire any shares of its capital stock or any
Convertible Securities or Option Rights; (iv) the Issuer is not a party to any
agreement or understanding pursuant to which it is obligated to register any
shares of its capital stock or other securities under the Securities Act or any
state securities law; and (v) the Issuer is not, and to the best knowledge of
the Issuer, no securities holder of the Issuer is a party to any voting
agreement, voting trust, irrevocable proxy or other agreement affecting the
voting rights of any shares of the Issuer's capital stock or any agreement
providing for any call or put option, right of first refusal or offer or other
right to acquire or dispose of any shares of the Issuer's capital stock or any
Convertible Securities or Option Rights. Except as described in Section 3.02(a)
or Schedule 3.02, no shares of Common Stock are issuable upon the exercise of
any outstanding Convertible Securities or Option Rights of the Issuer and no
additional shares of Common Stock will become issuable upon exercise of such
Convertible Securities or Option Rights on account of the issuance of the
warrants.
SECTION 3.03. AUTHORIZATION; NON-CONTRAVENTION. The execution,
delivery and performance by the Issuer of this Agreement, the Warrant Agreement,
the Warrant Registration Rights Agreement, the Preferred Stock Registration
Rights Agreement and Amendment No. 5, the issuance, sale and delivery by the
Issuer of the Securities and the warrants issued to the Purchaser under the
Existing Warrant Agreement, the execution of Springing Warrants, and the
amendments to the Charter effected by the filing of the Certificates of
Amendment are within the Issuer's corporate powers, have been duly authorized by
all necessary corporate action, require no action by or in respect of, or filing
with, any governmental body, agency or official (other than the filing of the
Certificates of Amendment with the Secretary of State of Delaware) and do not
(i) contravene or constitute a default under any provision of applicable law or
regulation, judgment, injunction, order or decree binding upon or applicable to
the Issuer, (ii) contravene or constitute a default under the Charter or bylaws
or (iii) require any consent, approval or other action by any other Person
(other than the holders of the Series A Preferred Stock, the Series C Preferred
Stock, the ouststanding Series E Preferred Stock, the Series F Preferred Stock,
and the other parties to the Stockholders Agreement, which consents shall be
obtained prior to the Closing Date) or constitute a default under or contravene
any material agreement, judgment, injunction, order, decree or other instrument
binding upon the Issuer or any of its Subsidiaries.
SECTION 3.04. BINDING EFFECT. This Agreement, the Warrant Agreement,
the Warrant Registration Rights Agreement, the Preferred Stock Registration
Rights Agreement and Amendment No. 5 have been duly authorized, executed and
delivered by the Issuer and constitute valid and legally binding obligations of
the Issuer, enforceable in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
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creditors' rights generally and by general principles of equity (whether
enforcement is sought by proceedings in equity or at law). The Issuer has duly
authorized the issuance, sale and delivery of the Securities to the Purchaser
and, when issued and delivered by the Issuer pursuant to this Agreement against
payment of the consideration set forth herein, and, with respect to the
Warrants, countersigned by the Warrant Agent (as defined in the Warrant
Agreement), with respect to the warrants issued under the Existing Warrant
Agreement, countersigned by the Warrant Agent under such agreement (as defined
in the Existing Warrant Agreement), and with respect to the Preferred Stock,
authenticated by the Transfer Agent (as defined in the Certificate of
Designations), the Securities will be validly issued, fully paid and
non-assessable free and clear of all Liens and without violation of any
preemptive rights. The Issuer has duly authorized the issuance and delivery of
the Springing Warrants in accordance with the terms and conditions set forth in
Section 2.4 of the Existing Warrant Agreement, and, when countersigned by the
Warrant Agent under the Existing Warrant Agreement and delivered pursuant
Section 2.4 of the Existing Warrant Agreement, the Springing Warrants will be
validly issued, fully paid and non-assessable free and clear of all Liens and
without violation of any preemptive rights. All of the shares of Common Stock to
be issued upon exercise of the Warrants, the warrants issued to the Purchaser
under the Existing Warrant Agreement, and the Springing Warrants have been duly
and validly authorized and reserved for issuance upon such exercise and, when
issued and delivered, upon exercise of the Warrants, the warrants issued under
the Existing Warrant Agreement and the Springing Warrants in accordance with the
terms of the Warrant Agreement or the Existing Warrant Agreement, as the case
may be, will be duly and validly issued, fully paid and non-assessable free and
clear of all Liens and without violation of any preemptive rights.
SECTION 3.05. GOVERNMENTAL REGULATION. Except for the Securities Act,
the Exchange Act and state securities laws, the Issuer is not subject to any
federal or state or foreign law or regulation limiting its ability to issue the
Securities or the Springing Warrants or to perform its obligations under the
terms of this Agreement, the Warrant Agreement, the Warrant Registration Rights
Agreement, the Preferred Stock Registration Rights Agreement, Amendment No. 5,
the Securities or the Springing Warrants. Except as may be required pursuant to
"blue sky laws" or as may be required under the Securities Act or the Exchange
Act in connection with the registration of the Warrant Shares as contemplated
under the Warrant Registration Rights Agreement or the registration of the
Series E Preferred Stock under the Preferred Stock Registration Rights
Agreement, no notices, reports or other filings are required to be made by the
Issuer or any Subsidiary with, nor are any consents, registrations,
applications, approvals, permits, licenses or authorizations required to be
obtained by the Issuer or any Subsidiary from, any public or governmental
authority or other third party in connection with the execution and delivery of
this Agreement, the Warrant Agreement, the Warrant Registration Rights
Agreement, the Preferred Stock Registration Rights Agreement or Amendment No. 5,
or the consummation by the Issuer of the transactions contemplated hereby or
thereby, or the exercise by the Purchaser of its rights hereunder, except for
(i) any of the foregoing, the failure of which to make or obtain would not have
a Material Adverse Effect or adversely affect the Purchaser's rights hereunder,
(ii) the consent, with respect to the Certificates of Amendment, of the holders
of the Series A Preferred Stock, the Series C Preferred Stock, the outstanding
Series E Preferred Stock and the Series F Preferred Stock, which consents shall
be obtained prior to the Closing Date, and (iii) the consent, with respect to
Amendment No. 5, of the other parties to the Stockholders Agreement, which
consent shall be obtained prior to the Closing Date.
SECTION 3.06. SOLICITATION. Assuming the representations and
warranties of the Purchaser set forth in Section 4.06 hereof are true and
correct in all material respects, the offer and sale of the Securities pursuant
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to this Agreement and the issuance of the shares of Common Stock upon exercise
of the Warrants and the Springing Warrants pursuant to the Warrant Agreement or
the Existing Warrant Agreement, as the case may be, will be exempt from the
registration requirements of the Securities Act. No form of general solicitation
or general advertising was used by the Issuer or, to the best of its knowledge,
any other Person acting on its behalf, in respect of the Securities or in
connection with the offer and sale of the Securities. Neither the Issuer nor any
Person acting on behalf of the Issuer has, either directly or indirectly, sold
or offered for sale to any Person any of the Securities or any other similar
security of the Issuer except as contemplated by this Agreement. Neither the
Issuer nor any Person acting on its behalf has, in connection with the offering
of the Securities, engaged in any action that would require the registration
under the Securities Act of the offering and sale of the Securities pursuant to
this Agreement.
SECTION 3.07. AUTHORIZATION TO DO BUSINESS. The Issuer and its
Subsidiaries (i) possess all licenses, certificates, authorizations, approvals
and permits issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct their respective businesses, as
presently conducted, excepting any license, certificate, authorization, approval
or permit, the failure to possess which, singly or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect and (ii) have not
received any notice of proceedings relating to revocation or modification of any
such license, certificate, authorization, approval or permit, nor is the Issuer
or any of its Subsidiaries in violation of, or in default under, any such
license, authorization, approval or permit or any decree, order, judgment
applicable to the Issuer or its Subsidiaries the effect of which, singly or in
the aggregate, could reasonably be expected to result in a Material Adverse
Effect.
SECTION 3.08. COMPLIANCE WITH LAWS. Except as set forth on SCHEDULE
3.08 hereto and except as would not have a Material Adverse Effect, the business
of the Issuer and each of the Subsidiaries has been and is presently being
conducted in compliance with all applicable federal, state, county and local
ordinances, statutes, rules, regulations and laws (collectively "Laws").
SECTION 3.09. LITIGATION. Except as set forth on SCHEDULE 3.09 hereto,
there are no pending actions, suits, proceedings, arbitrations or investigations
against or affecting the Issuer or any of its Subsidiaries or any of their
respective properties, assets or operations, or with respect to which the Issuer
or any such Subsidiary is responsible by way of indemnity or otherwise (a
"Material Claim") that, if there is an adverse decision, could singly, or in the
aggregate, with all such other actions, suits, investigations or proceedings,
have a Material Adverse Effect, and, to the knowledge of the Issuer, no such
actions, suits, proceedings or investigations are threatened.
SECTION 3.10. PROPERTIES. Except as described in SCHEDULE 3.10 hereto,
the Issuer and its Subsidiaries have good and marketable title to all their
material property and assets, free and clear of all Liens except (a)
materialmen's, mechanics', carriers', workmen's, warehousemen's, repairmen's, or
other like Liens arising in the ordinary course of business with respect to
moneys not yet due and payable; (b) Liens for current Taxes not yet due and
payable or which are being contested in good faith and by proper procedures; or
(c) Liens or minor imperfections of title that do not materially interfere with
the use or materially detract from the value of such property.
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SECTION 3.11. TAX MATTERS. The Issuer and its Subsidiaries have filed
all Tax Returns required to be filed and are not in default in the payment of
any Taxes which were payable pursuant to such returns or any assessments in
respect thereof, other than any which the Issuer or any such Subsidiary is
contesting in good faith by proper procedures.
SECTION 3.12. PATENTS AND TRADEMARKS. Each of the Issuer and its
Subsidiaries has sufficient right, title and ownership of all patents,
trademarks, service marks, trade names, copyrights, licenses with respect to the
foregoing, information, proprietary rights and processes, or shall be able to
obtain all such licenses and other authority necessary or useful for the lawful
conduct of its business as it is contemplated to be conducted, without any known
conflicts with the rights of others. No stockholder, officer, director or
employee of the Issuer or any Subsidiary owns any rights therein which are
competitive with those to be owned or used by the Issuer and any Subsidiaries.
Neither the Issuer nor any Subsidiary has been sued or charged with any
infringement of any patent, license or permit or has knowledge of any basis for
any such claim.
SECTION 3.13. LABOR MATTERS. (a) Neither the Issuer nor any Subsidiary
is party to any labor or collective bargaining agreement and there are no labor
or collective bargaining agreements which pertain to employees of the Issuer or
any Subsidiary.
(b) No employees of the Issuer or any Subsidiary are represented by
any labor organization. No labor organization or group of employees of the
Issuer or any Subsidiary has made a demand for recognition or certification, and
there are no representation or certification proceedings or petitions seeking a
representation proceeding presently pending or, to the knowledge of the Issuer,
threatened to be brought or filed, with the NLRB or any other labor relations
tribunal or authority. To the knowledge of the Issuer, there are no organizing
activities involving the Issuer or any Subsidiary pending with, or threatened
by, any labor organization.
(c) There are no strikes, work stoppages, slowdowns, lockouts,
material arbitrations or material grievances or other material labor disputes
pending or, to the knowledge of the Issuer, threatened against or involving the
Issuer or any Subsidiary. Except as would not result in any Material Adverse
Effect, there are no unfair labor practice charges, grievances or complaints
pending or, to the knowledge of the Issuer, threatened by or on behalf of any
employee or group of employees of the Issuer or any Subsidiary.
SECTION 3.14. ENVIRONMENTAL MATTERS. (a) Except as set forth in
SCHEDULE 3.14, (i) each of the Issuer and the Subsidiaries is in material
compliance with all Environmental Laws and (ii) neither the Issuer nor any
Subsidiary has received any written communication from a governmental authority
with respect to such compliance or the failure thereof.
(b) Except as set forth in SCHEDULE 3.14, (i) there is no civil,
criminal or administrative action, claim, demand, investigation or notice
relating to a violation of an Environmental Law (an "Environmental Claim")
pending or, to the knowledge of the Issuer, threatened and (ii) to the knowledge
of the Issuer, there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the release,
emission, discharge or disposal of any chemical, pollutant, contaminant, waste,
toxic substance, petroleum or petroleum product, that would form the basis of
any Environmental Claim, in either case (A) against the Issuer or any
Subsidiary, (B) against any person or entity whose liability for any
Environmental Claim the Issuer or any Subsidiary has or may have retained or
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assumed either contractually or by operation of law, or (C) involving any real
or personal property which the Issuer or any Subsidiary owns, leases or manages
except, in each case, as would not have a Material Adverse Effect.
SECTION 3.15. INSURANCE. The Issuer and its Subsidiaries, in the
reasonable determination of the Issuer's management, maintain with financially
sound and reputable insurers insurance against loss or damage of the kinds
customarily insured against by corporations of established reputation engaged in
the same or a similar business and similarly situated, and of such types and in
such amounts as is customarily carried under similar circumstances by such other
corporations.
SECTION 3.16. YEAR 2000. The Issuer has engaged in a review of the
hardware and software products used by the Issuer and the Subsidiaries in their
businesses (collectively, the "SOFTWARE") which it believes to be adequate to
identify any material deficiency in "Year 2000 Capabilities". "Year 2000
Capabilities" means the ability of the Software (i) to manage and manipulate
data involving dates, including single century formulas and multi-century
formulas, and to not generate incorrect values or invalid results involving such
dates, (ii) to provide that all date-related user interface functionalities and
data fields include the indication of century, and (iii) to provide that all
date-related data interface functionalities include the indication of century.
The Issuer is taking appropriate steps to identify exposure to deficiencies in
Year 2000 Capabilities resulting from the Year 2000 Capabilities of its vendors,
and to address them on a timely basis. In addition, the Issuer believes that it
has adequate resources to cause its Software to include Year 2000 Capabilities
which currently may not contain them and that the costs of causing its Software
to include Year 2000 Capabilities will not be material to the Issuer's
consolidated financial position, results of operations or cashflows.
SECTION 3.17. CERTAIN EXISTING AGREEMENTS. Except as disclosed in any
document or report filed by the Issuer with the Securities and Exchange
Commission or on SCHEDULE 3.17 hereto, as of the date hereof and as of the
Closing Date: (i) there are and will be no agreements providing for encumbrances
or restrictions that would be grandfathered under Section XI(C) of the
Certificate of Designations, (ii) there is and will be no outstanding
Indebtedness that would be grandfathered under Section XI(A)(a) of the
Certificate of Designations, and (iii) there are and will be no agreements with
any Affiliate (as defined in the Certificate of Designations) or any stockholder
agreements (including registration rights agreements or related purchase
agreements) that would be grandfathered pursuant to Section XI(E) of the
Certificate of Designations.
SECTION 3.18. FINANCIAL INFORMATION. (a) The Issuer has furnished to
the Purchaser the audited consolidated financial statements of the Issuer dated
as of December 31, 1998 and for the year then ended, and the unaudited
consolidated financial statements for the fiscal quarter ended March 31, 1999
(collectively, the "FINANCIALS"). The Financials have been prepared in
accordance with GAAP applied on a basis consistent with that of preceding
periods and are complete and correct in all material respects. The Financials
fairly represent the Issuer's consolidated financial position as of the dates of
the balance sheets included in the Financials and its consolidated results of
operations for the periods indicated therein. There are no omissions from the
Financials or any other facts or circumstances not reflected in the Financials
which are or may be material according to GAAP.
11
<PAGE>
(b) Except as and to the extent expressly set forth in the Financials,
or the notes, schedules or exhibits thereto, or as disclosed in the documents
filed by the Issuer with the Securities and Exchange Commission, (i) as of March
31, 1999 (the "BALANCE SHEET DATE"), neither the Issuer nor its Subsidiaries had
any material liabilities or obligations (whether absolute, contingent, accrued
or otherwise) that would be required to be included on a balance sheet or in the
notes, schedules or exhibits thereto prepared in accordance with GAAP, (ii)
since the Balance Sheet Date, the Issuer and its Subsidiaries have not incurred
any such material liabilities or obligations other than in the normal course of
business and (iii) since December 31, 1998, no event has occurred that has
resulted in or is reasonably likely to result in a Material Adverse Effect.
SECTION 3.19. DISCLOSURE. The Issuer has provided the Purchaser with
disclosure about its and its Subsidiaries' business that in the aggregate did
not contain an untrue statement of a material fact or omit to state a material
fact necessary to make the statements in such disclosure not misleading.
SECTION 3.20. INVESTMENT COMPANY ACT. The Issuer is not, and after
giving effect to the offering and sale of the Securities and the application of
the proceeds thereof will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
SECTION 3.21. BROKERS. No brokerage or finder's commissions or fees
are payable in connection with the transactions contemplated by this Agreement,
and the Issuer shall defend, indemnify and hold the Purchaser harmless from and
against any liability, loss or expense (including, without limitation,
reasonable attorneys fees) arising in connection with any claim for any such
commissions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Issuer as follows:
SECTION 4.01. ORGANIZATION. It is duly organized and existing under
the laws of its jurisdiction of organization.
SECTION 4.02. AUTHORITY; NO OTHER ACTION. (a) The execution, delivery
and performance of this Agreement, the Warrant Agreement, the Warrant
Registration Rights Agreement and the Preferred Stock Registration Rights
Agreement are within its powers and have been duly authorized on its part by all
requisite corporate action.
(b) No action by or in respect of, or filing with, any governmental
authority, agency or official is required for the execution, delivery and
performance by the Purchaser of this Agreement, the Warrant Agreement, the
Warrant Registration Rights Agreement or the Preferred Stock Registration Rights
Agreement.
12
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SECTION 4.03. NO CONFLICT. The execution, delivery and performance by
it of this Agreement, the Warrant Agreement, the Warrant Registration Rights
Agreement and the Preferred Stock Registration Rights Agreement and the
consummation of the transactions contemplated hereby and thereby do not and will
not (i) violate its charter, bylaws or similar organizational documents or (ii)
violate any applicable law, rule, regulation, judgment, injunction, order or
decree, which violation would (a) affect the validity of this Agreement, the
Warrant Agreement, the Warrant Registration Rights Agreement or the Preferred
Stock Registration Rights Agreement or (b) individually or in the aggregate
impair the ability of the Purchaser to perform in any material respect the
obligations which it has under this Agreement, the Warrant Agreement, the
Warrant Registration Rights Agreement or the Preferred Stock Registration Rights
Agreement.
SECTION 4.04. BINDING EFFECT. This Agreement, the Warrant Agreement,
Warrant Registration Rights Agreement and the Preferred Stock Registration
Rights Agreement have been duly authorized, executed and delivered by it and,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether enforcement is sought by
proceedings in equity or at law), constitute valid and binding agreements of the
Purchaser enforceable in accordance with their respective terms.
SECTION 4.05. NO DEFAULTS. It is not in violation of its charter,
bylaws or similar organizational documents or in default under any provision of
applicable law or regulation or of any agreement, judgment, injunction, order,
decree or other instrument binding upon it, which violation or default (i) would
affect the validity of this Agreement, the Warrant Agreement, the Warrant
Registration Rights Agreement or the Preferred Stock Registration Rights
Agreement or (ii) would (individually or in the aggregate) impair the ability of
the Purchaser to perform in any material respect the obligations which it has
under this Agreement, the Warrant Agreement, the Warrant Registration Rights
Agreement or the Preferred Stock Registration Rights Agreement.
SECTION 4.06. PRIVATE PLACEMENT. (a) It understands that (i) the
offering and sale of the Securities is intended to be exempt from registration
under the Securities Act pursuant to Section 4(2) of the Securities Act and (ii)
there is no existing public or other market for any of the Securities and there
can be no assurance that it will be able to sell or dispose of such Securities
purchased by it pursuant to this Agreement.
(b) It is an "Accredited Investor" as such term is defined in
Regulation D.
(c) It has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Securities and it is capable of bearing the economic risks of
such investment, including a complete loss of its investment in the Securities.
(d) It has had access to the management and records of the Issuer and
has been furnished with all the information that it has requested from the
Issuer for determining whether to purchase the Securities and has been given the
opportunity to ask questions of, and receive answers from, management of the
Issuer regarding its business and affairs and concerning the terms and
conditions of the Securities and other related matters.
13
<PAGE>
(e) It understands that the Securities and the shares of Common Stock
issuable upon exercise of the Warrants are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Issuer in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act only in certain limited
circumstances. In this connection, it represents that it is familiar with SEC
Rules 144 and 144A, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.01. CONDITIONS TO THE PURCHASER'S OBLIGATIONS. The
obligation of the Purchaser to purchase the Securities to be purchased by it
hereunder is subject to the satisfaction, on or prior to the Closing Date, of
the following conditions:
(a) each of the representations and warranties of the Issuer contained
herein shall be true and correct in all material respects on and as of such
Closing Date and the Purchaser shall have received a certificate attesting
thereto signed by the President or a Vice President of the Issuer;
(b) there shall not have occurred and there shall not otherwise exist
any condition, event or development having, or likely to have (in the
reasonable judgment of the Purchaser), a Material Adverse Effect;
(c) the Purchaser shall have received an opinion from Shearman &
Sterling, special counsel to the Issuer, and an opinion from Kelley, Drye &
Warren LLP, counsel to the Issuer, each dated the Closing Date, in form
reasonably satisfactory to the Purchaser;
(d) the Secretary or an Assistant Secretary of the Issuer shall have
delivered to the Purchaser at the Closing Date a Certificate dated as of
the Closing Date certifying: (i) that attached thereto is a true and
complete copy of the bylaws of the Issuer as in effect on the date of such
certification; (ii) that attached thereto is a true and complete copy of
all resolutions adopted by the Board of Directors of the Issuer authorizing
the execution, delivery and performance of this Agreement, the Warrant
Agreement, the Warrant Registration Rights Agreement, the Preferred Stock
Registration Rights Agreement, the Certificates of Amendment, Amendment No.
5, the issuance, sale and delivery of the Securities, and that all such
resolutions are in full force and effect and are all the resolutions
adopted in connection with the transactions contemplated by this Agreement,
the Warrant Agreement, the Warrant Registration Rights Agreement and the
Preferred Stock Registration Rights Agreement (iii) that attached thereto
is a true and complete copy of all resolutions adopted by the stockholders
of the Issuer approving the amendments to the Certificates of Designations
and authorizing the filing of the Certificates of Amendment; (iv) that
attached thereto is a true and complete copy of the Charter as in effect on
the date of such certification; and (v) to the incumbency and specimen
signature of certain officers of the Issuer;
14
<PAGE>
(e) all corporate and other proceedings to be taken by the Issuer in
connection with the transactions contemplated by this Agreement, the
Warrant Agreement, the Warrant Registration Rights Agreement, the Preferred
Stock Registration Rights Agreement and Amendment No. 5, and all documents
reflecting or evidencing such proceedings shall be reasonably satisfactory
in scope, form and substance to the Purchaser and its legal counsel, and
the Purchaser and its legal counsel shall have received all such duly
executed counterpart originals or certified or other copies of such
documents and instruments as they may reasonably request.
(f) the Purchaser shall have received duly executed and authenticated
certificates representing the Series E Unit being purchased by it pursuant
hereto;
(g) the Certificates of Amendment shall have been duly filed with the
Secretary of State of Delaware and shall be in full force and effect;
(h) the Purchaser shall have received the Warrant Registration Rights
Agreement duly executed by the Issuer;
(i) the Purchaser shall have received the Preferred Stock Registration
Rights Agreement duly executed by the Issuer;
(j) the Purchaser shall have become an Additional Purchaser under the
Existing Warrant Agreement for the purpose of receiving 30,844 warrants
thereunder;
(k) the Existing Warrant Agreement shall have been amended to provide
for the issuance to the Purchaser, unless certain conditions are met, of a
number of Springing Warrants equal to (1) 227,273 plus the total number of
Warrants held by the Purchaser on the date hereof, multiplied by a
fraction, the numerator of which shall be the aggregate liquidation
preference of the Purchaser's Preferred Stock and the denominator of which
shall be the aggregate liquidation preference of all outstanding shares of
Series E Preferred Stock and Series F Preferred Stock on the date hereof,
LESS (2) the number of Warrants held by the Purchaser on the date hereof;
and
(l) the Issuer shall have paid to the Purchaser all fees and expense
reimbursements required to be so paid on or prior to the Closing Date
pursuant to the terms of this Agreement or the fee letters being executed
and delivered concurrently with the execution and delivery of this
Agreement.
SECTION 5.02. CONDITIONS TO ISSUER'S OBLIGATIONS. The obligations of
the Issuer to issue and sell the Securities to the Purchaser pursuant to this
Agreement are subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) the representations and warranties of the Purchaser contained
herein shall be true and correct in all material respects on and as of the
Closing Date;
15
<PAGE>
(b) the Issuer shall have received from the Purchaser by wire transfer
(of immediately available funds) to an account designated by the Issuer in
writing delivered to the Purchaser, the consideration referred to in
Section 2.01;
(c) the Purchaser shall have become an Additional Purchaser under the
Existing Warrant Agreement; and
(d) the Certificates of Amendment shall have been duly filed with the
Secretary of State of Delaware and shall be in full force and effect.
ARTICLE VI
COVENANTS
SECTION 6.01. COVENANTS OF THE ISSUER.
(a) ANNOUNCEMENTS. No party or any Affiliate (as defined in the
Certificate of Designations), officer or agent of the parties hereto shall make
any announcement concerning the transactions contemplated hereby without the
other parties' consent, which consent may be withheld in their sole discretion;
provided, however, that any party or such Affiliate, officer or agent may make
any announcements required by applicable law so long as the text of such
announcement shall have been provided to the parties hereto prior to the making
of such announcement. The parties agree to consult with each other with respect
to announcements concerning the transactions contemplated hereby.
(b) SECURITIES. The Issuer hereby covenants that from and after the
date hereof and so long as the Purchaser owns any Securities, the Issuer shall:
(i) EXCHANGE OF CERTIFICATES. Upon surrender by the holder of any
certificates representing Securities (or securities issued upon exchange,
conversion or exercise thereof) for exchange or reissuance at the office of the
Issuer, cause to be issued in exchange therefor new certificates in such
denomination or denominations as may be requested for the same aggregate number
of Securities (or securities issued upon exchange, conversion or exercise
thereof) represented by the certificates so surrendered and registered as such
holder may request, subject to the provisions thereof.
(ii) REPLACEMENT OF CERTIFICATES. Upon receipt by the Issuer of
evidence reasonably satisfactory to it of loss, theft, destruction or mutilation
of any certificate evidencing any of the Securities (or securities issued upon
exchange, conversion or exercise thereof), and (in case of loss, theft or
destruction) of indemnity reasonably satisfactory to the Issuer, and upon the
surrender and cancellation of such certificate, if mutilated, the Issuer shall
make and deliver in lieu of such certificate a new certificate for the number of
Securities (or securities issued upon exchange, conversion or exercise thereof),
as the case may be, evidenced by such lost, stolen, destroyed or mutilated
certificate which remains outstanding. The Purchaser's (which term does not
include any successors or assigns of the Purchaser) agreement of indemnity shall
constitute indemnity satisfactory to the Issuer for the purposes of this Section
6.01(b) without the need of any further surety or bond.
16
<PAGE>
(iii) GOVERNMENT AND OTHER APPROVALS. Promptly prepare, submit and
file with all public and governmental authorities, all applications, notices,
registrations, certificates, statements and such other information, documents
and instruments as may be required pursuant to any federal, state or local law
or rule or regulation of the National Association of Securities Dealers, Inc. or
any securities exchange, in connection with the consummation of the transactions
contemplated by this Agreement, including the effect of any dividends, exchange
or conversion rights, anti-dilution provisions or Board control contemplated by
the terms of the Securities or other securities of the Issuer which may be
acquired by the Purchaser pursuant to this Agreement. The Issuer shall use its
best efforts to obtain any necessary consents or approvals from any authority in
connection with the consummation of the transactions contemplated by this
Agreement, including the effect of any dividends, exchange or conversion rights,
anti-dilution provisions or Board control contemplated by the terms of the
Securities.
(c) ACCESS AND CONFIDENTIALITY. Prior to the Closing Date, the Issuer
shall (and shall cause each of its Subsidiaries to) afford the Purchaser and its
representatives reasonable access during normal business hours to its
properties, books, contracts and records and personnel and advisors and the
Issuer shall (and shall cause each of the Subsidiaries to) furnish promptly to
the Purchaser all information concerning its business properties and personnel
as the Purchaser or its representatives may reasonably request, provided that
any review will be conducted in a way that will not interfere unreasonably with
the conduct of the Issuer's business.
(d) REPORTS TO HOLDERS. At all times, upon the request of the
Purchaser so long as the Purchaser owns any Securities, the Issuer shall supply
to the Purchaser such financial and other information as the Purchaser may
reasonably determine to be necessary in order to permit compliance with Rule
144A in connection with a resale or a proposed resale of any of the Securities.
(e) RESERVATION OF SERIES E PREFERRED STOCK. Issuer shall use its
reasonable best efforts within one year after the Closing Date to amend its
Charter to increase the number of authorized shares of the Issuer's preferred
stock and amend the Certificate of Designations in order to provide for the
reservation of, and the Issuer hereby agrees to reserve, a sufficient number of
authorized but unissued shares of Series E Preferred Stock to provide for the
payment of all dividends that may accrue on the shares of Series E Preferred
Stock (including the Preferred Stock) then outstanding in additional shares of
Series E Preferred Stock.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party by certified first class mail at its
address with a return receipt requested, by Federal Express or similar overnight
17
<PAGE>
mail service with signature required for receipt, or by telecopy at the
telecopier number set forth below or such other address or telecopier number as
such party may hereinafter specify in writing for the purpose to the party
giving such notice. Each such notice, request or other communication shall be
effective (i) if given by telecopy, when such telecopy is transmitted to the
telecopy number specified in this Section and the appropriate electronic
confirmation is received and a copy of such notice is sent by overnight mail
service or (ii) if given by mail or overnight courier, 72 hours after such
communication is deposited in the mails with first class postage prepaid or
given to overnight courier service, addressed as aforesaid.
Issuer: KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster NJ 07921
Attn: James D. Grenfell
Chief Financial Officer
Fax: (908) 719-8776
Purchaser: First Union Investors, Inc.
1 First Union Center,
5th Floor
301 South College
Charlotte, NC 28288
Attn: L. Watts Hamrick, III
Fax: (704) 374-6711
SECTION 7.02. NO WAIVERS. No failure or delay on the part of any party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
SECTION 7.03. SUCCESSORS AND ASSIGNS. The Purchaser may assign its
rights hereunder without the consent of the Issuer to any transferee of any of
the Securities. Otherwise, no party to this Agreement may assign any of its
rights or obligations hereunder to any person except with the prior written
consent of the other parties hereto (which consent may not be unreasonably
withheld). This Agreement shall be binding upon the Issuer and the Purchaser and
their respective successors and assigns.
SECTION 7.04. NEW YORK LAW. This Agreement shall be governed by the
laws of the State of New York.
SECTION 7.05. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
executed in any number of counterparts each of which shall be an original with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by the other hereto.
18
<PAGE>
SECTION 7.06. ENTIRE AGREEMENT. This Agreement, the Warrant Agreement,
the Warrant Registration Rights Agreement, the Preferred Stock Registration
Rights Agreement, Amendment No. 5, the fee letters and the other side letters
being executed and delivered concurrently with the execution and delivery of
this Agreement, the Certificates of Amendment and the Certificate of
Designations constitute the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein and therein, and there
are no restrictions, promises, representations, warranties, covenants, or
undertakings with respect to the subject matter hereof, other than those
expressly set forth or referred to herein or therein. This Agreement and the
documents referred to in the preceding sentence supersede all prior agreements
and understandings between the parties hereto with respect to the subject matter
hereof.
SECTION 7.07. EXPENSES. Whether or not the transactions contemplated
in this Agreement shall be consummated, the Issuer shall pay the Purchaser's
reasonable out-of-pocket expenses on demand arising in connection with the
execution and delivery of this Agreement, the Warrant Agreement, the Warrant
Registration Rights Agreement, the Preferred Stock Registration Rights
Agreement, Amendment No. 5, the Certificates of Amendment and the Certificate of
Designation (collectively, the "Transaction Documents") and the purchase of the
Securities, including, without limitation: (i) the reasonable fees and expenses
of counsel to the Purchaser in connection with the preparation and negotiation
of the Transaction Documents and the consummation of the transactions
contemplated therein, and (ii) costs and expenses, including reasonable
attorneys fees and expenses and the fees and expenses of any other special or
financial advisors, incurred in connection with any bankruptcy or insolvency of
the Issuer or in connection with any workout or restructuring of any of the
transactions contemplated in the Transaction Documents. The obligations of the
Issuer under this Section 7.07 shall survive any transfer of any of the
Securities by the Purchaser or any subsequent holder thereof.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the day and year first above written.
KMC Telecom Holdings, Inc
By: /s/ James D. Grenfell
--------------------------------------
Name: James D. Grenfell
Title: Chief Financial Officer
First Union Investors, Inc.
By: /s/ Pearce Landry
--------------------------------------
Name: Pearce A. Landry
Title: Vice President
20
<PAGE>
EXHIBIT A
Form of Certificate of Amendment to Certificate
of Designations of Series A Preferred Stock
A-1
<PAGE>
EXHIBIT B
Form of Certificate of Amendment to Certificate
of Designations of Series C Preferred Stock
B-1
<PAGE>
EXHIBIT C
Form of Certificate of Amendment to Certificate
of Designations of Series D Preferred Stock
C-1
<PAGE>
EXHIBIT D
Form of Certificate of Amendment to Certificate
of Designations of Series E Preferred Stock
D-1
<PAGE>
EXHIBIT E
Form of Certificate of Amendment to Certificate
of Designations of Series F Preferred Stock
E-1
<PAGE>
Schedule 3.01
-------------------------------------------------------------
Schedule 3.02
-------------------------------------------------------------
Schedule 3.08
-------------------------------------------------------------
Schedule 3.09
-------------------------------------------------------------
Schedule 3.10
-------------------------------------------------------------
Schedule 3.14
-------------------------------------------------------------
Schedule 3.17
-------------------------------------------------------------
<PAGE>
SCHEDULE 3.01
(A) SUBSIDIARIES:
-------------
KMC Telecom Inc.
KMC Telecom II, Inc.
KMC Telecom III Holdings, Inc.
KMC Telecom of Virginia, Inc. (wholly owned subsidiary of KMC Telecom Inc.)
KMC Telecom Leasing I LLC (wholly owned subsidiary of KMC Telecom
KMC Telecom Leasing II LLC (wholly owned subsidiary of KMC Telecom II,
Inc.)
KMC Telecom III, Inc. (wholly owned subsidiary of KMC Telecom Holdings
III, Inc.)
KMC Telecom Leasing III LLC (wholly owned subsidiary of KMC Telecom III,
Inc.)
(B) LIENS, SECURITY INTERESTS, CHARGES, ENCUMBRANCES ON CAPITAL STOCK OF
SUBSIDIARIES
--------------------------------------------------------------------
(1) Pledge Agreement dated December 22, 1998 by Issuer in favor of AT&T
Commercial Finance Corporation, as Collateral Agent, with respect to
the Capital Stock of KMC Telecom Inc. and KMC Telecom II, Inc.
(2) Pledge Agreement dated December 22, 1998 by KMC Telecom Inc. in favor
of AT&T Commercial Finance Corporation, as Collateral Agent, with
respect to one hundred percent (100%) of the Capital Stock of KMC
Telecom of Virginia, Inc. and one hundred percent (100%) of the
membership interests of KMC Telecom Leasing I LLC.
(3) Pledge Agreement dated December 22, 1998 by KMC Telecom II, Inc. in
favor of AT&T Commercial Finance Corporation, as Collateral Agent,
with respect to one hundred percent (100%) of the membership interests
of KMC Telecom Leasing II LLC.
(4) Pledge Agreement dated February 4, 1999 by KMC Telecom III Holdings,
Inc. in favor of the Collateral Agent (as defined therein), with
respect to one hundred percent (100%) of the Capital Stock of KMC
Telecom III, Inc.
(5) Pledge Agreement dated February 4, 1999 by KMC Telecom III, Inc. in
favor the Collateral Agent (as defined therein), with respect to one
hundred percent (100%) of the membership interests of KMC Telecom
Leasing III LLC.
<PAGE>
SCHEDULE 3.02
-------------
(A) HOLDERS OF COMMON STOCK
-----------------------
HOLDER CURRENT SHARES
------ --------------
Harold N. Kamine and family trusts 573,835
KMC Telecommunications L.P. 40,000
AT&T Credit Corporation 203,288.5
First Union National Bank 6,917.5
Nassau Capital Partners L.P. 13,835
D'Amico Family Partners, L.P. 14,800
(B) CONVERTIBLE SECURITIES
(1) Series A Preferred Stock is convertible into Common Stock.
(2) Series C Preferred Stock is convertible into Common Stock.
(3) Series F Preferred Stock is convertible into Series E Preferred Stock.
(C) SUBSCRIPTION, OPTION, WARRANT RIGHTS
(1) Warrants dated as of October 31, 1997 issued to General Electric
Capital Corporation ("GECC") currently exercisable for 10,000 shares
of Common Stock. (the "GECC WARRANTS")
(2) Warrants issued in connection with the Issuer's January 29, 1998 High
Yield Debt Offering exercisable for 110,385 shares of Common Stock
(the "HIGH YIELD WARRANTS")
(3) Options to purchase up to 262,500 shares of Common Stock granted
pursuant to the Issuer's 1998 Stock Purchase and Option Plan for Key
Employees of KMC Telecom Holdings, Inc. and Affiliates.
(4) Warrants issued pursuant to the Warrant Agreement, dated as of
February 4, 1999, between the Issuer, Newcourt Commercial Finance
Corporation ("Newcourt"), Lucent Technologies Inc. ("Lucent")
(together, the "Purchasers"), and The Chase Manhattan Bank, as Warrant
Agent, exercisable for 18,226.76 shares of Common Stock, and 6,432.86
shares of Common Stock, respectively (the "SERIES E & F WARRANTS").
<PAGE>
(D) REPURCHASE RIGHTS, PUTS, VOTING RIGHTS, RIGHTS OF FIRST REFUSAL
(1) Amended and Restated Stockholders Agreement, dated as of October 31,
1997 among Issuer, Nassau Capital Partners L.P. ("Nassau Capital") ,
NAS Partners I, L.L.C. ("NAS"), Harold N. Kamine ("HNK"), KMC
Telecommunications LP, AT&T Credit Corporation, CoreStates Bank, N.A.,
General Electric Capital Corporation ("GECC") and CoreStates Holdings,
Inc., as amended (the "STOCKHOLDERS AGREEMENT") contains:
(i) put rights;
(ii) agreements as to voting;
(iii) rights of first refusal;
(iv) registration rights; and
(v) preemptive and/or anti-dilutive rights.
(2) The GECC Warrant contains preemptive and/or anti-dilutive rights.
(3) Amended and Restated Note Purchase and Investment Agreement dated as
of October 22, 1996 by and among KMC Telecom Inc., Nassau Capital, NAS
and HNK, as amended through the Amendment and Assignment of Amended
and Restated Note Purchase and Investment Agreement dated as of
September 22, 1997 by and among KMC Telecom Inc., Nassau Capital, NAS,
HNK and the Issuer, as amended (the "Investment Agreement") contains
preemptive and/or anti-dilutive rights.
(4) The High Yield Warrants contain preemptive and/or anti-dilutive rights and
registration rights.
(5) The Warrant Agreement, dated as of January 29, 1998, between the
Issuer and The Chase Manhattan Bank, as Warrant Agent, and applicable
to the High Yield Warrants (the "High Yield Warrant Agreement")
contains certain anti-dilutive rights.
(6) The Warrant Registration Rights Agreement, dated as of January 26,
1998, between the Issuer and Morgan Stanley & Co. Incorporated and
applicable to the High Yield Warrants contains registration rights.
(7) The Warrant Agreement, dated as of February 4, 1999, between the
Issuer, Newcourt Commercial Finance Corporation ("Newcourt"), Lucent
Technologies Inc. ("Lucent") (together, the "Purchasers"), and The
Chase Manhattan Bank, as Warrant Agent, and applicable to the Series E
& F Warrants (the "Series E & F Warrant Agreement") contains certain
anti-dilutive rights.
(8) The Warrant Registration Rights Agreement, dated as of February 4,
1999, between the Issuer, Newcourt, and Lucent and applicable to the
Series E & F Warrants contains registration rights.
(9) The Series A Preferred Certificate of Designations contains conversion
rights, preemptive and/or anti-dilutive rights and voting rights.
(10) The Series C Preferred Certificate of Designations contains conversion
rights, preemptive and/or anti-dilutive rights, voting rights,
redemption rights.
(11) The Series E Preferred Certificate of Designations contains conversion
rights, preemptive and/or anti-dilutive rights, voting rights,
redemption rights.
(12) The Series F Preferred Certificate of Designations contains conversion
rights, preemptive and/or anti-dilutive rights, voting rights,
redemption rights.
(13) The Issuer's Amended and Restated Certificate of Incorporation.
<PAGE>
SCHEDULE 3.08
-------------
(A) COMPLIANCE WITH LAWS
--------------------
NO EXCEPTIONS.
<PAGE>
SCHEDULE 3.09
-------------
(A) LITIGATION
I-NET
By letter dated August 29, 1997, KMC Telecom Inc. (the "Company") notified
I-Net, Inc. ("I-NET") that the Company considered I-NET to be in default
under a Master Telecommunications System Rollout Agreement dated as of
October 1, 1996 (the "I-NET Agreement"), pursuant to which I-NET had agreed
to manage construction of telephone systems for the Company in several
cities, including the preparation of design plans and specifications for
each system. The Company considered I-NET to be in default as a result of
I-NET's failure to provide design plans and specifications for several
systems for which it had agreed to provide such plans and specifications,
to properly supervise construction of the systems or to provide personnel
with the necessary expertise to manage the projects. By letter dated
October 27, 1997, I-NET demanded payment of all amounts it alleged were due
under the I-NET Agreement and an alleged related agreement (aggregating
$4.1 million) and stated that it would invoke the arbitration provisions
under the I-NET Agreement if the parties could not agree as to the amount
due and payment terms on or before November 27, 1997. By letter dated
December 1, 1997, I-NET extended its deadline for reaching agreement to
December 15, 1997. Although the Company and I-NET conducted discussions
they were unable to reach an agreement and on February 12, 1998, the
Company received a demand for arbitration from Wang Laboratories, Inc.
("Wang"), the successor to I-NET. The demand seeks at least $4.1 million.
The Company believes that it has meritorious defenses to Wang's claims and
has asserted counterclaims seeking in excess of $2.5 million as a result of
I-NET's defaults under the I-NET Agreement. The arbitration proceedings are
currently under way. The Company believes that resolution of this matter
will not have a material adverse impact on its financial condition. No
assurance can be given, however, as to the ultimate resolution of this
matter.
U S WEST Communications, Inc.
In May 1997, KMC Telecom Inc. ("KMC") and U S WEST entered into an
agreement to interconnect their telephone systems so that KMC could supply
local telephone service to customers in selected areas of Minnesota. KMC
and U S WEST submitted their agreement to the Minnesota Public Utilities
Commission ("PUC") for approval. As a condition of approving the agreement,
the Public Utilities Commission required that the agreement be modified in
three ways: (1) elimination of a provision stating that a customer that was
in arrears on payment to one company could not retain the same phone number
if it switched its service to another company; (2) addition of a provision
requiring U S WEST to get permission from the PUC before terminating the
interconnection with KMC; and (3) addition of a provision specifying that
KMC must give a ten day notice to its customers prior to terminating their
service. Using the procedure required under federal law, U S WEST appealed
the PUC's decision by filing a lawsuit in federal district
<PAGE>
SCHEDULE 3.09
-------------
(CONTINUED)
court in Minneapolis, Minnesota, naming both the PUC and KMC as defendants.
KMC is merely a nominal defendant in this action and has not taken a
position on any of the issues on appeal, and it is local counsel's
understanding that KMC believes that the ultimate outcome of this
litigation will not have a significant effect on KMC's business in
Minnesota.
MFS Communications Company
KMC Telecom Inc.'s ("KMC") interconnection agreement with U S WEST is based
upon U S WEST's virtually identical interconnection agreement with MFS
Communications Company ("MFS"; now owned by MCI WorldCom), which U S WEST
has appealed to the federal district court in Minneapolis for judicial
review in a parallel lawsuit. KMC's agreement provides that any changes in
MFS' agreement necessitated by the outcome of the MFS appeal may need to be
made to the KMC agreement. U S WEST asserts in its appeal of the MFS
agreement that the Minnesota Public Utilities Commission erred in approving
contract provisions allegedly violating the Telecommunications Act that:
(1) set an interim rate for purchase of U S WEST unbundled loops; (2) set a
rate for transport and termination of local exchange telecommunications
traffic; (3) establish a method for cost recovery of interim number
portability services; (4) compel U S WEST to recombine unbundled network
elements for competitor purchase; (5) allow a single point of
interconnection between carriers; and (6) set a discount for purchase of U
S WEST wholesale services. KMC cannot quantify at this time the potential
effect of a successful U S WEST challenge to MFS' agreement. Should U S
WEST prevail in its lawsuit against MFS, KMC may be compelled to modify its
own agreement with U S WEST and, as a result, pay more for U S WEST
interconnection and services, which could have an adverse effect on KMC's
operations in Minnesota.
Alabama Directional Boring, Inc.
On May 1, 1998, the Company received a Complaint in ALABAMA DIRECTIONAL
BORING, INC. V. KMC TELECOM INC. (Madison County, Alabama) in which the
plaintiff alleged that KMC owes $225,000 pursuant to a contract with the
plaintiff to provide directional boring for the placement of underground
fiber optic cable. Plaintiff also seeks punitive damages in an unspecified
sum. KMC has served an Answer and the parties are engaged in document
discovery. On January 5, 1999, the Court issued a Scheduling and Mediation
Order, setting a trial date of August 16, 1999 and requiring non-binding
mediation to occur prior to that date. Given that discovery has not been
completed, we are unable to express an opinion as to the ultimate outcome
of this lawsuit.
<PAGE>
SCHEDULE 3.09
-------------
(CONTINUED)
Business Software Alliance
On March 22, 1999 and April 5, 1999, the Company received letters (the
"Letters") from counsel for Business Software Alliance (the "BSA") alleging
possible instances of illegal duplication of certain software companies'
proprietary software products and requesting that the Company conduct its
own company-wide investigation, including an audit of the software on all
of the Company's computers at all of its locations and proofs of purchase
for that software. By letters dated April 12, 1999 and April 26, 1999, the
Company advised counsel for the BSA that it was conducting such
investigation and audit and would respond in due course. The Letters
indicate that 17 U.S.C. Section 504 allows the recovery of actual or
statutory damages; that in the case of willful infringement a court has
discretion to award statutory damages up to $100,000 for each copyrighted
product that has been infringed; and that attorneys' fees may be recovered
by the prevailing party. Because the Company continues to conduct its
investigation and audit, it is not in a position to determine the amount of
liability to which it may be subject.
Industry Lawsuits
There are a number of lawsuits related to the Telecommunications Act of
1996, decisions of the FCC related thereto and rules and regulations issued
thereunder which may affect the rights, obligations and business of ILECs,
CLECs and other participants in the telecommunications industry in general,
including the Company.
<PAGE>
SCHEDULE 3.10
-------------
(A) LIENS ON PROPERTY
(1) Pursuant to a Loan and Security Agreement, dated December 22, 1998,
among KMC Telecom Inc., KMC Telecom II, Inc., KMC Telecom of Virginia,
Inc., KMC Telecom Leasing I LLC, KMC Telecom Leasing II LLC
(collectively, the "Borrowers"), the Lenders (as defined therein),
First Union National Bank, as Agent, and AT&T Commercial Finance
Corporation, as Collateral Agent (the "Newcourt Facility") the
Borrowers have granted to AT&T Commercial Finance Corporation, as
Collateral Agent, a right of setoff against and a continuing security
in and to all of their respective tangible and intangible personal
property, fixtures and real property leasehold and easement interests,
whether currently owned or acquired after December 22, 1998, subject
to certain exceptions.
(2) Pursuant to a Loan and Security Agreement, dated as of February 4,
1999, among KMC Telecom III, Inc., KMC Telecom Leasing III, LLC
(collectively, the "Borrowers"), the Lenders (as defined therein),
Lucent Technologies, Inc., as Agent, and the Collateral Agent (as
defined therein) (the "Lucent Facility"), the Borrowers have granted
to the Collateral Agent (as defined therein), a right of setoff
against and a continuing security in and to all of their respective
tangible and intangible personal property, fixtures and real property
leasehold and easement interests, whether currently owned or acquired
after February 4, 1999, subject to certain exceptions.
<PAGE>
SCHEDULE 3.14
-------------
(A) ENVIRONMENTAL MATTERS
NO EXCEPTIONS.
<PAGE>
SCHEDULE 3.17
-------------
(A) ENCUMBRANCES AND RESTRICTIONS
(1) The Newcourt Facility.
(2) Guaranty dated December 22, 1998, executed by Issuer in favor of AT&T
Commercial Finance Corporation, as Collateral Agent pursuant to the
Newcourt Facility.
(3) The Lucent Facility.
(4) Guaranty dated February 4, 1999, executed by KMC Telecom III Holdings,
Inc. in favor of the Collateral Agent (as defined), in connection with
the Lucent Facility.
(5) Series A Preferred Certificate of Designations.
(6) Series C Preferred Certificate of Designations.
(7) Series E Preferred Certificate of Designations.
(8) Series F Preferred Certificate of Designations.
(B) OUTSTANDING INDEBTEDNESS
(1) The Newcourt Facility.
(2) The Lucent Facility.
(3) Indebtedness pursuant to the Issuer's January 1998 High Yield Debt
Offering.
(4) Indebtedness pursuant to the Issuer's February 4, 1999 Series E & F
Senior, Redeemable, Exchangeable PIK Preferred Stock and Warrant
transaction.
(5) Guaranty dated December 22, 1998, executed by the Issuer in favor of
AT&T Commercial Finance Corporation, as Collateral Agent in connection
with the Newcourt Facility.
(5) Guaranty dated February 4, 1999, executed by the Issuer in favor of
the Collateral Agent (as defined), in connection with the Lucent
Facility.
(6) Guaranty dated February 4, 1999, executed by KMC Telecom III Holdings,
Inc. in favor of the Collateral Agent (as defined), in connection with
the Lucent Facility.
<PAGE>
SCHEDULE 3.17
-------------
(CONTINUED)
(C) AFFILIATE TRANSACTIONS
(1) Those transactions set forth in the section entitled "Certain
Relationships and Related Transactions" to the Prospectus contained in
that certain Amendment No. 2 to the Registration Statement on Form S-4
of KMC Telecom Holdings, Inc., Registration No. 333-50475, filed with
the Securities and Exchange Commission on July 10,1998.
(2) The Issuer reimbursed certain affiliated companies for certain
administrative services provided to it by such affiliated companies
during 1998, and may continue to do so in future years.
(3) The Board of Directors has approved, and an agreement in principal has
been reached, subject to finalization, by which the Issuer has agreed
to employ Harold N. Kamine as its Chairman of the Board at a salary of
$450,000 per annum for a period of 3 years.
(4) The Board of Directors has approved, and an agreement in principal has
been reached, subject to finalization, to enter into a Services
Agreement between the Issuer and KMC Services LLC, dated as of January
1, 1999.
(5) Letter Agreement dated November 5, 1998 between the Issuer and Kamine
Aviation LLC.
(6) Pursuant to an agreement among the Issuer, Nassau and Harold N.
Kamine, for 1998 Nassau received certain fees for financial advisory
services and as compensation for the Nassau designees who served on
the Issuer's Board of Directors. The Board of Directors has approved,
and an agreement in principal has been reached, subject to
finalization, to enter into a Financial Advisory Agreement pursuant to
which Nassau will be paid $450,000 as a financial advisory fee for
1999.
(7) Tax Allocation Agreement dated as of December 21, 1998 among the
Issuer, KMC Telecom Inc., KMC Telecom II, Inc., KMC Telecom of
Virginia, Inc., KMC Telecom III, Inc., KMC Telecom Leasing I LLC, and
KMC Telecom Leasing II LLC, as amended by Amendment No. 1 To Tax
Allocation Agreement dated as of January 29, 1999.
<PAGE>
SCHEDULE 3.17
-------------
(CONTINUED)
(8) Management Agreement dated as of December 18, 1998 among the Issuer,
KMC Telecom Inc., KMC Telecom II, Inc., KMC Telecom of Virginia, Inc.,
KMC Telecom Leasing I LLC, KMC Telecom II Leasing LLC and KMC Telecom
III, Inc., as amended by Amendment No. 1 To Management Agreement dated
as of January 29, 1999.
AMENDMENT NO. 1 TO
SECURITIES PURCHASE AGREEMENT
This Amendment No. 1 to Securities Purchase Agreement dated as of
February 4, 1999 is made as of June 1, 1999 by KMC Telecom Holdings, Inc., a
Delaware corporation (the "Issuer"), Newcourt Commercial Finance Corporation, a
Delaware corporation ("Newcourt"), and Lucent Technologies Inc., a Delaware
corporation ("Lucent" and together with Newcourt, the "Purchasers" and each
individually, a "Purchaser") (the "Amendment").
W I T N E S S E T H
WHEREAS, the Company, Newcourt, and Lucent have entered into a Securities
Purchase Agreement dated as of February 4, 1999 (the "February 4 Purchase
Agreement");
WHEREAS, Newcourt owns shares of the Company's Series E Preferred Stock,
and shares of the Company's Series F Preferred Stock, and Lucent owns shares of
the Company's Series F Preferred Stock;
WHEREAS, the Company, First Union Investors, Inc. ("First Union"),
Newcourt, and Lucent are parties to Amendment No. 1 to Preferred Stock
Registration Rights Agreement of even date herewith, which grants First Union,
Newcourt, and Lucent the right to register their Registrable Securities at any
time and from time to time after October 30, 1999;
NOW THEREFORE, in consideration of the premises, the parties hereto agree
as follows:
1. DEFINED TERMS. Unless otherwise defined herein, all capitalized terms
defined in the Amendment and used herein are defined in the February 4 Purchase
Agreement.
2. AMENDMENT TO SECTION 4.06(F). Section 4.06(f) of the February 4 Purchase
Agreement is amended to read in its entirety as follows:
"Except as otherwise provided in Amendment No. 1 to the Preferred
Stock Registration Rights Agreement dated as of June 1, 1999, by and among the
Company, First Union, Newcourt, and Lucent, in addition to the restrictions on
transfer imposed by federal or state securities laws, Lucent hereby covenants
and agrees with the Issuer that it will not transfer, sell, assign or pledge all
or any part of the Securities purchased by it hereunder until the earlier of (i)
one year after the date of any future issuance and sale by the Issuer of any
high yield debt securities yielding gross proceeds to the Issuer of at least
$50,000,000 or (ii) August 4, 2000. Notwithstanding the foregoing, the Series F
Preferred Stock may be held by an Affiliate (as defined in the "Certificate of
Designations") of Lucent that is under its control."
3. Except as expressly amended hereby, all of the provisions of the
February 4 Purchase Agreement are hereby affirmed and shall continue in full
force and effect in accordance with their terms.
<PAGE>
4. This Amendment shall be governed and construed in accordance with the
laws of the State of New York applicable to agreements made and to be performed
entirely within, such state, without regard to the principles of conflicts of
laws thereof.
5. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together, shall
constitute one and the same instrument.
<PAGE>
Signature Page to
Amendment No. 1 to the
Securities Purchase
Agreement dated
February 4, 1999
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed, as of the day and year first above written.
KMC TELECOM HOLDINGS, INC.
By: /s/ James D. Grenfell
-------------------------------------
Name: James D. Grenfell
Title: Executive Vice President,
Chief Financial Officer
NEWCOURT COMMERCIAL FINANCE
CORPORATION
By: /s/ John P. Sirico, II
-------------------------------------
Name: John P. Sirico, II
Title: Vice President
LUCENT TECHNOLOGIES, INC.
By: /s/ Leslie L. Rogers
-------------------------------------
Name: Leslie L. Rogers
Title: Managing Director
- --------------------------------------------------------------------------------
WARRANT AGREEMENT
among
KMC TELECOM HOLDINGS, INC.
and
THE CHASE MANHATTAN BANK,
as Warrant Agent
and
FIRST UNION INVESTORS, INC.
and
HAROLD N. KAMINE and NASSAU CAPITAL PARTNERS L. P.
for purposes of Section 8.5
Dated as of April 30, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I......................................................................2
CERTAIN DEFINITIONS............................................................2
ARTICLE II.....................................................................5
ORIGINAL ISSUE OF WARRANTS.....................................................5
Section 2.1. Form of Warrant Certificates..................................6
Section 2.2. Restrictive Legends...........................................6
Section 2.3. Execution and Delivery of Warrant Certificates................7
Section 2.4. Springing Warrants.............................................8
ARTICLE III....................................................................8
EXERCISE PRICE AND EXERCISE OF WARRANTS........................................8
Section 3.1. Exercise Price................................................8
Section 3.2. Exercise; Restrictions on Exercise............................8
Section 3.3. Method of Exercise; Payment of Exercise Price.................8
ARTICLE IV....................................................................10
ADJUSTMENTS...................................................................10
Section 4.1. Adjustments..................................................10
Section 4.2. Notice of Adjustment.........................................16
Section 4.3. Statement on Warrants........................................17
Section 4.4. Notice of Consolidation, Merger, Etc.........................17
Section 4.5. Fractional Interests.........................................18
Section 4.6. When Issuance or Payment May Be Deferred.....................18
Section 4.7. Initial Public Offering......................................18
ARTICLE V.....................................................................18
DECREASE IN EXERCISE PRICE....................................................18
ARTICLE VI....................................................................19
LOSS OR MUTILATION............................................................19
ARTICLE VII...................................................................19
RESERVATION AND AUTHORIZATION.................................................19
OF COMMON SHARES..............................................................19
ARTICLE VIII..................................................................20
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER; CERTAIN TRANSFER RIGHTS.....20
Section 8.1. Transfer and Exchange........................................20
Section 8.3. Special Transfer Provisions..................................20
Section 8.4. Surrender of Warrant Certificates............................22
Section 8.5. Tag-Along Right..............................................22
Section 8.6. Bring Along Right............................................24
ARTICLE IX....................................................................25
WARRANT HOLDERS...............................................................25
Section 9.1. Warrant Holder Deemed Not a Shareholder......................25
Section 9.2. Right of Action..............................................25
ARTICLE X.....................................................................25
THE WARRANT AGENT.............................................................25
Section 10.1. Duties and Liabilities......................................25
Section 10.2. Right to Consult Counsel....................................27
Section 10.3. Compensation; Indemnification...............................27
Section 10.4. No Restrictions on Actions..................................27
Section 10.5. Discharge or Removal; Replacement Warrant Agent.............27
Section 10.6. Successor Warrant Agent.....................................28
ARTICLE XI....................................................................29
MISCELLANEOUS.................................................................29
Section 11.1. Monies Deposited with the Warrant Agent.....................29
Section 11.2. Payment of Taxes............................................29
Section 11.3. No Merger, Consolidation or Sale of Assets of the Company...29
Section 11.4. Reports to Holders..........................................29
Section 11.5. Notices; Payment............................................30
Section 11.6. Binding Effect..............................................31
Section 11.7. Counterparts................................................31
Section 11.8. Amendments..................................................31
Section 11.9. Headings....................................................32
Section 11.10. Common Shares Legend.......................................32
Section 11.11. Third Party Beneficiaries..................................33
Section 11.12. Termination................................................33
Section 11.13. Governing Law..............................................33
EXHIBIT A FORM OF WARRANT CERTIFICATE
EXHIBIT B-1 FORM OF CERTIFICATE TO BE DELIVERED BY TRANSFEROR IN
CONNECTION WITH TRANSFERS TO PERSONS OTHER THAN QIBs
EXHIBIT B-2 FORM OF CERTIFICATE TO BE DELIVERED BY TRANSFEREES IN CONNECTION
WITH TRANSFERS TO PERSONS OTHER THAN QIBs
APPENDIX A LIST OF FINANCIAL EXPERTS
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of April 30, 1999 (this "AGREEMENT"),
among KMC TELECOM HOLDINGS, INC., a Delaware corporation (the "COMPANY"), and
FIRST UNION INVESTORS, INC., a North Carolina corporation (the "PURCHASER") and
The Chase Manhattan Bank, as warrant agent (the "WARRANT AGENT"). Harold N.
Kamine and Nassau Capital Partners L. P. are parties to this Agreement for the
purposes of Section 8.5.
W I T N E S S E T H:
WHEREAS, in connection with the sale of shares of its preferred stock
from time to time, the Company intends to issue and sell warrants (each, a
"WARRANT" and collectively, the "WARRANTS") to be issued under this Agreement,
each Warrant initially entitling the holder thereof to purchase 0.471756 shares
of Common Stock (as defined below) of the Company at an exercise price of $.01
per Common Share (as defined below);
WHEREAS, pursuant to the terms of a Securities Purchase Agreement of
even date herewith (the "PURCHASE AGREEMENT"), between the Company and the
Purchaser, the Company has agreed to issue and sell to the Purchaser a unit (the
"SERIES E UNIT"), consisting of 35,000 shares of the Company's Series E Senior,
Redeemable, Exchangeable PIK Preferred Stock (the "SERIES E PREFERRED STOCK")
and 94,513 Warrants;
WHEREAS, the Series E Preferred Stock and the Warrants included in the
Series E Unit will become separately transferable on the Business Day after the
date the Series E Unit is initially issued (the "SEPARATION DATE");
WHEREAS, as described in Section 2.4 of the Existing Warrant Agreement
(as defined below), holders of Series E Preferred Stock and Series F Preferred
Stock are entitled to receive 227,273 warrants unless certain conditions are
satisfied;
WHEREAS, the Company has previously issued shares of Series E
Preferred Stock, shares of the Company's Series F Senior, Redeemable,
Exchangeable PIK Preferred Stock (the "SERIES F PREFERRED STOCK"), warrants and
springing warrants under a Securities Purchase Agreement dated as of February 4,
1999;
WHEREAS, the Company desires to engage the Warrant Agent to act on the
Company's behalf, and the Warrant Agent desires to act on behalf of the Company,
in connection with the issuance of the Warrant Certificates (as defined below)
and the other matters as provided herein, including, without limitation, for the
purpose of defining the terms and provisions of the Warrants and the respective
rights and obligations thereunder of the Company and the record holders thereof
(together with the holders of shares of Common Stock (or other securities)
received upon exercise thereof, the "HOLDERS").
1
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements contained herein and in the Purchase Agreement, the Company, the
Purchaser and the Warrant Agent hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Auditors" means, at any time, the independent auditors of the Company
at such time.
"Board" means the board of directors of the Company from time to time.
"Business Day" means a day other than a Saturday or Sunday on which
commercial banks in The City of New York are open for business.
"Buyout Notice" shall have the meaning ascribed to such term in
Section 8.6.
"Capital Stock" shall mean capital stock or share capital of, and/or
other equity participations in, the Company, including, without limitation,
partnership interests, and/or conversion privileges, warrants, options and/or
other rights to acquire such capital stock, share capital and/or other equity
participations.
"Certificate for Surrender" means the form on the reverse side of the
Warrant Certificate substantially in the form included in Exhibit A hereto.
"Closing Date" means April 30, 1999.
"Commission" means the United States Securities and Exchange
Commission.
"Common Shares" means the shares of the Common Stock of the Company.
"Common Stock" means the common stock, par value $0.01 per share, of
the Company.
2
<PAGE>
"Common Stock Equivalents" means any security or obligation which is
by its terms convertible into shares of Common Stock and any option, warrant or
other subscription or purchase right with respect to Common Stock.
"Company" has the meaning specified in the preamble to this Agreement.
"Current Market Value" has the meaning specified in Section 4.1(f)
hereof.
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
"Exercise Price" has the meaning specified in Section 3.1 hereof.
"Existing Stockholders" means those stockholders who are from time to
time parties to the Stockholders Agreement dated as of October 31, 1997, as
amended.
"Existing Warrant Agreement" means the Warrant Agreement dated as of
February 4, 1999 among the Company, Newcourt Commercial Finance Corporation and
Lucent Technologies Inc, as amended to date.
"Expiration Date" means February 1, 2009.
"Financial Expert" means one of the Persons listed in Appendix A
hereto.
"Fully Diluted" or "Fully Diluted Basis" shall mean, at any date as of
which the number of shares of Common Stock is to be determined, such number of
shares determined on a basis that includes all shares of Common Stock
outstanding at such date and the maximum shares of Common Stock issuable in
respect of Common Stock Equivalents (giving effect to the then current
respective conversion prices) and other rights to purchase (directly or
indirectly) shares of Common Stock or Common Stock Equivalents, outstanding on
such date, whether or not such rights to convert, exchange or exercise
thereunder are presently exercisable.
"Holders" has the meaning specified in the recitals to this Agreement.
"Independent Financial Expert" means a Financial Expert that does not
(and whose directors, executive officers and 5% stockholders do not) have a
direct or indirect financial interest in the Company or any of its subsidiaries
or Affiliates, which has not been for at least five years and, at the time it is
called upon to give independent financial advice to the Company is not (and none
of its directors, executive officers or 5% stockholders is) a promoter,
director, or officer of the Company or any of its subsidiaries or Affiliates.
The Independent Financial Expert may be compensated and indemnified by the
Company for opinions or services it provides as an Independent Financial Expert.
3
<PAGE>
"Institutional Accredited Investor" shall mean an institution that is
an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) of Regulation D under the Securities Act.
"Officer" means, with respect to the Company, (i) the Chairman of the
Board, the Vice Chairman of the Board, the President, the Chief Executive
Officer, the Chief Operating Officer, the Chief Financial Officer and (ii) the
Treasurer or any Assistant Treasurer, the Secretary or any Assistant Secretary
of the Company.
"Officers' Certificate" means a certificate signed by one Officer
listed in clause (i) of the definition thereof and one Officer listed in clause
(ii) of the definition thereof; provided, however, that any such certificate may
be signed by any two of the Officers listed in clause (i) of the definition
thereof in lieu of being signed by one Officer listed in clause (i) of the
definition thereof and one Officer listed in clause (ii) of the definition
thereof.
"Opinion of Counsel" means a written opinion signed by legal counsel,
who may be an employee of or counsel to the Company or an applicable Holder.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization or other entity
or any government or any agency or political subdivision thereof.
"Principal Holders" means each of the following two groups (i) Nassau
Capital Partners L.P and its general and limited partners and any Affiliates of
the foregoing and (ii) Harold N. Kamine and his parents, siblings, spouse,
descendants, heirs and devisees, and any trust or Person the sole beneficiaries
or equity holders of which are the foregoing Persons.
"Private Placement Legend" means the legend set forth on the Warrant
Certificates in the form set forth in Section 2.2 hereof.
"Purchase Agreement" has the meaning specified in the recitals to this
Agreement.
"Purchaser" has the meaning specified in the recitals to this
Agreement.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Right" has the meaning specified in Section 4.1(c) hereof.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the United States Securities Act of 1933, as
amended.
4
<PAGE>
"Separation Date" has the meaning specified in the recitals to this
Agreement.
"Series E Preferred Stock" has the meaning specified in the recitals
to this Agreement.
"Series E Unit" has the meaning specified in the recitals to this
Agreement.
"Series F Preferred Stock" has the meaning specified in the recitals
to this Agreement.
"Spread" means, with respect to any Warrant, the last reported trade
price of the Common Shares issuable upon exercise of such Warrant at the close
of business on any Business Day on the principal exchange or quotation system on
which the Company's Common Shares are listed, less the Exercise Price of such
Warrant, as adjusted as provided herein.
"Springing Warrants means the warrants which may be issued pursuant to
Section 2.4 of the Existing Warrant Agreement.
"Subscription Form" means the form on the reverse side of the Warrant
Certificate substantially in the form included in Exhibit A hereto.
"Tag-Along Notice" shall have the meaning ascribed to such term in
Section 8.5.
"Tag-Along Purchaser" shall have the meaning ascribed to such term in
Section 8.5.
"Tag-Along Shares" shall have the meaning ascribed to such term in
Section 8.5.
"Third Party Purchaser" shall have the meaning ascribed to such term
in Section 8.6.
"Transfer Agent" means Chase Mellon Shareholder Services, L.L.C., the
transfer agent for the Series E Preferred Stock, and its successors and assigns,
or as appointed by the Company which in no event shall be the Company or an
Affiliate of the Company.
"Underlying Securities" shall mean the Common Shares (or other
securities) issuable upon exercise of the Warrants.
"Value Report" has the meaning specified in Section 4.1(k) hereof.
"Warrants" has the meaning specified in the recitals to this
Agreement, including the Springing Warrants.
"Warrant Agent" has the meaning specified in the preamble to this
Agreement.
5
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"Warrant Certificates" has the meaning specified in Section 2.1
hereof.
"Warrant Registration Rights Agreement" means the Warrant Registration
Rights Agreement, of even date herewith, between the Company and the Purchaser.
"Warrant Registration Statement" means a shelf registration statement
on the appropriate form which will be filed by the Company pursuant to the
Warrant Registration Rights Agreement.
ARTICLE II
ORIGINAL ISSUE OF WARRANTS
SECTION 2.1. FORM OF WARRANT CERTIFICATES. Certificates representing
the Warrants (the "WARRANT CERTIFICATES") shall be substantially in the form
attached hereto as Exhibit A, shall be dated the date on which such Warrant
Certificates are countersigned by the Warrant Agent and shall have such
insertions as are appropriate or required or permitted by this Agreement and may
have such letters, numbers or other marks of identification and such legends and
endorsements stamped, printed, lithographed or engraved thereon as the Company
may deem appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any law or with any rule or
regulation pursuant thereto or with any rule or regulation of any securities
exchange on which the Warrants may be listed, or to conform to usage.
Warrants shall be issued initially in registered form substantially in
the form set forth in Exhibit A.
The definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Warrants may be listed, all as determined by the officers
executing such Warrant Certificates, as evidenced by their execution of such
Warrant Certificates.
SECTION 2.2. RESTRICTIVE LEGENDS. The Warrant Certificates shall bear
the following legend on the face thereof:
THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
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BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR
(7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED
INVESTOR"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN
RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE
SECURITIES ACT, IF APPLICABLE) RESELL OR OTHERWISE TRANSFER THE WARRANTS
REPRESENTED BY THIS CERTIFICATE EXCEPT (A) TO KMC TELECOM HOLDINGS, INC. (THE
"COMPANY") OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE WARRANT AGENT
A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTIONS ON TRANSFER OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
(THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE WARRANT AGENT), AND, AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE WARRANTS REPRESENTED BY
THIS CERTIFICATE ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH
TRANSFER AND SUBMIT THIS CERTIFICATE TO THE WARRANT AGENT. IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO EACH OF THE WARRANT AGENT AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE WARRANT AGREEMENT CONTAINS A PROVISION
REQUIRING THE WARRANT AGENT TO REFUSE TO REGISTER ANY TRANSFER OF THE WARRANTS
REPRESENTED BY THIS CERTIFICATE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
SECTION 2.3. EXECUTION AND DELIVERY OF WARRANT CERTIFICATES. (a)
Warrant Certificates evidencing Warrants to be issued under the Agreement, each
Warrant to purchase initially 0.471756 Common Shares, may be executed, on or
after the date of this Agreement, by the Company and delivered to the Warrant
Agent for countersignature, and the Warrant Agent shall thereupon countersign
and deliver such Warrant Certificates upon the order and at the written
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direction of the Company signed by its Chairman of the Board, Vice Chairman of
the Board, President, Chief Operating Officer, Chief Financial Officer or Chief
Executive Officer to the purchasers thereof on the date of issuance. The Warrant
Agent is hereby authorized to countersign and deliver Warrant Certificates as
required by this Section 2.3, Section 3.3, Article VI or Article VIII hereof or
Section 2.4 of the Existing Warrant Agreement.
The Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, Vice Chairman of the Board, President, Chief
Operating Officer, Chief Financial Officer or Chief Executive Officer either
manually or by facsimile signature printed thereon. The Warrant Certificates
shall be countersigned by manual signature of the Warrant Agent and shall not be
valid for any purpose unless so countersigned. In case any officer or director
of the Company whose signature shall have been placed upon any of the Warrant
Certificates shall cease to be such officer or director of the Company before
countersignature by the Warrant Agent and the issuance and delivery thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant Agent
and issued and delivered with the same force and effect as though such person
had not ceased to be such officer or director of the Company.
(b) On the Closing Date, 94,513 Warrants shall be issued by the
Company and registered in the name of the Purchaser in connection with the
issuance and sale to the Purchaser of the Series E Unit.
SECTION 2.4. SPRINGING WARRANTS. In addition to the Warrants issued
to the Purchaser pursuant to the Purchase Agreement and this Agreement, the
Purchaser may also be issued Springing Warrants under Section 2.4 of the Exising
Warrant Agreement unless certain conditions described therein are satisfied. Any
Springing Warrants that are issued to the Purchaser shall be "Warrants" for
purposes of this Agreement and shall be subject to the terms and conditions of
this Agreement and, upon any such issuance, shall no thereafter be subject to
the terms and conditions of the Existing Warrant Agreement.
ARTICLE III
EXERCISE PRICE AND EXERCISE OF WARRANTS
SECTION 3.1. EXERCISE PRICE. Each Warrant Certificate shall, when
countersigned by the Warrant Agent, initially entitle the Holder thereof,
subject to the provisions of this Agreement, to purchase the number of Common
Shares indicated thereon at a purchase price (the "EXERCISE PRICE") of $.01 per
Common Share, subject to adjustment as provided in Section 4.1 and Article V
hereof.
SECTION 3.2. EXERCISE; RESTRICTIONS ON EXERCISE. At any time after
February 4, 2000, and on or before the Expiration Date, any outstanding Warrants
may be exercised on any Business Day by the Holders thereof; provided, that the
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Warrant Registration Statement is, at the time of exercise, effective and
available for the exercise of the Warrants or the exercise of such Warrants is
exempt from the registration requirements of the Securities Act; further
provided, that notwithstanding anything to the contrary in this Agreement,
neither any Holder nor any of its permitted transferees (each, a "Regulated
Holder") shall be entitled to exercise any Warrants, unless in the reasonable
judgment of such Regulated Holder, such exercise would not violate the Bank
Holding Company Act of 1956, as amended, and the regulations promulgated
thereunder. Any Warrants not exercised by 5:00 p.m., New York City time, on the
Expiration Date shall expire and all rights of the Holders of such Warrants
shall terminate. Additionally, pursuant to Section 4.1(j)(ii) hereof and subject
to the conditions set forth therein, the Warrants shall expire and all rights of
the Holders of such Warrants shall terminate in the event the Company merges or
consolidates with or sells all or substantially all of its property and assets
to a Person (other than an Affiliate of the Company) if the consideration
payable to holders of Common Stock in exchange for their Common Stock in
connection with such merger, consolidation or sale consists solely of cash or in
the event of the dissolution, liquidation or winding up of the Company.
SECTION 3.3. METHOD OF EXERCISE; PAYMENT OF EXERCISE PRICE. In order
to exercise all or any of the Warrants represented by a Warrant Certificate, the
Holder thereof must surrender for exercise the Warrant Certificate to the
Warrant Agent at its corporate trust office address set forth in Section 11.5
hereof, with the Subscription Form set forth on the reverse of the Warrant
Certificate duly executed, together with payment in full of the Exercise Price
then in effect for each Common Share (or other securities) issuable upon
exercise of the Warrants as to which a Warrant is exercised; such payment may be
made by wire transfer, in cash or by certified or official bank or bank
cashier's check payable to the order of the Company and shall be made to the
Warrant Agent at its corporate trust office address set forth in Section 11.5
hereof prior to the close of business on the date the Warrant Certificate is
surrendered to the Warrant Agent for exercise. Notwithstanding the foregoing, if
the Common Shares (or other securities) issuable upon exercise of the Warrants
are registered under the Exchange Act, the Exercise Price may be paid by
surrendering additional Warrants to the Warrant Agent having an aggregate Spread
equal to the aggregate Exercise Price of the Warrants being exercised. All
payments received upon exercise of Warrants shall be delivered to the Company by
the Warrant Agent as instructed in writing by the Company. If less than all the
Warrants represented by a Warrant Certificate are exercised or surrendered (in
connection with a cashless exercise), such Warrant Certificate shall be
surrendered and a new Warrant Certificate of the same tenor and for the number
of Warrants which were not exercised or surrendered shall be executed by the
Company and delivered to the Warrant Agent and the Warrant Agent shall
countersign the new Warrant Certificate, registered in such name or names as may
be directed in writing by the Holder, and shall deliver the new Warrant
Certificate to the Person or Persons entitled to receive the same. Upon the
exercise of any Warrants following the surrender of a Warrant Certificate in
conformity with the foregoing provisions, the Warrant Agent shall instruct the
Company to transfer promptly to the Holder or, upon the written order of the
Holder of such Warrant Certificate, appropriate evidence of ownership of any
Common Shares or other security or property to which it is entitled, registered
or otherwise placed in such name or names as may be directed in writing by the
Holder, and to deliver such evidence of ownership to the Person or Persons
entitled to receive the same and fractional shares, if any, or an amount in
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cash, in lieu of any fractional shares, as provided in Section 4.5 hereof;
provided that the Holder of such Warrant shall be responsible for the payment of
any transfer taxes required as the result of any change in ownership of such
Warrants or the issuance of such Common Shares other than to the Holder of such
Warrants and any such transfer shall comply with applicable law. Upon the
exercise of a Warrant or Warrants, the Warrant Agent is hereby authorized and
directed to requisition from any transfer agent of the Common Shares (and all
such transfer agents are hereby authorized to comply with all such requests)
certificates (bearing the legend set forth in Section 11.10 hereof, if
applicable, unless a registration statement relating to such Common Shares filed
with the Commission shall then be in effect or the Company and the Holder
exercising such Warrant or Warrants otherwise agree) for the necessary number of
Common Shares to which said Holder may be entitled. The Company shall enter, or
shall cause any transfer agent of the Common Shares to enter, the name of the
Person entitled to receive the Common Shares upon exercise of the Warrants into
the Company's register of shareholders within 14 days of such exercise. A
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of the surrender for exercise, as provided above, of the
Warrant Certificate representing such Warrant together with payment in full of
the Exercise Price (or surrender of sufficient Warrant Certificates in
connection with a cashless exercise) and, for all purposes under this Agreement,
the Person entitled to receive any Common Shares deliverable upon such exercise
shall, as between such Person and the Company, be deemed to be the Holder of
such Common Shares of record as of the close of business on such date and shall
be entitled to receive, and the Warrant Agent shall deliver to such Person, any
Common Shares to which such Person would have been entitled had such Person been
the registered holder on such date.
ARTICLE IV
ADJUSTMENTS
SECTION 4.1. ADJUSTMENTS. The Exercise Price and the number of Common
Shares issuable upon exercise of each Warrant shall be subject to adjustment
from time to time as follows:
(a) DIVISIONS; CONSOLIDATIONS; RECLASSIFICATIONS. In case the Company
shall, on or before the Expiration Date, (i) issue any Common Shares in payment
of a dividend or other distribution with respect to its Common Stock, (ii)
subdivide its issued and outstanding Common Shares, (iii) consolidate its issued
and outstanding Common Shares into a smaller number of shares, or (iv)
reclassify or convert the Common Shares (other than a reclassification in
connection with a merger, consolidation or other business combination which will
be governed by Section 4.1(j)), then the number of Common Shares purchasable
upon exercise of each Warrant immediately prior to the record date for such
issue or distribution or the effective date of such subdivision, consolidation,
reclassification or conversion shall be adjusted so that the Holder of each
Warrant shall thereafter be entitled to receive the kind and number of Common
Shares which such Holder would have been entitled to receive after the happening
of any of the events described above had such Warrant been exercised immediately
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prior to the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this Section 4.1(a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(b) RIGHTS; OPTIONS; WARRANTS. In case the Company shall issue rights,
options, warrants or convertible or exchangeable securities (other than
convertible or exchangeable securities subject to Section 4.1(a)) to all holders
of its Common Shares, entitling them to subscribe for or purchase Common Shares
at a price per share which is lower (at the record date for such issuance) than
the then Current Market Value per Common Share, then the Company shall ensure
that at the time of such issuance, the same or a like offer or invitation is
made to the Holders of the Warrants as if their Warrants had been exercised on
the day immediately preceding the record date of such offer or invitation on the
terms (subject to any adjustment pursuant to Section 4.1(a) for a prior event)
on which such Warrants could have been exercised on such date; provided that if
the Board so resolves, the Company shall not be required to ensure that the same
offer or invitation is made to the Holders of the Warrants, but the number of
Common Shares thereafter purchasable upon the exercise of each Warrant shall
instead be adjusted and shall be determined by multiplying the number of Common
Shares theretofore purchasable upon exercise of each Warrant by a fraction, the
numerator of which shall be the sum of (i) the number of Common Shares
outstanding immediately prior to the issuance of such rights, options, warrants
or convertible or exchangeable securities plus (ii) the number of additional
Common Shares which may be purchased or subscribed for upon exercise, exchange
or conversion of such rights, options, warrants or convertible or exchangeable
securities and the denominator of which shall be the sum of (x) the number of
Common Shares outstanding immediately prior to the issuance of such rights,
options, warrants or convertible or exchangeable securities plus (y) the number
of shares which the total consideration received by the Company for such rights,
options, warrants or convertible or exchangeable securities so offered would
purchase at the then Current Market Value per Common Share. Except as otherwise
provided above, such adjustment shall be made whenever such rights, options,
warrants or convertible or exchangeable securities are issued, and shall become
effective retroactively immediately after the record date for the determination
of shareholders entitled to receive such rights, options, warrants or
convertible or exchangeable securities.
(c) ISSUANCE OF COMMON SHARES AT LOWER VALUES. In case the Company
shall sell and issue any Common Share or Right (as defined below) (excluding (i)
any Right issued in any of the transactions described in Section 4.1(a) or (b)
above, (ii) Common Shares issued pursuant to (x) any Rights outstanding on the
date of this Agreement or any Rights issued in any transaction described in
Section 4.1(a) or (b) above and (y) a Right, if on the date such Right was
issued, the exercise, conversion or exchange price per Common Share with respect
thereto was at least equal to the then Current Market Value per Common Share,
(iii) any Common Shares or Rights issued (A) as consideration when any
corporation or business is acquired, merged into or becomes part of the Company
or a subsidiary of the Company or (B) in good faith in connection with any other
acquisition of assets, in each case in an arm's-length transaction between the
Company and a Person other than an Affiliate of the Company, (iv) grants or
exercises of Rights granted to or exercised by employees, directors, consultants
or advisors of the Company or any of its subsidiaries for issuances of shares of
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Common Stock to such Persons and (v) exercises of Rights by former employees,
former directors, former consultants or former advisors of the Company or any of
its subsidiaries for issuances of shares of Common Stock to such Persons) at a
price per Common Share (determined in the case of any such Right, by dividing
(x) the total consideration receivable by the Company in consideration of the
sale and issuance of such Right, plus the total consideration payable to the
Company upon exercise, conversion or exchange thereof, by (y) the total number
of Common Shares covered by such Right) that is lower than the Current Market
Value per Common Share in effect immediately prior to such sale or issuance,
then the number of Common Shares thereafter purchasable upon the exercise of
each Warrant shall be determined by multiplying the number of Common Shares
theretofore purchasable upon exercise of such Warrant by a fraction, the
numerator of which shall be the number of Common Shares outstanding immediately
after such sale or issuance and the denominator of which shall be the number of
Common Shares outstanding immediately prior to such sale or issuance plus the
number of Common Shares which the aggregate consideration received (determined
as provided below) for such sale or issuance would purchase at such Current
Market Value per Common Share. For purposes of this Section 4.1(c), the Common
Shares which the holder of any such Right shall be entitled to subscribe for or
purchase shall be deemed to be issued and outstanding as of the date of such
sale and issuance and the consideration received by the Company therefor shall
be deemed to be the consideration received by the Company for such Right, plus
the consideration or premiums stated in such Right to be paid for the Common
Shares covered thereby. In case the Company shall sell and issue any Right
together with one or more other securities as part of a unit at a price per
unit, then in determining the "price per Common Share" and the "consideration
received by the Company" for purposes of the first sentence of this Section
4.1(c), the Board shall determine, in good faith, the fair value of the Right
then being sold as part of such unit. For purposes of this paragraph, a "RIGHT"
shall mean any right, option, warrant or convertible or exchangeable security
containing the Right to subscribe for or acquire one or more Common Shares,
excluding the Warrants. This Section 4.1(c) shall not apply to: (i) the exercise
of Warrants, or the conversion or exchange of other securities convertible or
exchangeable for Common Shares; or (ii) Common Shares issued upon the exercise
of Rights or warrants issued to all holders of Common Shares.
(d) DISTRIBUTIONS OF DEBT, ASSETS, SUBSCRIPTION RIGHTS OR CONVERTIBLE
SECURITIES. In case the Company shall make a distribution to all holders of its
Common Shares of evidences of its indebtedness, or assets, or other
distributions (excluding distributions in connection with the dissolution,
liquidation or winding-up of the Company which shall be governed by Section
4.1(j) and distributions of securities referred to in Section 4.1(a), Section
4.1(b) or Section 4.1(c)), then, in each case, the number of Common Shares
purchasable after such record date upon the exercise of each Warrant shall be
determined by multiplying the number of Common Shares purchasable upon the
exercise of such Warrant immediately prior to such record date by a fraction,
the numerator of which shall be the Current Market Value per Common Share
immediately prior to the record date for such distribution and the denominator
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of which shall be the Current Market Value per Common Share immediately prior to
the record date for such distribution less the then fair value (as determined in
good faith by the Board) of the evidences of indebtedness, or assets or other
distributions so distributed attributable to one Common Share. Such adjustment
shall be made whenever any such distribution is made, and shall become effective
on the date of distribution retroactive to the record date for the determination
of shareholders entitled to receive such distribution.
(e) EXPIRATION OF RIGHTS, OPTIONS AND CONVERSION PRIVILEGES. Upon the
expiration of any rights, options, warrants or conversion or exchange privileges
(including, without limitation, any Rights) that have previously resulted in an
adjustment hereunder, if any thereof shall not have been exercised, exchanged or
converted, the Exercise Price and the number of Common Shares issuable upon the
exercise of each Warrant shall, upon such expiration, be readjusted and shall
thereafter, upon any future exercise, be such as they would have been had they
been originally adjusted (or had the original adjustment not been required, as
the case may be) as if (i) the only Common Shares so issued were the Common
Shares, if any, actually issued or sold upon the exercise, exchange or
conversion of such rights, options, warrants or conversion or exchange rights
(including, without limitation, any Rights) and (ii) such Common Shares, if any,
were issued or sold for the consideration actually received by the Company upon
such exercise, exchange or conversion plus the consideration, if any, actually
received by the Company for issuance, sale or grant of all such rights, options,
warrants or conversion or exchange rights (including, without limitation, any
Rights) whether or not exercised.
(f) CURRENT MARKET VALUE. For the purposes of any computation under
this Article IV, the "CURRENT MARKET VALUE" per Common Share or of any other
security (herein collectively referred to as a "security") at any date herein
specified shall be:
(i) if the security is not registered under the Exchange Act, the
value of the security (1) most recently determined as of a date within the
six months preceding such date by an Independent Financial Expert selected
by the Board in accordance with the criteria for such valuation set out in
Section 4.1(k), or (2) if no such determination shall have been made within
such six-month period or if the Company so chooses, determined as of such a
date by an Independent Financial Expert selected by the Board in accordance
with the criteria for such valuation set out in Section 4.1(k), or
(ii) if the security is registered under the Exchange Act, the average
of the daily market prices of the security for the 20 consecutive trading
days immediately preceding such date or, if the security has been
registered under the Exchange Act for less than 20 consecutive trading days
before such date, then the average of the daily market prices for all of
the trading days before such date for which daily market prices are
available. The market price for each such trading day shall be: (A) in the
case of a security listed or admitted to trading on any national securities
exchange, the closing sales price, regular way, on such day, or if no sale
takes place on such day, the average of the closing bid and asked prices on
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such day on the principal national securities exchange on which such
security is listed or admitted, as determined by the Board, in good faith,
(B) in the case of a security not then listed or admitted to trading on any
national securities exchange, the last reported sale price on such day, or
if no sale takes place on such day, the average of the closing bid and
asked prices on such day, as reported by a reputable quotation source
designated by the Company, (C) in the case of a security not then listed or
admitted to trading on any national securities exchange and as to which no
such reported sale price or bid and asked prices are available, the average
of the reported high bid and low asked prices on such day, as reported by a
reputable quotation service, or a newspaper of general circulation in the
Borough of Manhattan, City and State of New York customarily published on
each Business Day, designated by the Company, or, if there shall be no bid
and asked prices on such day, the average of the high bid and low asked
prices, as so reported, on the most recent day (not more than 30 days prior
to the date in question) for which prices have been so reported and (D) if
there are no bid and asked prices reported during the 30 days prior to the
date in question, the Current Market Value of the security shall be
determined as if the security were not registered under the Exchange Act.
(g) CONSIDERATION RECEIVED. For purposes of any computation respecting
consideration received pursuant to this Section 4.1, the following shall apply:
(i) in the case of the issuance of Common Shares for cash, the
consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of Common Shares for a consideration
in whole or in part other than cash, the consideration other than cash
shall be deemed to be the fair market value thereof as determined in good
faith by the Board (irrespective of the accounting treatment thereof),
whose determination shall be conclusive and described in reasonable detail
in a board resolution which shall be provided as soon as practicable
thereafter to the Warrant Agent; and
(iii) in the case of the issuance of rights, options, warrants or
securities convertible into or exchangeable for Common Shares, (including,
without limitation, any Rights), the aggregate consideration received
therefor shall be deemed to be the consideration received by the Company
for the issuance of such rights, options, warrants or securities
convertible into or exchangeable for Common Shares, plus the additional
minimum consideration, if any, to be received by the Company upon the
exercise, conversion or exchange thereof (the consideration in each case to
be determined in the same manner as provided in clauses (i) and (ii) of
this Section 4.1(g)).
(h) DE MINIMIS ADJUSTMENTS. No adjustment in the number of Common
Shares purchasable hereunder shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the number of
Common Shares purchasable upon the exercise of each Warrant; provided, however,
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that any adjustments which by reason of this Section 4.1(h) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations shall be made to the nearest one-thousandth of a
share.
(i) ADJUSTMENT OF EXERCISE PRICE. Whenever the number of Common Shares
purchasable upon the exercise of each Warrant is adjusted, as herein provided,
the Exercise Price per Common Share payable upon exercise of such Warrant shall
be adjusted (calculated to the nearest $.01) so that it shall equal the price
determined by multiplying such Exercise Price immediately prior to such
adjustment by a fraction the numerator of which shall be the number of Common
Shares purchasable upon the exercise of each Warrant immediately prior to such
adjustment and the denominator of which shall be the number of Common Shares so
purchasable immediately thereafter. Following any adjustment to the Exercise
Price pursuant to this Article IV, the amount payable, when adjusted, together
with the amount paid in connection with the original issuance of the Warrants,
shall never be less than the par value per Common Share at the time of such
adjustment.
If after an adjustment, a Holder of a Warrant upon exercise of it may
receive shares of two or more classes in the capital of the Company, the Company
shall determine the allocation of the adjusted Exercise Price between such
classes of shares in a manner that the Board deems fair and equitable to the
Holders. After such allocation, the exercise privilege and the Exercise Price of
each class of shares shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Shares in this Article IV.
Such adjustment shall be made successively whenever any event listed
above shall occur.
(j) CONSOLIDATION, MERGER, ETC. (i) Subject to the provisions of
Subsection (ii) below of this Section 4.1(j), in case of the consolidation of
the Company with, or merger of the Company with or into, or of the sale of all
or substantially all of the properties and assets of the Company to, any Person,
and in connection therewith consideration is payable to holders of Common Shares
(or other securities or property purchasable upon exercise of Warrants) in
exchange therefor, the Warrants shall remain subject to the terms and conditions
set forth in this Agreement and each Warrant shall, after such consolidation,
merger or sale, entitle the Holder to receive upon exercise the number of shares
in the capital or other securities or property (including cash) of or from the
Person resulting from such consolidation or surviving such merger or to which
such sale shall be made or of the parent of such Person, as the case may be,
that would have been distributable or payable on account of the Common Shares if
such Holder's Warrants had been exercised immediately prior to such merger,
consolidation or sale (or, if applicable, the record date therefor); and in any
such case the provisions of this Agreement with respect to the rights and
interests thereafter of the Holders of Warrants shall be appropriately adjusted
by the Board in good faith so as to be applicable, as nearly as may reasonably
be, to any shares, other securities or any property thereafter deliverable on
the exercise of the Warrants.
(ii) Notwithstanding the foregoing, (x) if the Company merges or
consolidates with, or sells all or substantially all of its property and
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assets to, another Person (other than an Affiliate of the Company) and
consideration is payable to holders of Common Shares in exchange for their
Common Shares in connection with such merger, consolidation or sale which
consists solely of cash, or (y) in the event of the dissolution,
liquidation or winding up of the Company, then the Holders of Warrants
shall be entitled to receive distributions on the date of such event on an
equal basis with holders of Common Shares (or other securities issuable
upon exercise of the Warrants) as if the Warrants had been exercised
immediately prior to such event, less the Exercise Price. Upon receipt of
such payment, if any, the rights of a Holder shall terminate and cease and
such Holder's Warrants shall expire. In case of any such merger,
consolidation or sale of assets, the surviving or acquiring Person and, in
the event of any dissolution, liquidation or winding up of the Company, the
Company shall deposit promptly with the Warrant Agent the funds, if any,
necessary to pay the Holders of the Warrants. After receipt of such deposit
from such Person or the Company and after receipt of surrendered Warrant
Certificates, the Warrant Agent shall make payment by delivering a check in
such amount as is appropriate (or, in the case of consideration other than
cash, such other consideration as is appropriate) to such Person or Persons
as it may be directed in writing by the Holder surrendering such Warrants.
(k) If required pursuant to Section 4.1(f)(i), the Current Market
Value shall be deemed to be equal to the value set forth in the Value Report (as
defined below) as determined by an Independent Financial Expert, which shall be
selected by the Board in its sole discretion, and retained on customary terms
and conditions, using one or more valuation methods that the Independent
Financial Expert, in its best professional judgment, determines to be most
appropriate. The Company shall use its reasonable best efforts to cause the
Independent Financial Expert to deliver to the Company, with a copy to the
Warrant Agent, within 45 days of the appointment of the Independent Financial
Expert, a value report (the "VALUE REPORT") stating the value of the Common
Shares and other securities or property of the Company, if any, being valued as
of the Valuation Date and containing a brief statement as to the nature and
scope of the examination or investigation upon which the determination of value
was made. The Warrant Agent shall have no duty with respect to the Value Report
of any Independent Financial Expert, except to keep it on file and available for
inspection by the Holders. The determination as to Current Market Value in
accordance with the provisions of this Section 4.1(k) shall be conclusive on all
Persons. The Independent Financial Expert shall consult with management of the
Company in order to allow management to comment on the proposed value prior to
delivery to the Company of any Value Report.
(l) WHEN NO ADJUSTMENT REQUIRED. Without limiting any other exception
contained in this Section 4.1, and in addition thereto, no adjustment need be
made for:
(i) (A) grants to, exercises of Rights by, or issuances of equity
securities to employees, directors, consultants or advisors of
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the Company or any of its subsidiaries and (B) exercises of
Rights by, or issuances of equity securities in connection with
Rights previously issued to former employees, former directors,
former consultants or former advisors of KMC Telecom, Inc. (to
the extent that all such securities do not have an aggregate
value in excess of 15% of the equity value of the Company on a
fully diluted basis, as determined in good faith by the Board);
(ii) grants of options, warrants or other agreements or rights to
purchase capital stock of the Company entered into prior to the
date of the issuance of the Warrants or any issuance of capital
stock pursuant thereto or in connection therewith;
(iii)rights to purchase Common Shares pursuant to a Company plan for
the reinvestment of dividends or interest;
(iv) future options, warrants or other rights with an exercise or
conversion price at least equal to the fair market value of the
related shares on the date of grant, as determined in good faith
by the Company's Board of Directors;
(v) a change in the par value of the Common Shares (including a
change from par value to no par value or vice versa);
(vi) bona fide public offerings or private placements through
investment banks of national standing; and
(vii) the issuance of Springing Warrants.
To the extent the Warrants become convertible into cash, no adjustment
need be made thereafter as to the cash. Interest will not accrue on the cash.
SECTION 4.2. NOTICE OF ADJUSTMENT. Whenever the number of Common
Shares purchasable upon the exercise of each Warrant or the Exercise Price is
adjusted, as herein provided, the Company shall cause, so far as it is able, the
Warrant Agent promptly to mail, at the expense of the Company, to each Holder
notice of such adjustment or adjustments and shall deliver to the Warrant Agent
a certificate of the Auditors setting forth the number of Common Shares
purchasable upon the exercise of each Warrant and the Exercise Price after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.
Such certificate shall be conclusive evidence of the correctness of such
adjustment except in the case of manifest error. The Warrant Agent shall be
entitled to rely on such certificate and shall be under no duty or
responsibility with respect to any such certificate, except to exhibit the same,
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from time to time, to any Holder desiring an inspection thereof during
reasonable business hours upon reasonable notice. The Warrant Agent shall not at
any time be under any duty or responsibility to any Holders to determine whether
any facts exist which may require any adjustment of the Exercise Price or the
number of Common Shares purchasable on exercise of the Warrants or any of the
other adjustments set forth in Section 4.1, or with respect to the nature or
extent of any such adjustment when made, or with respect to the method employed
in making such adjustment, or the validity or value (or the kind or amount) of
any Common Shares which may be purchasable on exercise of the Warrants. The
Warrant Agent shall not be responsible for any failure of the Company to make
any cash payment or to issue, transfer or deliver any Common Shares or share
certificates upon the exercise of any Warrant.
SECTION 4.3. STATEMENT ON WARRANTS. Irrespective of any adjustment in
the Exercise Price or the number or kind of shares purchasable upon the exercise
of the Warrants, Warrants theretofore or thereafter issued may continue to
express the same price and number and kind of shares as are stated in the
Warrants initially issuable pursuant to this Agreement.
SECTION 4.4. NOTICE OF CONSOLIDATION, MERGER, ETC. In case at any time
after the date hereof and prior to 5:00 p.m. (New York City time) on the
Expiration Date, there shall be any (i) consolidation or merger involving the
Company or sale, transfer or other disposition of all or substantially all of
the Company's property, assets or business (except (A) a merger or other
reorganization in which the Company shall be the surviving corporation and
holders of Common Shares receive no consideration in respect of their shares and
(B) a merger of the Company into a wholly owned subsidiary of the Company, the
principal purpose of which, in the good faith determination of the Board, is to
change the state of incorporation of the Company) or (ii) any other transaction
contemplated by Section 4.1(j)(ii) above then, in any one or more of such cases,
the Company shall cause to be mailed to the Warrant Agent and shall use its
reasonable best efforts to cause the Warrant Agent to mail, at Company's
expense, to each Holder of a Warrant, at the earliest practicable time (and, in
any event, not less than 20 days before any date set for definitive action),
notice of the date on which such reorganization, sale, consolidation, merger,
dissolution, liquidation or winding up shall take place, as the case may be.
Such notice shall also set forth such facts as shall indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Exercise Price and the kind and amount of the Common Shares and other
securities, money and other property deliverable upon exercise of the Warrants.
Such notice shall also specify the date as of which the holders of record of the
Common Shares or other securities or property issuable upon exercise of the
Warrants shall be entitled to exchange their shares for securities, money or
other property deliverable upon such reorganization, sale, consolidation,
merger, dissolution, liquidation or winding up, as the case may be.
SECTION 4.5. FRACTIONAL INTERESTS. If more than one Warrant shall be
presented for exercise in full at the same time by the same Holder, the number
of full Common Shares which shall be issuable upon such exercise thereof shall
be computed on the basis of the aggregate number of Common Shares purchasable on
exercise of the Warrants so presented. The Company shall not be required to
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issue fractional Common Shares upon the exercise of Warrants. If any fraction of
a Common Share would, except for the provisions of this Section 4.5, be issuable
on the exercise of any Warrant (or specified portion thereof), the Company may
pay an amount in cash calculated by it to be equal to the then Current Market
Value per Common Share multiplied by such fraction computed to the nearest whole
cent.
SECTION 4.6. WHEN ISSUANCE OR PAYMENT MAY BE DEFERRED. In any case in
which this Article IV shall require that an adjustment in the Exercise Price be
made effective as of a record date for a specified event, the Company may elect
to defer until the occurrence of such event (i) issuing to the Holder of any
Warrant exercised after such record date the Common Shares and other shares in
the capital of the Company, if any, issuable upon such exercise over and above
the Common Shares and other shares in the capital of the Company, if any,
issuable upon such exercise and (ii) paying such Holder any amount in cash in
lieu of a fractional share; provided, however, that the Company shall deliver to
such Holder a due bill or other appropriate instrument evidencing such Holder's
right to receive such additional Common Shares, other shares and cash upon the
occurrence of the event requiring such adjustment.
SECTION 4.7. INITIAL PUBLIC OFFERING. Notwithstanding anything to the
contrary herein contained, if the Company conducts an initial public offering of
equity securities (other than nonconvertible preferred shares), the Company will
give the Holders the opportunity to convert (i) such Warrants into warrants to
purchase such equity securities (other than nonconvertible preferred shares) and
(ii) any Common Shares or other securities that have been previously received by
the Holders upon the exercise of Warrants into such equity securities (other
than nonconvertible preferred shares). Such conversion opportunity will be on
terms and conditions determined to be fair and reasonable by the Board.
Notwithstanding the exercise date described in Section 3.2, in the event that a
Holder holds Warrants that are not then exercisable under Section 3.2 and the
Holder of such Warrants would be entitled to piggy-back registration rights
pursuant to Section 2 of the Warrant Registration Rights Agreement if such
Warrants were exercisable, then such Warrants shall become exercisable, at the
election of the Holder, to the extent necessary to permit such Holder to utilize
all of such registration rights.
ARTICLE V
DECREASE IN EXERCISE PRICE
The Board, in its sole discretion, shall have the right at any time,
or from time to time, to decrease the Exercise Price of the Warrants and/or
increase the number of shares issuable upon the exercise of the Warrants.
ARTICLE VI
LOSS OR MUTILATION
Upon receipt by the Company and the Warrant Agent of evidence
satisfactory to them of the ownership and the loss, theft, destruction or
mutilation of any Warrant Certificate and of indemnity or bond satisfactory to
them and (in the case of mutilation) upon surrender and cancellation thereof,
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then, in the absence of notice to the Company or the Warrant Agent that the
Warrants represented thereby have been acquired by a bona fide purchaser, the
Company shall execute and the Warrant Agent shall countersign and deliver to the
registered Holder of the lost, stolen, destroyed or mutilated Warrant
Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of
the same tenor and for a like aggregate number of Warrants. Upon the issuance of
any new Warrant Certificate under this Article VI, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and other expenses (including the fees and
expenses of the Warrant Agent) in connection therewith. Every new Warrant
Certificate executed and delivered pursuant to this Article VI in lieu of any
lost, stolen or destroyed Warrant Certificate shall constitute a contractual
obligation of the Company whether or not the allegedly lost, stolen or destroyed
Warrant Certificates shall be at any time enforceable by anyone and shall be
entitled to the benefits of this Agreement equally and proportionately with any
and all other Warrant Certificates duly executed and delivered hereunder. The
provisions of this Article VI are exclusive and shall preclude (to the extent
lawful) all other rights or remedies with respect to the replacement of
mutilated, lost, stolen, or destroyed Warrant Certificates.
ARTICLE VII
RESERVATION AND AUTHORIZATION
OF COMMON SHARES
The Company shall at all times reserve and keep available such number
of its authorized but unissued Common Shares deliverable upon exercise of the
Warrants as will be sufficient to permit the exercise in full of all outstanding
Warrants and will cause appropriate evidence of ownership of such Common Shares
to be delivered to the Warrant Agent upon its request for delivery thereof upon
the exercise of Warrants. The Company covenants that all Common Shares of the
Company that may be issued upon the exercise of the Warrants will, upon
issuance, be duly authorized, validly issued, fully paid and not subject to any
calls for funds and free from pre-emptive rights and all taxes, liens, charges
and security interests with respect to the issue thereof.
ARTICLE VIII
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER; CERTAIN TRANSFER RIGHTS
SECTION 8.1. TRANSFER AND EXCHANGE. The Warrant Certificates shall be
issued in registered form only. The Warrant Agent shall keep at its office a
register for the registration of Warrant Certificates and transfers or exchanges
of Warrant Certificates as herein provided and other appropriate data as
determined by the Warrant Agent. The Company shall, upon reasonable notice to
the Warrant Agent, have access to such register during the Warrant Agent's
regular business hours. All Warrant Certificates issued upon any registration of
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transfer or exchange of Warrant Certificates shall be the valid obligations of
the Company, evidencing the same obligations, and entitled to the same benefits
under this Agreement, as the Warrant Certificates surrendered for such
registration of transfer or exchange.
The Warrants (other than any Springing Warrants) shall initially be
issued as part of the issuance of the Unit. Prior to the Separation Date, such
Warrants may not be transferred or exchanged separately from, but may be
transferred or exchanged only together with, the Series E Preferred Stock issued
as part of the Unit.
A Holder may transfer its Warrants only by written application to the
Warrant Agent stating the name of the proposed transferee and otherwise
complying with the terms of this Agreement. No such transfer shall be effected
until, and such transferee shall succeed to the rights of a Holder only upon,
final acceptance and registration of the transfer by the Warrant Agent in the
register. Prior to the registration of any transfer of Warrants by a Holder as
provided herein, the Company, the Warrant Agent, and any agent of the Company or
the Warrant Agent may treat the Person in whose name the Warrants are registered
as the owner thereof for all purposes and as the Person entitled to exercise the
rights represented thereby, any notice to the contrary notwithstanding. When
Warrant Certificates are presented to the Warrant Agent with a request to
register the transfer or to exchange them for an equal amount of Warrants of
other authorized denominations, the Warrant Agent shall register such transfer
or make such exchange as requested if its requirements for such transactions are
met. To permit registrations of transfers and exchanges, the Company shall
execute Warrant Certificates at the Warrant Agent's request. No service charge
shall be made for any registration of transfer or exchange of Warrants, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer of Warrants.
SECTION 8.2. Intentionally Omitted.
SECTION 8.3. SPECIAL TRANSFER PROVISIONS. The following provisions
shall apply:
(a) TRANSFERS TO QIBS. The following provisions shall apply with
respect to the registration of any proposed transfer of Warrants to a QIB: the
Warrant Agent shall only register the transfer if such transfer is being made by
a proposed transferor who has checked the box provided for on the form of
Warrant Certificate stating, or has otherwise advised the Company and the
Warrant Agent in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Warrant Certificate stating, or has otherwise
advised the Company and the Warrant Agent in writing, that it is purchasing the
Warrants for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a QIB within the
meaning of Rule 144A, and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information regarding
the Company as it has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon its foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
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(b) TRANSFERS TO ANY OTHER PERSON. The following provision shall apply
with respect to the registration of any proposed transfer of Warrants to any
Person not specified in paragraph (a) above (including any Institutional
Accredited Investor which is not a QIB).
(i) The Warrant Agent shall register any proposed transfer of Warrants
to any such Person only if (x) the transferor has delivered to the Warrant
Agent and the Company a certificate substantially in the form of Exhibit
B-1 hereto and, if required by paragraph (d) thereof, an Opinion of Counsel
to the effect set forth therein and (y) the proposed transferee has
delivered to the Warrant Agent and the Company a certificate substantially
in the form of Exhibit B-2 hereto.
(c) PRIVATE PLACEMENT LEGEND. Upon the registration of transfer,
exchange or replacement of Warrant Certificates not bearing the Private
Placement Legend, the Warrant Agent shall deliver Warrant Certificates that do
not bear the Private Placement Legend. Upon the registration of transfer,
exchange or replacement of Warrant Certificates bearing the Private Placement
Legend, the Warrant Agent shall deliver only Warrant Certificates that bear the
Private Placement Legend unless there is delivered to the Warrant Agent an
Opinion of Counsel reasonably satisfactory to the Company, its Counsel and the
Warrant Agent to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(d) GENERAL. (i) By its acceptance of any Warrants represented by a
Warrant Certificate bearing the Private Placement Legend, each Holder of such
Warrants acknowledges the restrictions on transfer of such Warrants set forth in
this Agreement and in the Private Placement Legend and agrees that it will
transfer such Warrants only as provided in this Agreement. The Warrant Agent
shall not register a transfer of any Warrants unless such transfer complies with
the restrictions on transfer of such Warrants set forth in this Agreement. In
connection with any transfer of Warrants, each Holder agrees by its acceptance
of Warrants to furnish the Warrant Agent or the Company such certifications,
legal opinions or other information as either of them may reasonably require to
confirm that such transfer is being made pursuant to an exemption from, or a
transaction not subject to, the registration requirements of the Securities Act
or any applicable laws of any state or foreign jurisdiction; provided that the
Warrant Agent shall not be required to determine (but may rely on a
determination made by the Company with respect to) the sufficiency of any such
certifications, legal opinions or other information.
(ii) The Warrant Agent shall retain, in accordance with its customary
procedure, copies of all letters, notices and other written communications
received pursuant to Section 8.2 hereof or this Section 8.3. The Company shall
have the right to inspect and make copies of all such letters, notices or other
written communications at any reasonable time upon the giving of reasonable
written notice to the Warrant Agent.
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SECTION 8.4. SURRENDER OF WARRANT CERTIFICATES. Any Warrant
Certificate surrendered for registration of transfer, exchange or exercise of
the Warrants represented thereby shall, if surrendered to the Company, be
delivered to the Warrant Agent, and all Warrant Certificates surrendered or so
delivered to the Warrant Agent shall be promptly cancelled by the Warrant Agent
and shall not be reissued by the Company and, except as provided in this Article
VIII in case of an exchange, Article III hereof in case of the exercise of less
than all the Warrants represented thereby or Article VI in case of a mutilated
Warrant Certificate, no Warrant Certificate shall be issued hereunder in lieu
thereof. The Warrant Agent shall deliver to the Company from time to time or
otherwise dispose of such cancelled Warrant Certificates as the Company may
direct in writing.
SECTION 8.5. TAG-ALONG RIGHT. (a) If any Principal Holder intends to
transfer to any Person (other than another Person that is included within the
defined group of such Principal Holder, provided that such transferee agrees in
writing to be bound by the terms of this Section 8.5 and new stock certificates
containing a restrictive legend referring to the transfer restrictions of this
Section 8.5 are issued to such transferee) (the "TAG-ALONG PURCHASER"), in one
transaction or a series of related transactions (excluding securities offerings
registered under the Securities Act), shares of Capital Stock constituting, in
the aggregate, more than 20% of the total number of shares of Common Stock on a
Fully Diluted Basis owned by such Principal Holder as of the date of this
Agreement, then such Principal Holder shall permit the Purchaser, at the
Purchaser's option, to transfer, for the same consideration, and on the same
terms and conditions, if any, upon which the Principal Holder intends to
transfer such shares, a number of shares of Common Stock (including shares
subject to then exercisable Warrants and Warrants that will become exercisable
as a result of such transaction or series of transactions) then owned by the
Purchaser determined in accordance with this Section 8.5(a) (the "TAG-ALONG
SHARES"). The Purchaser shall have the right, pursuant to this Section 8.5(a),
to sell pursuant to the offer by the Tag-Along Purchaser, a percentage of the
shares of Common Stock (including shares subject to then exercisable Warrants)
held by the Purchaser equal to the Applicable Percentage.
(b) For purposes hereof, the "APPLICABLE PERCENTAGE" shall be
determined as follows:
(i) if such transaction or series of related transactions constitutes
the first instance in which the rights under Section 8.5(a) apply, the
Applicable Percentage shall be equal to the percentage of the holdings of
Capital Stock (on a Fully Diluted Basis) then owned by the applicable Principal
Holder being transferred in such transaction or series of related transactions
by such Principal Holder (the "APPLICABLE HOLDER" for such transaction(s));
(ii) if such transaction or series of related transactions does not
constitute the first instance in which the rights under Section 8.5(a) apply,
the Applicable Percentage shall be equal to the percentage of the holdings of
Capital Stock (on a Fully Diluted Basis) then owned by the Applicable Holder
being transferred in such transaction or series of related transactions by the
Applicable Holder; provided that the Applicable Percentage shall be zero if the
percentage of the holdings of Capital Stock (on a Fully Diluted Basis) then
owned by the Applicable Holder being transferred in such transaction or series
of related transactions by the Applicable Holder is not greater than five
percent.
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(c) Not less than 15 Business Days prior to any proposed transfer
pursuant to this Section 8.5, the Principal Holders shall deliver to the
Purchaser written notice thereof (the "TAG-ALONG NOTICE"), which notice shall
set forth the consideration to be paid by the Tag-Along Purchaser and the other
terms and conditions, if any, of such transaction. If the Purchaser elects to
transfer some or all of the Tag-Along Shares pursuant to this Section 8.5, then
(i) the Purchaser shall so notify the Principal Holders within 10 Business Days
after the date of the Purchaser's receipt of Tag-Along Notice, and, (ii) at the
Principal Holders' request not less than two Business Days prior to the proposed
transfer, the Purchaser shall deliver to counsel to the Principal Holders, to be
held in escrow, certificates representing such Tag-Along Shares (and/or other
appropriate documentation to permit the exercise of Warrants), duly endorsed or
with duly completed and executed stock powers attached, in proper form for
transfer, together with a limited power-of-attorney authorizing the Principal
Holders to transfer the Tag-Along Shares to the Tag-Along Purchaser (in
accordance with the terms and conditions set forth in the Tag-Along Notice) and
to execute all other documents required to be executed in connection with such
transaction.
(d) If, within 30 Business Days after the Purchaser notifies the
Principal Holder of the Purchaser's election to transfer some or all of its
Tag-Along Shares, no transfer of shares held by the Principal Holders and
Tag-Along Shares in accordance with the provisions of this Section 8.5 shall
have been completed, then the Purchaser shall have the right at any time
thereafter to revoke its prior election relating to the Tag--Along Shares. Upon
any such revocation, or earlier if the Principal Holder shall determine not to
proceed with such transfer, then the Principal Holder's counsel shall promptly
return to the Purchaser, in proper form, all certificates representing the
Tag-Along Shares and the limited power-of-attorney previously delivered by the
Purchaser to the Principal Holders. If, within 30 Business Days after the
Purchaser notifies the Principal Holder of the Purchaser's decision not to
transfer any Tag--Along Shares (or, if no such notice is given, the expiration
of the 10 Business Day period for notice of an election to transfer Tag--Along
Shares), no transfer of shares held by the Principal Holders shall have been
completed in accordance with the Tag--Along Notice, then the Principal Holders
must comply again with all of the provisions of this Section 8.5, including
without limitation a new Tag--Along Notice and another opportunity for the
Purchaser to elect to transfer Tag--Along Shares.
(e) Concurrently with the consummation of the transfer of the
Tag-Along Shares pursuant to this Section 8.5, the Principal Holders shall remit
or cause to be remitted to the Purchaser the consideration with respect to the
Tag-Along Shares so transferred and shall furnish such other evidence of the
completion of such transfer and the terms and conditions (if any) thereof as may
reasonably be requested by the Purchaser.
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(f) The provisions of this Section 8.5 shall remain in effect,
notwithstanding any return to the Purchaser of Tag-Along Shares as provided
herein.
(g) Notwithstanding the exercise date described in Section 3.2, in the
event that the Purchaser holds Warrants that are not then exercisable under
Section 3.2 and the Purchaser would be entitled to tag-along rights pursuant to
this Section 8.5 if such Warrants were exercisable, then such Warrants shall
become exercisable, at the election of the Purchaser, to the extent necessary to
permit the Purchaser to utilize all of such tag-along rights. Alternatively, the
Purchaser shall be entitled to transfer to the Tag-Along Purchaser such portion
of its Warrants representing the number of Tag-Along Shares which would be
transferred to the Tag-Along Purchaser if such Warrants were exercisable, in
exchange for the consideration which would be payable with respect to such
Tag-Along Shares, less the Exercise Price for such Warrants.
SECTION 8.6. BRING ALONG RIGHT. If the Company or one or more of the
Existing Stockholders receives a bona fide offer from a person or persons not
then an Affiliate or Affiliates of the Company or such Existing Stockholders (a
"Third Party Purchaser") to purchase Capital Stock representing more than 50% of
the total number of shares of Common Stock then outstanding on a Fully Diluted
Basis, then the Company shall have the right to deliver a written notice (a
"Buyout Notice") to the Purchaser which shall state (i) that the Company or such
Existing Stockholders propose to effect such transaction, (ii) the proposed
purchase price per share of Capital Stock to be paid by the Third Party
Purchaser, and (iii) the name or names of the Third Party Purchaser, and which
attaches a copy of all writings between the Company or such Existing
Stockholders and the other parties to such transaction necessary to establish
the terms of such transaction. The Purchaser agrees that, upon receipt of a
Buyout Notice, the Purchaser shall be obligated to sell a percentage of its
shares of Common Stock equal to the Bring Along Percentage (as defined below)
upon the terms and conditions of such transaction (and otherwise take all
necessary action to cause consummation of the proposed transaction); provided,
however, that the Purchaser shall only be obligated as provided above in this
Section 8.6 if (i) more than 50% of the total number of shares of Common Stock
then outstanding on a Fully Diluted Basis actually is sold to the Third Party
Purchaser pursuant to the terms contained in the Buyout Notice, (ii) the
Purchaser receives the same per share (or per share equivalent) consideration as
the Company or such Existing Stockholders receive in the transaction and (iii)
the consideration received by the Purchaser is in the form of cash or a
combination of cash and securities that will become freely tradable in the
public securities markets within 180 days of receipt of such consideration by
the Purchaser. The Bring Along Percentage shall be the percentage of the total
number of shares of Common Stock outstanding an a Fully Diluted Basis that is
actually sold to the Third Party Purchaser pursuant to the terms contained in
the Buyout Notice; provided that if, after giving effect to such sale, the
Existing Stockholders would own not more than twenty percent of the
fully-diluted common equity interests in the Company, the Bring Along Percentage
shall be one hundred percent.
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ARTICLE IX
WARRANT HOLDERS
SECTION 9.1. WARRANT HOLDER DEEMED NOT A SHAREHOLDER. The Company and
the Warrant Agent may deem and treat the registered Holder(s) of the Warrant
Certificates as the absolute owner(s) thereof (notwithstanding any notation of
ownership or other writing thereon made by anyone), for the purpose of any
exercise thereof and for all other purposes, and neither the Company nor the
Warrant Agent nor any agent thereof shall be affected by any notice to the
contrary. Accordingly, the Company and/or the Warrant Agent shall not, except as
ordered by a court of competent jurisdiction as required by law, be bound to
recognize any equitable or other claim to or interest in the Warrants on the
part of any Person other than such registered Holder, whether or not it shall
have express or other notice thereof. Prior to the valid exercise of the
Warrants, no Holder of a Warrant Certificate, as such, shall be entitled to any
rights of a shareholder of the Company, including, without limitation, the right
to vote or to consent to any action of the shareholders, to receive dividends or
other distributions, to exercise any preemptive right or to receive any notice
of meetings of shareholders and, except as otherwise provided in this Agreement,
shall not be entitled to receive any notice of any proceedings of the Company.
SECTION 9.2. RIGHT OF ACTION. All rights of action with respect to
this Agreement are vested in the Holders of the Warrants, and any Holder of any
Warrant, without the consent of the Warrant Agent or the Holders of any other
Warrant, may, on such Holder's own behalf and for such Holder's own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company suitable to enforce, or otherwise in respect of, such Holder's right
to exercise such Warrants in the manner provided in the Warrant Certificate
representing such Warrants and in this Agreement.
ARTICLE X
THE WARRANT AGENT
SECTION 10.1. DUTIES AND LIABILITIES. The Warrant Agent hereby accepts
the agency established by this Agreement and agrees to perform the same upon the
terms and conditions herein set forth, by all of which the Company and the
Holders of Warrants, by their acceptance thereof, shall be bound. The Warrant
Agent shall not, by countersigning Warrant Certificates or by any other act
hereunder, be deemed to make any representations as to the validity or
authorization of the Warrants or the Warrant Certificates (except as to its
countersignature thereon) or of any Common Shares issued upon exercise of any
Warrant, or as to the accuracy of the computation of the Exercise Price or the
number or kind or amount of Common Shares deliverable upon exercise of any
Warrant or the correctness of the representations of the Company made in the
certificates that the Warrant Agent receives. The Warrant Agent shall not be
accountable for the use or application by the Company of the proceeds of the
exercise of any Warrant. The Warrant Agent shall not have any duty to calculate
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or determine any adjustments with respect to either the Exercise Price or the
kind and amount of Common Shares receivable by Holders upon the exercise of
Warrants required from time to time and the Warrant Agent shall have no duty or
responsibility in determining the accuracy or correctness of such calculation.
The Warrant Agent shall not be (a) liable for any recital or statement of fact
contained herein or in the Warrant Certificates or for any action taken,
suffered or omitted by it in good faith in the belief that any Warrant
Certificate or any other documents or any signatures are genuine or properly
authorized, (b) responsible for any failure on the part of the Company to comply
with any of its covenants and obligations contained in this Agreement or in the
Warrant Certificates or (c) liable for any act or omission in connection with
this Agreement except for its own gross negligence, bad faith or willful
misconduct. The Warrant Agent is hereby authorized to accept instructions with
respect to the performance of its duties hereunder from the Chairman of the
Board, the Vice Chairman of the Board, the President, Chief Executive Officer,
the Chief Operating Officer, the Chief Financial Officer, or any other executive
officer of the Company and to apply to any such officer for instructions (which
instructions will be promptly given in writing when requested) and the Warrant
Agent shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with the instructions of any such officer; provided,
however, that, in its discretion, the Warrant Agent may, in lieu thereof, accept
other evidence of such or may require such further or additional evidence as it
may deem reasonable. The Warrant Agent shall not be liable for any action taken
with respect to any matter in the event it requests instructions from the
Company as to that matter and does not receive such instructions within a
reasonable period of time after the request therefor.
The Warrant Agent may execute and exercise any of the rights and
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys, agents or employees, and the Warrant Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys, agents or employees; provided that reasonable care has been
exercised with respect to the retention of any such attorney, agent or employee.
The Warrant Agent shall not be under any obligation or duty to institute, appear
in or defend any action, suit or legal proceeding in respect hereof, unless
first indemnified to its reasonable satisfaction. The Warrant Agent shall
promptly notify the Company in writing of any claim made or action, suit or
proceeding instituted against it arising out of or in connection with this
Agreement.
The Company will perform, execute, acknowledge and deliver or cause to
be delivered all such further acts, instruments and assurances as are consistent
with this Agreement and as may reasonably be required by the Warrant Agent in
order to enable it to carry out or perform its duties under this Agreement.
The Warrant Agent shall act solely as agent of the Company hereunder.
The Warrant Agent shall not be liable except for the failure to perform such
duties as are specifically set forth herein, and no implied covenants or
obligations shall be read into this Agreement against the Warrant Agent, whose
duties and obligations shall be determined solely by the express provisions
hereof.
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SECTION 10.2. RIGHT TO CONSULT COUNSEL. The Warrant Agent may at any
time consult with legal counsel (who may be legal counsel for the Company), and
the written opinion or advice of such counsel shall be full and complete
authorization and protection to the Warrant Agent and the Warrant Agent shall
incur no liability or responsibility to the Company or to any Holder for any
action taken, suffered or omitted by it in good faith in accordance with the
opinion or advice of such counsel.
SECTION 10.3. COMPENSATION; INDEMNIFICATION. The Company agrees
promptly to pay the Warrant Agent from time to time and in any case within 30
days of receipt of an invoice, compensation for its services hereunder as the
Company and the Warrant Agent may agree from time to time, and to reimburse it
upon its request (which shall be accompanied by reasonable supporting
documentation) for reasonable fees or expenses and reasonable counsel fees and
expenses incurred in connection with the execution and administration of this
Agreement, and further agrees to indemnify the Warrant Agent and save it
harmless against any losses, liabilities or reasonable expenses arising out of
or in connection with the acceptance and administration of this Agreement,
including, without limitation, the reasonable costs and expenses of
investigating or defending any claim of such liability, except that the Company
shall have no liability hereunder to the extent that any such loss, liability or
expense results from the Warrant Agent's own gross negligence, bad faith or
willful misconduct. The obligations of the Company under this Section 10.3 shall
survive the exercise and the expiration of the Warrants, the termination of this
Agreement and the resignation or removal of the Warrant Agent in respect of
services or expenses incurred in connection with the Warrants or this Agreement.
SECTION 10.4. NO RESTRICTIONS ON ACTIONS. Nothing in this Agreement
shall be deemed to prevent the Warrant Agent and any shareholder, director,
officer or employee of the Warrant Agent from buying, selling or dealing in any
of the Warrants or other securities of the Company or becoming pecuniarily
interested in transactions in which the Company may be interested, or
contracting with or lending money to the Company or otherwise acting as fully
and freely as though it were not the Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
SECTION 10.5. DISCHARGE OR REMOVAL; REPLACEMENT WARRANT AGENT. The
Warrant Agent may resign from its position as such and be discharged from all
further duties and liabilities hereunder (except liability arising as a result
of the Warrant Agent's own gross negligence, bad faith or willful misconduct),
after giving one month's prior written notice to the Company. The Company may at
any time remove the Warrant Agent upon one month's written notice specifying the
date when such discharge shall take effect, and the Warrant Agent shall
thereupon in like manner be discharged from all further duties and liabilities
hereunder, except as aforesaid. The Warrant Agent shall mail to each Holder of a
Warrant, at the Company's expense, a copy of said notice of resignation or
notice of removal, as the case may be. Upon such resignation or removal the
Company shall appoint in writing a new warrant agent. If the Company shall fail
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to make such appointment within a period of 30 days after it has been notified
in writing of such resignation by the resigning Warrant Agent or after such
removal, then the resigning or removed Warrant Agent or the Holder of any
Warrant may apply to any court of competent jurisdiction for the appointment of
a new warrant agent. After 30 days from receipt of, or giving, notice, as the
case may be, and pending appointment of a successor to the original Warrant
Agent, either by the Company or by such a court, the duties of the Warrant Agent
shall be carried out by the Company. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company doing business
under the laws of the United States or any state thereof, in good standing and
having a combined capital and surplus of not less than $25,000,000. The combined
capital and surplus of any such new warrant agent shall be deemed to be the
combined capital and surplus as set forth in the most recent annual report of
its condition published by such warrant agent prior to its appointment, provided
that such reports are published at least annually pursuant to law or to the
requirements of a federal or state supervising or examining authority. After
acceptance in writing of such appointment by the new warrant agent, it shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; however, the original Warrant Agent shall in
all events deliver and transfer to the successor Warrant Agent all property
(including, without limitation, documents and recorded information), if any, at
the time held hereunder by the original Warrant Agent and if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning or
removed Warrant Agent. Not later than the effective date of any such
appointment, the Company shall file notice thereof with the resigning or removed
Warrant Agent and shall use its reasonable best efforts to forthwith cause a
copy of such notice to be mailed by the successor Warrant Agent to each Holder
of a Warrant. Failure to give any notice provided for in this Section 10.5,
however, or any defect therein, shall not affect the legality or validity of the
resignation of the Warrant Agent or the appointment of a new warrant agent, as
the case may be. No Warrant Agent hereunder shall be liable for any acts or
omissions of any successor Warrant Agent.
SECTION 10.6. SUCCESSOR WARRANT AGENT. Any corporation into which the
Warrant Agent or any new warrant agent may be merged or converted, or any
corporation resulting from any consolidation to which the Warrant Agent or any
new warrant agent shall be a party or any corporation succeeding to all or
substantially all the corporate agency business of the Warrant Agent, shall be a
successor Warrant Agent under this Agreement without any further act, provided
that such corporation would be eligible for appointment as successor to the
Warrant Agent under the provisions of Section 10.5 hereof. Any such successor
Warrant Agent shall promptly cause notice of its succession as Warrant Agent to
be mailed to each Holder of a Warrant.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1. MONIES DEPOSITED WITH THE WARRANT AGENT. The Warrant
Agent shall not be required to pay interest on any monies deposited pursuant to
the provisions of this Agreement except such as it shall agree in writing with
the Company to pay thereon. Any monies, securities or other property which at
any time shall be deposited by the Company or on its behalf with the Warrant
Agent pursuant to this Agreement shall be and are hereby assigned, transferred
and set over to the Warrant Agent in trust for the purpose for which such
monies, securities or other property shall have been deposited; but such monies,
securities or other property need not be segregated from other funds, securities
or other property except to the extent required by law. Any monies, securities
or other property deposited with the Warrant Agent for payment or distribution
to the Holders that remains unclaimed for one year after the date the monies,
securities or other property was deposited with the Warrant Agent shall be
delivered to the Company upon its request therefor.
SECTION 11.2. PAYMENT OF TAXES. Subject to Article VI hereof, all
Common Shares issuable upon the exercise of Warrants shall be validly issued,
fully paid and not subject to any calls for funds, and the Company shall pay any
taxes and other governmental charges that may be imposed under the laws of the
United States of America or any political subdivision or taxing authority
thereof or therein in respect of the issue or delivery thereof upon exercise of
Warrants (other than income taxes imposed on the Holders). The Company shall not
be required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any certificate for Common Shares
(including other securities or property issuable upon the exercise of the
Warrants) or payment of cash to any Person other than the Holder of a Warrant
Certificate surrendered upon the exercise of a Warrant and in case of such
transfer or payment, the Warrant Agent and the Company shall not be required to
issue any share certificate or pay any cash until such tax or charge has been
paid or it has been established to the Warrant Agent's and the Company's
satisfaction that no such tax or charge is due.
SECTION 11.3. NO MERGER, CONSOLIDATION OR SALE OF ASSETS OF THE
COMPANY. Except as otherwise provided herein, the Company will not merge into or
consolidate with any other Person, or sell or otherwise transfer its property,
assets and business substantially as an entirety to a successor of the Company,
unless the Person resulting from such merger or consolidation, or such successor
of the Company, shall expressly assume, by supplemental agreement satisfactory
in form to the Warrant agent and executed and delivered to the Warrant Agent,
the due and punctual performance and observance of each and every covenant and
condition of this Agreement or contained in the Warrants to be performed and
observed by the Company.
SECTION 11.4. REPORTS TO HOLDERS. Whether or not the Company is
required to file reports with the Commission, the Company shall file with the
Commission all reports and other information it would be required to file with
the Commission by Section 13(a) or 15(d) under the Exchange Act if it were
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subject thereto. The Company shall supply the Warrant Agent and each Holder or
shall supply to the Warrant Agent for forwarding to each such Holder, without
cost to such Holder, copies of such reports and other information. In addition,
at all times, upon the request of any Holder or any prospective purchaser of the
Warrants designated by a Holder, the Company shall supply to such Holder or such
prospective purchaser the information required under Rule 144A under the
Securities Act.
SECTION 11.5. NOTICES; PAYMENT. (a) Except as otherwise provided in
Section 11.5(b) hereof, any notice, demand or delivery authorized by this
Agreement shall be sufficiently given or made when mailed, if sent by first
class mail, postage prepaid, addressed to any Holder of a Warrant at such
Holder's last known address appearing on the register of the Company maintained
by the Warrant Agent and to the Company or the Warrant Agent as follows:
To the Company:
KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, NJ 07921
Attention: James D. Glenfell
Chief Financial Officer
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To the Purchaser:
First Union Investors, Inc.
1 First Union Center,
5th Floor
301 South College
Charlotte, NC 28288
Attn: L. Watts Hamrick, III
To the Warrant Agent:
The Chase Manhattan Bank
450 West 33rd St., 15th Floor
New York, NY 10001-2697
Attention: Capital Markets Fiduciary Services
or such other address as shall have been furnished to the party giving or making
such notice, demand or delivery. Any notice that is mailed in the manner herein
provided shall be conclusively presumed to have been duly given when mailed,
whether or not the Holder receives the notice.
(b) Payment of the Exercise Price should be made in accordance with
the provisions of this Agreement at the office of the Warrant Agent set forth
above.
(c) Any notice required to be given by the Company to the Holders
shall be made by mailing to the Holders at their last known addresses appearing
on the register maintained by the Warrant Agent. The Company hereby irrevocably
authorizes the Warrant Agent, in the name and at the expense of the Company, to
mail any such notice upon receipt thereof from the Company. Any notice that is
mailed in the manner herein provided shall be conclusively presumed to have been
duly given when mailed, whether or not the Holder receives the notice.
SECTION 11.6. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company and the Warrant Agent and their respective
successors and assigns, and the Holders from time to time of the Warrants.
Nothing in this Agreement is intended or shall be construed to confer upon any
Person, other than the Company, the Warrant Agent and the Holders of the
Warrants, any right, remedy or claim under or by reason of this Agreement or any
part hereof.
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SECTION 11.7. COUNTERPARTS. This Agreement may be executed manually or
by facsimile in any number of counterparts, each of which shall be deemed an
original, but all of which together constitute one and the same instrument.
SECTION 11.8. AMENDMENTS. The Warrant Agent may, without the consent
or concurrence of the Holders of the Warrants, by supplemental agreement or
otherwise, join with the Company in making any changes or corrections in this
Agreement that (a) are required to cure any ambiguity or to correct any
defective or inconsistent provision or clerical omission or mistake or manifest
error herein contained or (b) add to the covenants and agreements of the Company
in this Agreement further covenants and agreements of the Company thereafter to
be observed, or surrender any rights or power reserved to or conferred upon the
Company in this Agreement; provided that in either case such changes or
corrections do not and will not adversely affect, alter or change the rights,
privileges or immunities of the Holders of Warrants. Upon the Warrant Agent's
request, the Company shall promptly provide an Officer's Certificate and Opinion
of Counsel which provide that all conditions precedent to adoption of an
amendment have been satisfied.
SECTION 11.9. HEADINGS. The descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
SECTION 11.10. COMMON SHARES LEGEND. Unless and until the Common
Shares issuable upon the exercise of the Warrants are registered under the
Securities Act, or unless otherwise agreed by the Company and the Holder
thereof, such Common Shares will bear a legend to the following effect:
THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAWS, AND ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR"), (2) AGREES THAT
IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) (TAKING INTO
ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF
APPLICABLE), AS IN EFFECT WITH RESPECT TO SUCH TRANSFER, RESELL OR
OTHERWISE TRANSFER THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE EXCEPT
(A) TO KMC TELECOM HOLDINGS, INC. (THE "COMPANY") OR ANY SUBSIDIARY
THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
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144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRANSFER AGENT AND REGISTRAR
A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING
TO THE RESTRICTIONS ON TRANSFER OF THE COMMON SHARES REPRESENTED BY THIS
CERTIFICATE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRANSFER
AGENT AND REGISTRAR) AND AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE ARE
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THE COMMON SHARES REPRESENTED BY THIS
CERTIFICATE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK
THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER
OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRANSFER AGENT AND
REGISTRAR. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO EACH OF THE
TRANSFER AGENT AND REGISTRAR AND THE COMPANY SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR
IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THE WARRANT AGREEMENT CONTAINS A PROVISION REQUIRING THE
TRANSFER AGENT AND REGISTRAR TO REFUSE TO REGISTER ANY TRANSFER OF THE
SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE IN VIOLATION OF THE
FOREGOING RESTRICTIONS.
SECTION 11.11. THIRD PARTY BENEFICIARIES. The Holders shall be third
party beneficiaries to the agreements made hereunder between the Company, on the
one hand, and the Warrant Agent, on the other hand, and each Holder shall have
the right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights or the rights of
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Holders hereunder. By acquiring Warrants, each Holder agrees to be bound by the
obligations of Holders generally as set forth herein and as such obligations may
be applicable to such Holder.
SECTION 11.12. TERMINATION. Except as otherwise specified herein, this
Agreement shall terminate at 5:00 p.m. (New York City time) on the Expiration
Date. Notwithstanding the foregoing, this Agreement shall terminate on any
earlier date as of which all Warrants have been exercised.
SECTION 11.13. GOVERNING LAW. This Agreement shall be governed by the
laws of the State of New York.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the day and year first above written.
KMC TELECOM HOLDINGS, INC.
By: /s/ Michael A. Sternberg
--------------------------------------
Name: Michael A. Sternberg
Title: President
THE CHASE MANHATTAN BANK, as Warrant Agent
By: /s/ Patricia Kelly
--------------------------------------
Name: Patricia Kelly
Title: Vice President
FIRST UNION INVESTORS, INC.
By: /s/ Pearce Landry
--------------------------------------
Name: Pearce A. Landry
Title: Vice President
NASSAU CAPITAL PARTNERS L. P.
By: /s/ John G. Quigley
--------------------------------------
Name: John G. Quigley
Title: Member
/s/ Harold N. Kamine
-------------------------------------
HAROLD N. KAMINE
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EXHIBIT A
FORM OF WARRANT CERTIFICATE
KMC TELECOM HOLDINGS, INC.
CUSIP No. _____
No. _____
WARRANTS TO PURCHASE COMMON SHARES
This certifies that ______________, or its registered assigns, is the
owner of ___________ Warrants, each of which represents the right to purchase
from KMC TELECOM HOLDINGS, INC., a Delaware corporation (the "COMPANY"),
0.471756 shares of the Common Stock, par value $0.01 per share, of the Company
(the "COMMON SHARES") at an exercise price (the "EXERCISE PRICE") of $0.01 per
Common Share (subject to adjustment as provided in the Warrant Agreement
hereinafter referred to below), upon surrender hereof at the office of The Chase
Manhattan Bank, or to its successor, as the warrant agent under the Warrant
Agreement (any such warrant agent being herein called the "WARRANT AGENT"), with
the Subscription Form on the reverse hereof duly executed, with signature
guaranteed as therein specified and simultaneous payment in full by wire
transfer, in cash or by certified or official bank or bank cashier's check
payable to the order of the Company. Notwithstanding the foregoing, if the
Common Shares (or other securities) issuable upon exercise of the Warrants are
registered under the Exchange Act, the Exercise Price may be paid by
surrendering additional Warrants to the Warrant Agent having an aggregate Spread
equal to the aggregate Exercise Price of the Warrants being exercised. At any
time beginning one year after the Closing Date and on or before the Expiration
Date, any outstanding Warrants may be exercised on any Business Day; provided
that the Warrant Registration Statement is, at the time of exercise, effective
and available for the exercise of Warrants or the exercise of such Warrants is
exempt from the registration requirements of the Securities Act.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of April 30, 1999 (the "WARRANT AGREEMENT"), among
The Chase Manhattan Bank, as Warrant Agent, the Company and First Union
Investors, Inc., and a Warrant Registration Rights Agreement dated as of April
30, 1999 (the "WARRANT REGISTRATION RIGHTS AGREEMENT"), between the Company and
First Union Investors, Inc., and is subject to the Certificate of Incorporation
and Bylaws of the Company and to the terms and provisions contained therein, to
all of which terms and provisions the Holder of this Warrant Certificate
consents by acceptance hereof. The terms of the Warrant Agreement and the
Warrant Registration Rights Agreement are hereby incorporated herein by
reference and made a part hereof. Reference is hereby made to the Warrant
Agreement and the Warrant Registration Rights Agreement for a full description
of the rights, limitations of rights, obligations, duties and immunities
thereunder of the Company and the Holders of the Warrants. The summary of the
terms of the Warrant Agreement and the Warrant Registration Rights Agreement
contained in this Warrant Certificate is qualified in its entirety by express
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reference to the Warrant Agreement and the Warrant Registration Rights
Agreement. All terms used in this Warrant Certificate that are defined in the
Warrant Agreement and the Warrant Registration Rights Agreement shall have the
meanings assigned to them in such agreements.
Copies of the Warrant Agreement and the Warrant Registration Rights
Agreement are on file at the office of the Warrant Agent and may be obtained by
writing to the Warrant Agent at the following address:
The Chase Manhattan Bank
450 West 33rd St., 15th Floor
New York, NY 10001-2697
Attention: Capital Markets Fiduciary Services
If the Company merges or consolidates with or into, or sells all or
substantially all of its property and assets to, another Person and the
consideration received by holders of Common Shares consists solely of cash, the
Holders of Warrants shall be entitled to receive distributions on the date of
such event on an equal basis with holders of Common Shares (or other securities
issuable upon exercise of the Warrants) as if the Warrants had been exercised
immediately prior to such event (less the Exercise Price). Upon receipt of such
payment, if any, the rights of a Holder shall terminate and cease and such
Holder's Warrants shall expire.
The number of Common Shares purchasable upon the exercise of each
Warrant and the price per share are subject to adjustment as provided in the
Warrant Agreement. Except as stated in the immediately preceding paragraph, in
the event the Company merges or consolidates with, or sells all or substantially
all of its assets to, another Person, each Warrant will, upon exercise, entitle
the Holder thereof to receive the number of shares of capital stock or other
securities or the amount of money and other property which the holder of a
Common Share (or other securities or property issuable upon exercise of a
Warrant) is entitled to receive upon completion of such merger, consolidation or
sale.
As to any final fraction of a share which the same Holder of one or
more Warrant Certificates would otherwise be entitled to purchase upon exercise
thereof in the same transaction, the Company may pay the cash value thereof
determined as provided in the Warrant Agreement.
Subject to Article VI of the Warrant Agreement, all Common Shares
issuable by the Company upon the exercise of Warrants shall be validly issued,
fully paid and not subject to any calls for funds, and the Company shall pay any
taxes and other governmental charges that may be imposed under the laws of the
United States of America or any political subdivision or taxing authority
thereof or therein in respect of the issue or delivery thereof upon exercise of
Warrants (other than income taxes imposed on the Holders). The Company shall not
be required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any certificate for Common Shares
(including other securities or property issuable upon the exercise of the
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Warrants) or payment of cash to any Person other than the Holder of a Warrant
Certificate surrendered upon the exercise of a Warrant and in case of such
transfer or payment, the Warrant Agent and the Company shall not be required to
issue any share certificate or pay any cash until such tax or charge has been
paid or it has been established to the Warrant Agent's and the Company's
satisfaction that no such tax or charge is due.
Subject to the restrictions on and conditions to transfer set forth in
Articles II and VIII of the Warrant Agreement, this Warrant Certificate and all
rights hereunder are transferable by the registered Holder hereof, in whole or
in part, on the register of the Company maintained by the Warrant Agent for such
purpose at the Warrant Agent's office in New York, New York, upon surrender of
this Warrant Certificate duly endorsed, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Warrant Agent duly
executed, with signatures guaranteed as specified in the attached Form of
Assignment, by the registered Holder hereof or his attorney duly authorized in
writing and by such other documentation required pursuant to the Warrant
Agreement and upon payment of any necessary transfer tax or other governmental
charge imposed upon such transfer. Upon any partial transfer, the Company will
sign and issue and the Warrant Agent will countersign and deliver to such Holder
a new Warrant Certificate or Certificates with respect to any portion not so
transferred. Each taker and Holder of this Warrant Certificate, by taking and
holding the same, consents and agrees that prior to the registration of transfer
as provided in the Warrant Agreement, the Company and the Warrant Agent may
treat the Person in whose name the Warrants are registered as the absolute owner
hereof for any purpose and as the Person entitled to exercise the rights
represented hereby, any notice to the contrary notwithstanding. Accordingly, the
Company and/or the Warrant Agent shall not, except as ordered by a court of
competent jurisdiction as required by law, be bound to recognize any equitable
or other claim to or interest in the Warrants on the part of any Person other
than such registered Holder, whether or not it shall have express or other
notice thereof.
This Warrant Certificate may be exchanged at the office of the Warrant
Agent maintained for such purpose in New York, New York for Warrant Certificates
representing the same aggregate number of Warrants, each new Warrant Certificate
to represent such number of Warrants as the Holder hereof shall designate at the
time of such exchange.
Prior to the valid exercise of the Warrants represented hereby, the
Holder of this Warrant Certificate, as such, shall not be entitled to any rights
of a shareholder of the Company, including, without limitation, the right to
vote or to consent to any action of the shareholders, to receive any
distributions, to exercise any pre-emptive right or to receive any notice of
meetings of shareholders, and shall not be entitled to receive any notice of any
proceedings of the Company except as provided in the Warrant Agreement.
This Warrant Certificate shall be void and all rights evidenced hereby
shall cease on February 1, 2009, unless sooner terminated by the liquidation,
dissolution or winding-up of the Company or as otherwise provided in the Warrant
A-3
<PAGE>
Agreement upon the consolidation or merger of the Company with, or sale of the
Company to, another Person or unless such date is extended as provided in the
Warrant Agreement. [Balance of page intentionally left blank.]
This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
KMC TELECOM HOLDINGS, INC.
By:--------------------------
Name:
Title:
Dated: April __, 1999
Countersigned:
THE CHASE MANHATTAN BANK,
as Warrant Agent
By:---------------------------
Name:
Title:
A-4
<PAGE>
FORM OF REVERSE OF WARRANT CERTIFICATE
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: The Chase Manhattan Bank
450 West 33rd St., 15th Floor
New York, NY 10001-2697
Attention: Capital Markets Fiduciary Services
The undersigned irrevocably exercises ________ of the Warrants
represented by this Warrant Certificate and herewith makes payment of $ _______
(such payment being by wire transfer, in cash or by certified or official bank
or bank cashier's check payable to the order or at the direction of KMC Telecom
Holdings, Inc. or, if the Common Shares (or other securities) issuable upon
exercise of the Warrants are registered under the Exchange Act, the exercise
price may be paid by surrendering additional Warrants to the Warrant Agent
having an aggregate Spread equal to the aggregate exercise price of the Warrants
being exercised) all at the exercise price and on the terms and conditions
specified in this Warrant Certificate and in the Warrant Agreement and the
Warrant Registration Rights Agreement referred to herein and surrenders this
Warrant Certificate and all right, title and interest therein to and directs
that the shares of Common Stock, par value $.01 per share, of KMC Telecom
Holdings, Inc. (the "COMMON SHARES") deliverable upon the exercise of such
Warrants be registered or placed in the name and at the address specified below
and delivered thereto.
CHECK ONE
|_| Payment made by wire transfer, in cash, or by certified
or official bank or bank cashier's check.
OR
|_| The Common Shares (or other securities) issuable upon
exercise of the Warrants are registered under the
Exchange Act and payment is being made by surrendering
Warrants having an aggregate Spread equal to the
aggregate Exercise Price of the Warrants being
exercised.
Dated: -------------------------------
(Signature of Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
A-5
<PAGE>
Signature Guaranteed By:
-------------------------------
Securities and/or check or other property to be issued or delivered to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
A-6
<PAGE>
FORM OF ASSIGNMENT
In consideration of monies or other valuable consideration received
from the Assignee(s) named below, the undersigned registered Holder of this
Warrant Certificate hereby sells, assigns, and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants constituting
a part of the Warrants evidenced by this Warrant Certificate not being assigned
hereby) all of the right of the undersigned under this Warrant Certificate, with
respect to the number of Warrants set forth below:
Name(s) of Assignee(s): ------------------------------------
Address: ---------------------------------------------------
No. of Warrants: --------------------------------------------
Please insert social security or other identifying number of assignee(s):
and does hereby irrevocably constitute and appoint ------------------------ the
undersigned's attorney to make such transfer on the books of ------------------
maintained for the purposes, with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES]
In connection with any transfer of Warrants, the undersigned
confirms that without utilizing any general solicitation or general advertising
that:
[Check One]
|_| (a) these Warrants are being transferred in compliance with the
exemption from registration under the U.S. Securities Act of 1933,
as amended, provided by Rule 144A thereunder.
OR
|_| (b) these Warrants are being transferred other than in accordance
with (a) above and documents are being furnished which comply with
the conditions of transfer set forth in this Warrant Certificate
and the Warrant Agreement.
OR
|_| (c) these Warrants are being transferred pursuant to an effective
registration statement under the U.S. Securities Act of 1933, as
amended.
If none of the foregoing boxes is checked, the Warrant Agent shall not be
obligated to register the Warrants in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Article VIII of the Warrant Agreement shall
have been satisfied.
Dated:
A-7
<PAGE>
-------------------------
(Signature of Owner)
-------------------------
(Street Address)
-------------------------
(City) (State) (Zip Code)
Signature Guaranteed By:
---------------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing the
Warrant(s) for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the U.S. Securities
Act of 1933, as amended, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding KMC Telecom Holdings, Inc. as the undersigned has requested pursuant
to Rule 144A or has determined not to request such information and that it is
aware that the transferor is relying upon the undersigned's foregoing
representations in order to claim the exemption from registration provided by
Rule 144A.
Dated:________________
----------------------------------------
[NOTE: To be executed by an executive officer]
A-8
<PAGE>
EXHIBIT B-1
Form of Certificate to be
Delivered by Transferor in Connection with
Transfers to Persons Other Than QIBS
------------------------------------
[Date]
KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, NJ 07921
The Chase Manhattan Bank
450 West 33rd St., 15th Floor
New York, NY 10001-2697
Attention: Capital Markets Fiduciary Services
Re: Warrants (the "Warrants") to Purchase
Common Shares of KMC Telecom Holdings, Inc. (the "Company")
Ladies and Gentlemen:
We hereby certify that such transfer is being effected in compliance
with the transfer restrictions applicable to the Warrants or interests therein
transferred pursuant to and in accordance with the Securities Act, and
accordingly we hereby further certify that (check one):
(a) |_| such transfer is being effected pursuant to and in accordance
with Rule 144 under the Securities Act; or
(b) |_| such transfer is being effected to the Company or a subsidiary
thereof;
or
(c) |_| such transfer is being effected pursuant to an effective
registration statement under the Securities Act;
or
(d) |_| such transfer is being effected pursuant to an exemption from
the registration requirements of the Securities Act other than Rule 144 and Rule
B-1-1
<PAGE>
144, and we hereby further certify that such transfer complies with the transfer
restrictions applicable to the Warrants or interests therein transferred to
persons other than QIBs and in accordance with the requirements of the exemption
claimed, which certification is supported by an Opinion of Counsel provided by
us or the transferee (a copy of which we have attached to this certification),
to the effect that such transfer is in compliance with the Securities Act. Upon
consummation of the proposed transfer in accordance with the terms of the
Warrant Agreement, the transferred Warrants or interests therein will be subject
to the restrictions on transfer enumerated in the Private Placement Legend
printed on the Certificated Warrant and in the Warrant Agreement and the
Securities Act.
Very truly yours,
[Name of Transferor]
By:--------------------------------------
Authorized Signatory
B-1-2
<PAGE>
EXHIBIT B-2
Form of Certificate to be
Delivered By Transferees in Connection with
Transfers to Persons Other Than QIBS
------------------------------------
[Date]
KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, NJ 07921
The Chase Manhattan Bank
450 West 33rd St., 15th Floor
New York, NY 10001-2697
Attention: Capital Markets Fiduciary Services
Re: Warrants (the "WARRANTS") to Purchase
Common Shares of
KMC Telecom Holdings, Inc. (the "COMPANY")
Ladies and Gentlemen:
In connection with our proposed purchase of ----------- aggregate
number of Warrants, we confirm that:
1. We understand that any subsequent transfer of the Warrants, any
interest therein or the Common Shares issuable upon exercise of any Warrant
(the "WARRANT SHARES") is subject to certain restrictions and conditions
set forth in the Warrant Agreement dated as of April ___, 1999 relating to
the Warrants (the "WARRANT AGREEMENT") and the Warrant Registration Rights
Agreement dated April ___, 1999 relating to the Warrants (the "WARRANT
REGISTRATION RIGHTS AGREEMENT") and the undersigned agrees to be bound by,
and not to resell, pledge or otherwise transfer the Warrants or Warrant
Shares except in compliance with, such restrictions and conditions and the
U.S. Securities Act of 1933, as amended (the "SECURITIES ACT").
2. We understand that the Warrants represented by this Warrant
Certificate and, as of the date this Warrant Certificate was originally
issued, the Warrant Shares have not been registered under the Securities
Act, and accordingly may not be offered, sold, pledged or otherwise
B-2-1
<PAGE>
transferred except as set forth in the following sentence. We agree that we
will not, within the time period referred to in Rule 144(k) of the
Securities Act (taking into account the provisions of Rule 144(d) under the
Securities Act, if applicable) under the Securities Act as in effect on the
date of the transfer of this Warrant, resell or otherwise transfer the
Warrants represented by this Warrant Certificate except (a) to KMC Telecom
Holdings, Inc. or any subsidiary thereof, (b) to a qualified institutional
buyer in compliance with Rule 144A under the Securities Act, (c) pursuant
to the exemption from registration provided by Rule 144 under the
Securities Act (if available), (d) to an institutional accredited investor
that, prior to such transfer, furnishes to you, to the Company and, in the
case of the Warrant Shares, to the transfer agent and registrar therefor, a
signed letter containing certain representations and agreements relating to
the restrictions on transfer of the Warrants represented by this Warrant
Certificate (the form of which letter can be obtained from the Warrant
Agent) and an opinion of counsel acceptable to KMC Telecom Holdings, Inc.
and its counsel that such transfer is in compliance with the Securities Act
or (f) pursuant to an effective registration statement under the Securities
Act and, in each case, in accordance with applicable state securities laws.
3. We understand that, on any proposed resale of any Warrants, any
interest therein or Warrant Shares, we will be required to furnish to you
and the Company such certifications, legal opinions and other information
as you and the Company may reasonably require to confirm that the proposed
sale complies with the foregoing restrictions. We further understand that
the Warrants purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Warrants, and we and any accounts for which we are acting are each able to
bear the economic risk of our or its investment for an indefinite period of
time.
5. We are acquiring the Warrants purchased by us for our own account
or for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
B-2-2
<PAGE>
You, the Company and, if applicable, the transfer agent and registrar
for the Warrant Shares are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby.
Very truly yours,
[Name of Transferee]
By:----------------------------------
Authorized Signature
B-2-3
<PAGE>
APPENDIX A
LIST OF FINANCIAL EXPERTS
- -------------------------
Alex. Brown & Sons
Bear, Stearns & Co., Inc.
Dillon, Read & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Goldman, Sachs & Co.
Lazard Freres & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
PaineWebber Incorporated
Prudential Securities Inc.
Salomon Brothers Inc
Lehman Brothers
WARRANT REGISTRATION RIGHTS AGREEMENT
Warrant registration rights agreement, dated as of April 30, 1999
(this "Agreement"), between KMC TELECOM HOLDINGS, INC., a Delaware corporation
(the "Company"), and FIRST UNION INVESTORS, INC., a North Carolina corporation
("First Union").
WHEREAS, pursuant to the terms of a Securities Purchase Agreement of
even date herewith (the "PURCHASE AGREEMENT"), between the Company and First
Union, the Company has agreed to issue and sell to First Union a unit (the
"Series E Unit"), consisting of 35,000 shares of the Company's Series E Senior,
Redeemable, Exchangeable PIK Preferred Stock (the "SERIES E PREFERRED STOCK")
and 94,513 warrants (each, a "WARRANT" and collectively, the "WARRANTS"), each
Warrant initially entitling the holder thereof to purchase 0.471756 shares of
Common Stock (as defined below) of the Company at an exercise price of $.01 per
Common Share (as defined below);
WHEREAS, the Company, First Union and the Warrant Agent (as defined
herein) have entered into a Warrant Agreement of even date herewith (the
"WARRANT AGREEMENT") providing for the issuance of the Warrants;
WHEREAS, the Company has issued warrants and rights relating to
warrants to certain holders of its securities under other warrant agreements,
including the Warrant Agreement dated February 4, 1999, as amended on April 30,
1999, between the Company, Newcourt Commercial Finance Corporation, Lucent
Technologies Inc., First Union and The Chase Manhattan Bank (the "Existing
Warrant Agreement");
WHEREAS, the Company has granted certain registration rights to
Newcourt Commercial Finance Corporation and Lucent Technologies Inc. under a
Warrant Registration Rights Agreement dated as of February 4, 1999, as amended
as of the date hereof; and
WHEREAS, as described in Section 2.4 of the Existing Warrant Agreement
(as defined below), the holders of Series E Preferred Stock have the right to
receive 227,273 Warrants (the "Springing Warrants") unless certain conditions
are met.
In consideration of the foregoing and of the mutual agreements
contained herein and in the Purchase Agreement, the Company and the Purchaser
hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Auditors" means, at any time, the independent auditors of the Company
at such time.
"Board" means the board of directors of the Company from time to time.
<PAGE>
"Closing Date" means April 30, 1999.
"Comfort Letter" has the meaning specified in Section 3 hereof.
"Commission" means the United States Securities and Exchange
Commission.
"Common Shares" means the shares of the Common Stock of the Company.
"Common Stock" means the common stock, par value $.01 per share, of
the Company.
"Company" has the meaning specified in the recitals to this Agreement.
"Company IPO Shares" has the meaning specified in Section 2 hereof.
"Cutback Notice" has the meaning specified in Section 2 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Holders" means the Existing Priority Holders and the
Existing Preferred Holders.
"Existing Preferred Holders" means the record holders of the Existing
Preferred Warrants and the holders of Common Shares (or other securities)
received upon exercise thereof.
"Existing Preferred Warrants" means the 52,272 existing warrants and
the right to acquire certain Springing Warrants unless certain conditions are
satisfied, all of which were issued pursuant to the Existing Warrant Agreement,
each such warrant initially entitling the holder thereof to purchase 0.471756
shares of Common Stock of the Company at an exercise price of $.01 per Common
Share.
"Existing Preferred Warrant Shares" means the Common Shares issuable
upon exercise of an Existing Holder's Existing Preferred Warrants, such other
securities as shall be issuable upon the exercise of the Existing Preferred
Warrants, or the Common Shares or such other securities received upon the
exercise thereof, pursuant to the Existing Warrant Agreement, in each case to
the extent that such Common Shares or other securities would be (upon issuance)
or are, as the case may be, subject to restrictions on transfer.
"Existing Priority Holders" means the record holders of the Existing
Priority Warrants and the holders of Common Shares (or other securities)
received upon exercise thereof.
"Existing Priority Warrants" means the 460,800 warrants that were
issued pursuant to a Warrant Agreement dated January 29, 1998 between the
Company and The Chase Manhattan Bank, each such warrant initially entitling the
holder thereof to purchase 0.21785 shares of Common Stock of the Company at an
exercise price of $.01 per Common Share.
2
<PAGE>
"Existing Priority Warrant Shares" means the Common Shares issuable
upon exercise of an Existing Holder's Existing Priority Warrants, such other
securities as shall be issuable upon the exercise of the Existing Priority
Warrants, or the Common Shares or such other securities received upon the
exercise thereof, pursuant to the Warrant Agreement dated January 29, 1998, in
each case to the extent that such Common Shares or other securities would be
(upon issuance) or are, as the case may be, subject to restrictions on transfer.
"Existing Warrant Agreement" has the meaning specified in the recitals
to this Agreement.
"Existing Warrants" means the Existing Priority Warrants and the
Existing Preferred Warrants.
"Existing Warrant Shares" means the Existing Priority Warrant Shares
and the Existing Preferred Warrant Shares.
"Expiration Date" means the second anniversary of the Closing Date,
except that in the event the Springing Warrants are issued as provided in
Section 2.4 of the Existing Warrant Agreement, the Expiration Date, with respect
to the Springing Warrants only, shall be the second anniversary from the date of
issuance of the Springing Warrants.
"Holders" means the record holders of the Warrants and the holders of
Common Shares (or other securities) received upon exercise thereof.
"Includible Secondary Shares" has the meaning specified in Section 2
hereof.
"managing underwriter" has the meaning specified in Section 2 hereof.
"Opinion" has the meaning specified in Section 3 hereof.
"Other IPO Shares" has the meaning specified in Section 2 hereof.
"Piggy-back Registration Rights" has the meaning specified in Section
2 hereof.
"Purchase Agreement" has the meaning specified in the recitals to this
Agreement.
"Registration Statement" has the meaning specified in Section 2
hereof.
"Resale Shelf" has the meaning specified in Section 3 hereof.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"Series E Preferred Stock" has the meaning specified in the recitals
to this Agreement.
"Series E Unit" has the meaning specified in the recitals to this
Agreement.
3
<PAGE>
"Springing Warrants" has the meaning specified in the recitals to this
Agreement.
"Stockholders Agreement" means the Amended and Restated Stockholders
Agreement, dated as of October 31, 1997, among the Company, Nassau Capital
Partners L.P., NAS Partners I L.L.C., Harold N. Kamine, KMC Telecommunications
L.P., AT&T Credit Corporation, General Electric Capital Corporation, First Union
National Bank, as successor to CoreStates Bank, N.A., and CoreStates Holdings,
Inc., as amended and supplemented from time to time.
"Underlying Securities" means the Common Shares issuable upon exercise
of the Warrants or such other securities as shall be issuable upon the exercise
of the Warrants, pursuant to the Warrant Agreement.
"Warrant Agent" means The Chase Manhattan Bank, in its capacity as
Warrant Agent under the Warrant Agreement.
"Warrant Agreement" has the meaning specified in the recitals to this
Agreement.
"Warrant Registration Statement" has the meaning specified in Section
3 hereof.
"Warrants" has the meaning specified in the recitals to this
Agreement.
"Warrant Shares" means the Common Shares issuable upon exercise of the
Warrants or Springing Warrants held of record by the Holders, such other
securities as shall be issuable upon the exercise of such Warrants and Springing
Warrants, or the Common Shares or such other securities received upon the
exercise thereof, pursuant to the Warrant Agreement, in each case to the extent
that such Common Shares or other securities would be (upon issuance) or are, as
the case may be, subject to restrictions on transfer.
2. PIGGY-BACK REGISTRATION RIGHTS.
(a) If, prior to the Expiration Date, the Company proposes to file a
Registration Statement with the Commission respecting an offering of any shares
of Common Stock (or other securities issuable upon exercise of the Warrants)
(other than (i) an offering registered solely on Form S-4 or S-8 or any
successor form thereto, or (ii) the initial public offering of shares of Common
Stock (or other securities issuable upon exercise of the Warrants) if no
shareholder of the Company participates therein), the Company shall give prompt
written notice to the Holders of Warrants, Springing Warrants or Warrant Shares,
at least 30 days prior to the initial filing of the registration statement
relating to such offering (the "REGISTRATION STATEMENT"). Each Holder shall
have the right, within 20 days after delivery of such notice, to request in
writing that the Company include all or a portion of such Holder's Warrant
Shares in such Registration Statement ("PIGGY-BACK REGISTRATION RIGHTS"). The
Company shall include in the public offering all of the Warrant Shares that a
Holder has requested be included, unless the underwriter for the public offering
or the underwriter managing the public offering (in either case, the "MANAGING
UNDERWRITER") delivers a notice (a "CUTBACK NOTICE") pursuant to Section 2(b) or
4
<PAGE>
2(c) hereof. The managing underwriter may deliver one or more Cutback Notices at
any time prior to the execution of the underwriting agreement for the public
offering.
(b) If a proposed public offering includes both securities to be
offered for the account of the Company ("COMPANY IPO SHARES") and shares to be
sold by stockholders, the provisions of this Section 2(b) shall be applicable if
the managing underwriter delivers a Cutback Notice stating that, in its opinion,
the number of Common Shares (other than (a) Existing Warrant Shares to be sold
by any Existing Holders and (b) Warrant Shares to be sold by any Holders) that
selling stockholders propose to sell therein, whether or not such selling
stockholders have the right to include shares therein (the "OTHER IPO SHARES"),
plus the number of Existing Warrant Shares that the Existing Holders have
requested to be sold therein, plus the number of Warrant Shares that the Holders
have requested to be sold therein, plus the Company IPO Shares, exceeds the
maximum number of shares specified by the managing underwriter in such Cutback
Notice that may be distributed without adversely affecting the price, timing or
distribution of the Company IPO Shares. Such maximum number of shares that may
be so sold, excluding the Company IPO Shares, are referred to as the "INCLUDIBLE
SHARES."
If the managing underwriter delivers such Cutback Notice, (i) the
Company shall be entitled to include all of the Company IPO Shares in the public
offering, (ii) each stockholder who has requested the inclusion of Other IPO
Shares in the public offering pursuant to Section 6.1 or 6.2 of the Stockholders
Agreement shall be entitled to include all of its Other IPO Shares and each
Existing Priority Holder who has requested the inclusion of its Existing
Priority Warrant Shares shall be entitled to include all of its Existing
Priority Warrant Shares, in each case, in priority to the inclusion of any
Existing Preferred Warrant Shares and any Warrant Shares requested to be
included by Existing Preferred Holders and the Holders and (iii) except as
otherwise provided in the preceding clause (ii), each requesting Holder shall be
entitled to include in the public offering up to its pro rata portion of the
Includible Shares on a PARI PASSU basis with the requesting Existing Preferred
Holders and in priority to the inclusion (except as otherwise provided in the
preceding clause (ii)) of any Other IPO Shares that are proposed to be sold in
such public offering.
(c) If a proposed public offering is entirely a secondary offering,
the provisions of this Section 2(c) shall be applicable if the managing
underwriter delivers a Cutback Notice stating that, in its opinion, the
aggregate number of Existing Warrant Shares, Warrant Shares and Other IPO Shares
proposed to be sold therein exceeds the maximum number of shares (the
"INCLUDIBLE SECONDARY SHARES") specified by the managing underwriter in such
Cutback Notice that may be distributed without adversely affecting the price,
timing or distribution of the Common Shares being distributed. If the managing
underwriter delivers such Cutback Notice, (i) each stockholder who has requested
the inclusion of Other IPO Shares in the public offering pursuant to Section 6.1
or 6.2 of the Stockholders Agreement shall be entitled to include all of its
Other IPO Shares and each Existing Priority Holder who has requested the
inclusion of its Existing Priority Warrant Shares shall be entitled to include
all of its Existing Priority Warrant Shares, in each case, in priority to the
inclusion of any Existing Preferred Warrant Shares and any Warrant Shares
requested to be included by the Holders and (ii) except as otherwise provided in
the preceding clause (i), each requesting Holder shall be entitled to include in
5
<PAGE>
the public offering up to its pro rata portion of the Includible Secondary
Shares on a PARI PASSU basis with the requesting Existing Preferred Holders and
in priority to the inclusion (except as set forth in the preceding clause (i))
of any Other IPO Shares that are proposed to be sold in such public offering.
(d) The underwriting agreement for such public offering shall provide
that each requesting Holder shall have the right to sell its Warrant Shares
(other than Warrant Shares excluded from such public offering pursuant to a
Cutback Notice and the terms of Section 2(b) or 2(c)) to the underwriters and
that the underwriters shall purchase the Warrant Shares at the price paid by the
underwriters for the Common Shares sold by the Company and/or other selling
stockholders, as the case may be.
3. SHELF REGISTRATION.
(a) If only the Company sells Common Shares in an initial public
offering or all of the Warrant Shares have not been sold in a public offering,
the Company shall use its reasonable best efforts to cause to be filed pursuant
to Rule 415 under the Securities Act a shelf registration statement on the
appropriate form (the "WARRANT REGISTRATION STATEMENT") covering the issuance of
the Warrant Shares upon exercise of the Warrants and shall use its reasonable
best efforts to cause the Warrant Registration Statement to become effective
under the Securities Act within 180 days after the closing date of the initial
public offering; PROVIDED, HOWEVER, that (1) in no event may the Warrant
Registration Statement be declared effective prior to the first anniversary of
the Closing Date and (2) if the Commission shall request that the Company
register the resale of the Warrant Shares instead of the issuance thereof, the
Warrant Registration Statement shall register such resale as opposed to such
issuance. The Company shall use reasonable best efforts to keep the Warrant
Registration Statement continuously effective until the earlier of (i) such time
as all Warrants have been exercised or, in the case of clause (2), until such
time as all Warrant Shares have been resold or (ii) the Expiration Date. Prior
to filing the Warrant Registration Statement or any amendment thereto, the
Company shall provide a copy thereof to the Purchaser and its counsel and afford
them a reasonable time to comment thereon.
If the Company is unable to file or cause to be filed, or is unable to
maintain the effectiveness of a Warrant Registration Statement, notwithstanding
its reasonable best efforts to do so, the Company shall cause such filing to
take place, or shall cause such Warrant Registration Statement to again become
effective, after removal of the impediment to file or to maintain the
effectiveness of such Warrant Registration Statement.
(b) If the Warrant Registration Statement shall register the resale of
the Warrant Shares (a "RESALE SHELF") as provided in Section 3(a)(2) above, the
Company agrees to:
(i) make available for inspection by representatives of the Holders,
any underwriter participating in any disposition pursuant to such Resale
Shelf and attorneys and accountants designated by the Holders, at
reasonable times and in a reasonable manner, financial and other records,
documents and properties of the Company that are pertinent to the conduct
of due diligence customary for an underwritten offering, and cause the
officers, directors and employees of the Company to supply all information
6
<PAGE>
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with a Resale Shelf; PROVIDED, HOWEVER, that such
persons shall first agree in writing with the Company to use such
information only in connection with the transaction for which such
information was obtained and that any information that is reasonably and in
good faith designated by the Company in writing as confidential at the time
of delivery of such information shall be kept confidential by such persons,
unless and to the extent that disclosure of such information is required by
law or such information becomes generally available to the public other
than as a result of a disclosure or failure to safeguard such information
by such person;
(ii) use its reasonable best efforts to cause all Warrant Shares sold
under a Resale Shelf to be listed on any securities exchange or any
automated quotation system on which securities of the same class issued by
the Company are then listed if requested by the Holders of Warrant Shares
representing a majority of the Warrants originally issued, to the extent
such Warrant Shares satisfy applicable listing requirements;
(iii) provide as soon as practicable, a reasonable number of copies of
the Warrant Registration Statement, any pre-effective or post-effective
amendment thereto, and the prospectus (including each preliminary
prospectus and any amendment or supplements thereto) included in such
Resale Shelf to Holders that are selling Warrant Shares pursuant to such
Resale Shelf;
(iv) cause to be provided to the Warrant Agent, on behalf of the
Holders and beneficial owners of Warrant Shares, upon the effectiveness of
such Resale Shelf, a customary "10b-5" opinion of independent counsel (an
"OPINION") and a customary "cold comfort" letter of independent auditors (a
"COMFORT LETTER");
(v) cause to be provided to the Holders and beneficial owners of
Warrant Shares an Opinion and Comfort Letter with respect to each Form 10-K
and Form 10-Q, including any amendments thereto, that is incorporated by
reference in such Resale Shelf; and
(vi) notify the Warrant Agent, for distribution to the Holders, (A)
when the Resale Shelf has become effective and when any post-effective
amendment thereto has been filed and becomes effective, (B) of any request
by the Commission or any state securities authority for amendments and
supplements to the Resale Shelf or of any material request by the
Commission or any state securities authority for additional information
after the Resale Shelf has become effective, (C) of the issuance by the
Commission or any state securities authority of any stop order suspending
the effectiveness of the Resale Shelf or the initiation of any proceedings
for that purpose, (D) if, between the effective date of the Resale Shelf
and the closing of any sale of Warrant Shares covered thereby, the
representations and warranties of the Company contained in any underwriting
agreement, securities sales agreement or other similar agreement, including
this Agreement, relating to disclosure cease to be true and correct in any
material respect or if the Company receives any notification with respect
7
<PAGE>
to the suspension of the qualification of the Warrant Shares for sale in
any jurisdiction or the initiation of any proceeding for such purpose, (E)
of the happening of any event during the period the Resale Shelf is
effective such that such Resale Shelf or the related prospectus contains an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make statements therein not
misleading and (F) of any determination by the Company that a
post-effective amendment to a Registration Statement would be appropriate.
The Holders hereby agree to suspend the use of the prospectus contained in
any Resale Shelf upon receipt of such notice under clause (C), (E) or (F)
above until, in the case of clause (C), such stop order is removed or
rescinded or, in the case of clauses (E) and (F), the Company has amended
or supplemented such prospectus to correct such misstatement or omission.
4. SUSPENSION.
Notwithstanding the foregoing, in addition to any suspension
contemplated by clauses (C), (E) or (F) of Section 3(b)(vi), during any
consecutive 365-day period, the Company shall have the privilege to suspend
availability of the Warrant Registration Statement and the related prospectus
for (i) up to two 30-consecutive-day periods, except for the 30 days immediately
prior to the Expiration Date, if the Board determines in good faith that there
is a valid purpose for such suspension and (ii) five additional, non-consecutive
three-day periods, except for the 30 days immediately prior to the Expiration
Date, if the Board determines in good faith that the Company cannot provide
adequate disclosure during such period due to circumstances beyond its control.
Notice of such suspension shall be given promptly to the Warrant Agent.
5. BLUE SKY.
The Company shall use its reasonable best efforts to register or
qualify the Underlying Securities proposed to be sold or issued pursuant to the
Registration Statement or the Warrant Registration Statement under all
applicable securities or "blue sky" laws of all jurisdictions in the United
States in which any Holder of Warrants may or may be deemed to purchase
Underlying Securities upon the exercise of Warrants or resale of the Warrant
Shares, as the case may be, and shall use its reasonable best efforts to
maintain such registration or qualification through the earlier of (A) in the
case of a Registration Statement, the date upon which all of the Warrant Shares
have been sold or such other sale as shall be required by applicable law, (B)
the date upon which all Warrants have been exercised or all Warrant Shares have
been resold, as the case may be, under the Warrant Shelf Registration Statement
and (C) the Expiration Date; PROVIDED, HOWEVER, that the Company shall not be
required to (i) qualify as a foreign corporation or as a broker or a dealer in
securities in any jurisdiction where it would not otherwise be required to
qualify but for this Section 5, (ii) file any general consent to service of
process or (iii) subject itself to taxation in any jurisdiction if it is not
otherwise so subject.
6. ACCURACY OF DISCLOSURE.
The Company (and its successors) represents and warrants to each
Holder (and each beneficial owner of a Warrant or Warrant Share) and agrees for
8
<PAGE>
the benefit of each Holder (and each beneficial owner of a Warrant or Warrant
Share) that, except during any period in which the availability of the Warrant
Registration Statement has been suspended, (i) the Warrant Registration
Statement and the documents incorporated by reference therein will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein not misleading; and (ii) the prospectus
delivered to such Holder upon its exercise of Warrants or pursuant to which such
Holder sells its Warrant Shares, as the case may be, and the documents
incorporated by reference therein will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that representations, warranties and agreements
set forth in this Section 6 do not apply to statements or omissions in the
Warrant Registration Statement or any such prospectus based upon information
relating to any Holder furnished to the Company (or its successors) in writing
by such Holder expressly for use therein.
7. INDEMNITY.
The Company hereby agrees to indemnify each beneficial owner of a
Warrant and each person, if any, who controls any beneficial owner of a Warrant
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, or is under common control with, or is controlled by, any
beneficial owner of a Warrant (whether or not it is, at the time the indemnity
provided for in this Section 7 is sought, such a beneficial owner), from and
against all losses, damages or liabilities which such beneficial owner or any
such controlling or affiliated person suffers as a result of any breach, on the
date of any exercise of a Warrant by such beneficial owner or the resale of any
Warrant Share by such Holder, in either case pursuant to the Warrant
Registration Statement, of the representations, warranties or agreements
contained in Section 6 hereof. Each beneficial owner of a Warrant Share sold
pursuant to a Resale Shelf, by accepting its beneficial ownership of a Warrant,
hereby (i) agrees to provide the Company with information with respect to it
that the Company reasonably requests in connection with any Resale Shelf and
(ii) agrees, severally and not jointly, to indemnify the Company, its directors
and officers and each person, if any, who controls the Company within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act against any liability incurred by it or such controlling person as a result
of any misstatement of information provided by such beneficial owner to the
Company in writing expressly for inclusion in the Resale Shelf or any omission
of a material fact from any such information provided by such beneficial owner
to the Company.
8. EXPENSES.
All expenses incident to the Company's performance of or compliance
with its obligations under this Agreement will be borne by the Company,
regardless of whether a Registration Statement or Warrant Registration Statement
becomes effective, including without limitation (i) all Commission or National
Association of Securities Dealers, Inc. registration and filing fees, (ii) all
reasonable fees and expenses incurred in connection with compliance with state
securities or "blue sky" laws, (iii) all reasonable expenses of any persons
incurred by or on behalf of the Company in preparing or assisting in preparing,
word processing, printing and distributing any registration statement, any
9
<PAGE>
prospectus, any amendments or supplements thereto and other documents relating
to the performance of and compliance with this Agreement, (iv) the reasonable
fees (including reasonable legal fees and expenses) and disbursements of the
Warrant Agent, (v) the reasonable fees and disbursements of counsel for the
Company and (vi) the fees and disbursements, if any, of the Auditors; but
excluding any and all fees, expenses and disbursements of the Holders (not
specifically included above), including, without limitation, (x) fees and
disbursements of counsel retained by the participating Holders and (y) the
Holder's share of underwriting discounts and commissions.
9. COVENANTS OF THE COMPANY.
The Company hereby agrees and covenants as follows:
(a) After any initial public offering of its equity securities, the
Company shall file as and when applicable, on a timely basis, all reports
required to be filed by it under the Exchange Act, and take such further
reasonable action as may be required from time to time and as may be within the
reasonable control of the Company, to enable the Holders to transfer the Warrant
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 under the Securities Act or any similar rule
or regulation hereafter adopted by the Commission.
(b) The Company shall not, directly or indirectly, (i) enter into any
merger, consolidation or reorganization in which the Company shall not be the
surviving corporation or (ii) transfer or agree to transfer all or substantially
all the Company's assets, unless prior to such merger, consolidation,
reorganization or asset transfer, the surviving corporation or the transferee,
respectively, shall have agreed in writing to assume the obligations of the
Company under this Agreement, and for that purpose references hereunder to
"Warrant Shares" shall be deemed to include the securities which the Holders of
Warrant Shares would be entitled to receive in exchange for Warrant Shares
pursuant to any such merger, consolidation or reorganization.
(c) The Company shall not grant to any Person (other than a Holder of
Warrant Shares) any registration rights with respect to securities of the
Company, or enter into any agreement, that would be inconsistent with the
registration rights granted to Holders of Warrants herein.
10. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. Each of the Company and First Union
represent to the other that it has not entered into, and agrees that on or after
the date of this Agreement it will not enter into, any agreement which is
materially inconsistent with the rights granted to the Holders of Warrants or
Warrant Shares in this Agreement or otherwise materially conflicts with the
provisions hereof. The Company represents that the rights granted to the Holders
hereunder do not in any material way conflict with and are not materially
inconsistent with the rights granted to the holders of the Company's other
issued and outstanding securities under any agreements.
10
<PAGE>
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company and the Warrant Agent have obtained the
written consent of Holders of at least a majority of the outstanding Warrants
affected by such amendment, modification, supplement, waiver or consent;
PROVIDED that (i) any amendment, modification or supplement to this Agreement
which, in the good faith opinion of the Board (and evidenced by a resolution of
such board), does not adversely affect any Holder, shall not be subject to such
requirement for written consent; and (ii) any amendment shall not be effective
unless the Warrant Agent shall have received an opinion of counsel, reasonably
satisfactory to it, that such amendment complies with the requirements hereof.
(c) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 10(c); (ii) if to the Company, initially at the Company's address set
forth in the Purchase Agreement and thereafter at such other address, notice of
which is given in accordance with the provisions of this Section 10(c); and
(iii) if to the Purchaser, initially at the Purchaser's address set forth in the
Purchase Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 10(c).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including without limitation subsequent Holders; provided that nothing
herein shall be deemed to permit any assignment, transfer or other disposition
of Warrants in violation of the terms of the Purchase Agreement or the Warrant
Agreement. If any transferee of any Holder shall acquire Warrants, in any
manner, whether by operation of law or otherwise, such Warrants shall be held
subject to all of the terms of this Agreement and the Warrant Agreement, and by
taking and holding such Warrants such person shall be conclusively deemed to
have agreed to be bound by and to perform all of the terms and provisions of
this Agreement and the Warrant Agreement and such person shall be entitled to
receive the benefits hereof.
(e) PURCHASES AND SALES OF WARRANTS. The Company shall not, and shall
use its reasonable best efforts to cause its affiliates (as defined in Rule 405
under the Securities Act) not to, purchase and then resell or otherwise transfer
any Warrants other than Warrants acquired and cancelled.
11
<PAGE>
(f) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and First
Union, and each Holder shall have the right to enforce such agreements directly
to the extent it deems such enforcement necessary or advisable to protect its
rights or the rights of Holders hereunder.
(g) 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.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York.
(j) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) WAIVER OF IMMUNITY. To the extent that the Company has or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether through service of notice, attachment prior to judgement,
attachment in aid of execution, execution or otherwise) with respect to itself
or its property, it hereby irrevocably waives such immunity in respect of its
obligations under this Agreement to the fullest extent permitted by law.
(l) INITIAL PUBLIC OFFERING. Notwithstanding anything to the contrary
herein contained, if the Company conducts an initial public offering of equity
securities (other than nonconvertible preferred shares), the Company will give
the Holders the opportunity to convert their Warrants into warrants to purchase
such equity securities (other than nonconvertible preferred shares) and their
Warrant Shares into such equity securities (other than nonconvertible preferred
shares). Such conversion opportunity will be on terms and conditions determined
to be fair and reasonable by the Company's Board.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
KMC TELECOM HOLDINGS, INC.
By /s/ Michael A. Sternberg
--------------------------------
Name: Michael A. Sternberg
Title: President
FIRST UNION INVESTORS, INC.
By /s/ Pearce Landry
--------------------------------
Name: Pearce Landry
Title: Vice President
13
<PAGE>
________________________________________________________________________________
WARRANT REGISTRATION RIGHTS AGREEMENT
between
KMC TELECOM HOLDINGS, INC.
and
FIRST UNION INVESTORS, INC.
Dated as of April 30, 1999
________________________________________________________________________________
14
AMENDMENT NO. 1 TO
THE WARRANT REGISTRATION RIGHTS AGREEMENT
AMENDMENT NO. 1 dated as of April 30, 1999 to the Warrant Registration
Rights Agreement, dated as of February 4, 1999 (the "Registration Rights
Agreement") among KMC Telecom Holdings, Inc. (the "Company"), Newcourt
Commercial Finance Corporation ("Newcourt"), and Lucent Technologies, Inc.
("Lucent").
W I T N E S S E T H
WHEREAS, Newcourt and Lucent have certain rights under the
Registration Rights Agreement to have the Company register securities owned by
them;
WHEREAS, the Company has issued to First Union Investors, Inc. ("First
Union") Preferred Stock Warrants 2 (as defined below) and has entered into a
warrant registration rights agreement with First Union, dated as of the date
hereof (the "Registration Rights Agreement 2") giving First Union certain rights
to have the Company register securities owned by First Union;
WHEREAS, the parties hereto desire to make certain amendments to the
Registration Rights Agreement to reconcile the rights granted to Newcourt and
Lucent under the Registration Rights Agreement and the rights granted to First
Union under the Registration Rights Agreement 2;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, all capitalized
terms defined in the Registration Rights Agreement and used herein are so used
as so defined. In addition, the following terms shall have the meanings set
forth below:
"PREFERRED STOCK WARRANTS 2" means Warrants issued to holders of
Series E Preferred Stock pursuant to the Warrant Agreement 2, each such Warrant
initially entitling the holder thereof to purchase 0.471756 shares of Common
Stock at an exercise price of $.01 per share, and any Springing Warrants issued
to First Union under the Warrant Agreement as amended by Amendment No. 1 to
Warrant Agreement dated as of April 30, 1999.
"PURCHASE AGREEMENT 2" means the Securities Purchase Agreement dated
as of April 30, 1999 between the Company and First Union Investors, Inc.
"REGISTRATION RIGHTS AGREEMENT" has the meaning specified in the
introductory paragraph of this Amendment; "REGISTRATION RIGHTS AGREEMENT 2" has
the meaning specified in the recitals to this Amendment.
<PAGE>
"WARRANT AGREEMENT 2" means the Warrant Agreement dated as of April
30, 1999 among the Company, First Union Investors, Inc. and The Chase Manhattan
Bank as Warrant Agent.
2. AMENDMENT TO SECTIONS 2(B) AND (C) OF THE REGISTRATION RIGHTS
AGREEMENT.
(a) For purposes of the second paragraph of Paragraph (b) of Section 2
of the Registration Rights Agreement, "Holders" shall be deemed to include, in
addition to the record holders of the warrants and Springing Warrants issued
pursuant to the Warrant Agreement and holders of Common Shares (or other
securities) received upon exercise thereof, the record holders of the warrants
issued under the Warrant Agreement 2 and the holders of Common Shares (or other
securities) received upon exercise thereof;
(b) For purposes of Paragraph (c) of Section 2 of the Registration
Rights Agreement, "Holders" shall be deemed to include, in addition to the
record holders of the warrants and Springing Warrants issued pursuant to the
Warrant Agreement and holders of Common Shares (or other securities) received
upon exercise thereof, the record holders of the warrants issued under the
Warrant Agreement 2 and the holders of Common Shares (or other securities)
received upon exercise thereof.
3. Except as expressly amended hereby, all of the provisions of the
Registration Rights Agreement are hereby affirmed and shall continue in full
force and effect in accordance with their terms.
4. This Amendment shall be governed and construed in accordance with
the laws of the state of Delaware applicable to agreements made and to be
performed entirely within such state, without regard to the principles of
conflicts of laws thereof.
5. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together, shall
constitute one and the same instrument.
C-2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed, or caused to be
executed, this Amendment as of the date first above written.
KMC TELECOM HOLDINGS, INC.
By: /s/ James D. Greenfell
______________________________
Name: James D. Greenfell
Title: Chief Financial Officer
NEWCOURT COMMERCIAL FINANCE
CORPORATION
By: /s/ John P. Sirico
______________________________
Name: John P. Sirico, II
Title: Vice President
LUCENT TECHNOLOGIES INC.
By: /s/ Leslie L. Rogers
______________________________
Name: Leslie L. Rogers
Title: Managing Director
Signature Page to
Amendment No. 1 to
Warrant Registration
Rights Agreement
AMENDMENT NO. 1 TO
THE WARRANT AGREEMENT
AMENDMENT NO. 1 dated as of April 30, 1999 to the Warrant Agreement,
dated as of February 4, 1999 (the "Warrant Agreement") among KMC Telecom
Holdings, Inc., The Chase Manhattan Bank, as Warrant Agent, Newcourt Commercial
Finance Corporation, Lucent Technologies, Inc. and First Union Investors, Inc.
W I T N E S S E T H
WHEREAS, the parties hereto desire to make certain amendments to the
Warrant Agreement;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, all capitalized
terms defined in the Warrant Agreement and used herein are so used as so
defined. In addition, the following terms shall have the meanings set forth
below:
"PREFERRED STOCK WARRANT AGREEMENT 2" means the Warrant Agreement
dated as of April 30, 1999 among the Company, The Chase Manhattan Bank, as
Warrant Agent and First Union Investors, Inc., which Preferred Stock Warrant
Agreement 2 is being entered into in connection with the execution and delivery
of the Purchase Agreement 2.
"PREFERRED STOCK WARRANTS 2" means Warrants issued to holders of
Series E Preferred Stock pursuant to the Preferred Stock Warrant Agreement 2,
each such Warrant initially entitling the holder thereof to purchase 0.471756
shares of Common Stock at an exercise price of $.01 per share.
"PURCHASE AGREEMENT 2" means the Securities Purchase Agreement dated
as of April 30, 1999 between the Company and First Union Investors, Inc.
2. AMENDMENT TO SECTION 2.4(B) OF THE WARRANT AGREEMENT.
Paragraph (b) of Section 2.4 of the Warrant Agreement is amended to
read as follows:
"(b) If the Company fails to redeem all shares of Series F Preferred
Stock prior to the date (the "Springing Warrant Date") which is the earlier of
(i) the date that is sixty days after the date on which the Company closes an
underwritten primary offering of at least $200 million of its Common Stock
pursuant to an effective registration statement under the Securities Act or (ii)
February 4, 2001, then the holders of Eligible Shares shall be entitled to
receive the Springing Warrants. Each holder of Eligible Shares shall be entitled
<PAGE>
to receive a number of Springing Warrants equal to (1) 227,273 plus the total
number of Warrants and Preferred Stock Warrants 2 held by the holders of
Eligible Shares as of the date hereof, multiplied by a fraction, the numerator
of which shall be the aggregate liquidation preference of such holder's Eligible
Shares and the denominator of which shall be the aggregate liquidation
preference of all outstanding Eligible Shares, LESS (2) the number of Warrants
and Preferred Stock Warrants 2 held by such holder of Eligible Shares as of the
date hereof. On or after the Springing Warrant Date, a holder or holders of at
least 10% or more of the aggregate outstanding Eligible Shares may deliver a
notice to the Warrant Agent in the form set forth in Exhibit C hereto (the
"Springing Notice"), accompanied by a certificate of the Transfer Agent,
certifying as to the number of shares of Series F Preferred Stock that are
outstanding as of such date."
Paragraph (c) of Section 2.4 of the Warrant Agreement is amended to
add the following sentence at the end thereof.
"Upon receipt of a certificate for the number of Springing Warrants to
which it is entitled under this Section 2.4(c), First Union Investors, Inc.
shall deliver such certificate to the Company, and the Company shall issue or
shall cause the Warrant Agent to issue to First Union Investors, Inc. in
exchange therefor a certificate in the same form as for the Preferred Stock
Warrants 2. The Springing Warrants issued to First Union Investors, Inc. shall
be subject to the terms and conditions of the Preferred Stock Warrant Agreement
2 and shall not be subject to the terms and conditions of this Agreement."
3. AMENDMENTS TO SECTION 2.5 OF THE WARRANT AGREEMENT.
The first sentence of Section 2.5 is hereby amended to read as
follows:
"From time to time, the Company may issue and sell additional Warrants
under this Agreement, or additional Warrants under this Agreement, together with
shares of Series E Preferred Stock or Series F Preferred Stock, to Additional
Purchasers; provided that, any such Additional Purchaser shall agree to all of
the terms and conditions of, and assume all of the rights and obligations of a
"Purchaser" under this Agreement and the Warrant Registration Rights Agreement,
such action to be evidenced by such Additional Purchaser executing and
delivering to the Company and the Warrant Agent a counterpart to the signature
page of this Agreement (in the form attached hereto as Exhibit D) and the
Warrant Registration Rights Agreement (in the form set forth herein);
notwithstanding the foregoing, it is agreed that the Preferred Stock Warrants 2
issued to First Union Investors, Inc. shall not be subject to this Agreement or
the Warrant Registration Rights Agreement and that any Springing Warrants issued
to First Union Investors, Inc. pursuant to Section 2.4 of this Agreement shall,
upon issuance, no longer be subject to the terms of this Agreement (as provided
in Section 2.4(c) of this Agreement) or the terms of the Warrant Registration
Rights Agreement."
4. AMENDMENT TO EXHIBIT C TO THE WARRANT AGREEMENT.
Exhibit C to the Warrant Agreement is deleted and replaced by Exhibit
C hereto.
<PAGE>
5. Except as expressly amended hereby, all of the provisions of the
Stockholders Agreement are hereby affirmed and shall continue in full force and
effect in accordance with their terms.
6. This Amendment shall be governed and construed in accordance with
the laws of the state of Delaware applicable to agreements made and to be
performed entirely within such state, without regard to the principles of
conflicts of laws thereof.
7. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together, shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed, or caused to be
executed, this Agreement as of the date first above written.
KMC TELECOM HOLDINGS, INC.
By: /s/ Michael Sternberg
_______________________________
Name: Michael A. Sternberg
Title: President
THE CHASE MANHATTAN BANK, as Warrant Agent
By: /s/ P. Kelly
______________________________
Name: Patricia Kelly
Title: Vice President
NEWCOURT COMMERCIAL FINANCE CORPORATION
By:/s/ John P. Sirico
______________________________
Name: John P. Sirico, II
Title: Vice President
<PAGE>
LUCENT TECHNOLOGIES INC.
By: /s/ Leslie L. Rogers
______________________________
Name: Leslie L. Rogers
Title: Managing Director
FIRST UNION INVESTORS, INC.
By:/s/ Pearce Landry
____________________________
Name: Pearce A. Landry
Title: Vice President
<PAGE>
EXHIBIT C
[Date]
KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, NJ 07921
The Chase Manhattan Bank
450 West 33rd St., 15th Floor
New York, NY 10001-2697
Attention: Capital Markets Fiduciary Services
Re: Warrants (the "WARRANTS") to Purchase
Common Shares of
KMC Telecom Holdings, Inc. (the "COMPANY")
Ladies and Gentlemen:
This notice is being provided pursuant to Section 2.4 of the Warrant
Agreement dated as of February 4, 1999, as amended (the "WARRANT AGREEMENT"),
among The Chase Manhattan Bank, as Warrant Agent, the Company, Newcourt
Commercial Finance Corporation, Lucent Technologies, Inc. and First Union
Investors, Inc. and any Additional Purchaser (as described therein). Capitalized
terms not otherwise defined herein shall have the meaning set forth in the
Warrant Agreement.
The undersigned hereby certifies that (i) [it is][we are] the
holder[s] of at least 10% of the aggregate outstanding Eligible Shares and that
(ii) as of the date of this notice, the Company has failed to redeem all share
of Series F Preferred Stock by the earlier of:
(check one)
(a) |_| the date that is sixty days after the date on which
the Company closes an underwritten primary offering of
at least $200 million of its Common Stock pursuant to
an effective registration statement under the
Securities Act;
or
(b) |_| February 4, 2001
As a result in accordance with the provisions of Section 2.4 of the
Warrant Agreement, each holder of Eligible Shares (or their transferees) shall
be entitled to receive a number of Springing Warrants equal to (i) 227,273 plus
the total number of Warrants and Preferred Stock Warrants 2 held by the holders
of Eligible Shares on April 30, 1999, multiplied by a fraction, the numerator of
which shall be the aggregate liquidation preference of such holder's Eligible
Shares and the denominator of which shall be the aggregate liquidation
preference of all outstanding Eligible Shares, LESS (2) the number of Warrants
C-1
<PAGE>
and Preferred Stock Warrants 2 held by such holder of Eligible Shares on April
30, 1999. The Warrant Agent is hereby authorized and directed to countersign and
deliver to each registered holder of Eligible Shares, the number of Springing
Warrants each such holder is entitled to receive at such holder's address as set
forth on the records of the Transfer Agent for the Series E Preferred Stock and
the Series F Preferred Stock.
[NAME OF HOLDER OF SERIES [E][F] PREFERRED STOCK
By:________________________
Name:
Title:
Number of shares of Series [E][F] preferred Stock:_______
[NAME OF HOLDER OF SERIES [E][F] PREFERRED STOCK
By:________________________
Name:
Title:
Number of shares of Series [E][F] preferred Stock:_______
C-2
AMENDMENT NO. 2
TO WARRANT AGREEMENT
This Amendment No. 2 to Warrant Agreement dated as of February 4, 1999
(as heretofore amended, the "Agreement"), is made as of June 1, 1999, by KMC
Telecom Holdings, Inc. (the "Company"), The Chase Manhattan Bank ("Warrant
Agent"), Newcourt Commercial Finance Corporation ("Newcourt') and Lucent
Technologies Inc. ("Lucent").
W I T N E S S E T H
WHEREAS, Newcourt and Lucent own warrants to purchase shares of the
Company's Common Stock ("Warrants");
WHEREAS, the Company has issued Warrants to First Union Investors,
Inc, ("First Union") pursuant to a warrant agreement dated as of April 30, 1999
(the "First Union Warrant Agreement");
WHEREAS, under the First Union Warrant Agreement, First Union is,
under certain circumstances, entitled to and obligated to sell shares of Common
Stock for which it Warrants may be exercised;
WHEREAS, Harold N. Kamine ("Kamine") and Nassau Capital Partners L. P.
("Nassau") are parties to the First Union Warrant Agreement for limited
purposes;
WHEREAS, Newcourt and Lucent wish to have the rights and obligations
to sell shares of Common Stock for which their Warrants may be exercised as
First Union has under the First Union Warrant Agreement, and Kamine and Nassau
are willing to agree to, the extension of such rights and obligations to
Newcourt and Lucent.
NOW, THEREFORE, in consideration of the premises, the parties hereto
agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, all capitalized
terms defined in the Agreement and used herein are used as so defined. In
addition, the following terms shall have the meanings set forth below:
"Buyout Notice" has the meaning ascribed to such term in Section 8.6.
"Capital Stock" means capital stock or share capital of, and/or other
equity participations in, the Company, including, without limitation partnership
interests, and/or conversion privileges, warrants, options and/or other rights
to acquire such capital stock, share capital and/or other equity participations.
<PAGE>
"Common Stock Equivalents" means any security or obligation which is
by its terms convertible into shares of Common Stock and any option, warrant or
other subscription or purchase right with respect to Common Stock.
"Existing Stockholders" means those stockholders who are from time to
time parties to the Stockholders Agreement dated as of October 31, 1997, as
amended.
"Fully Diluted" or "Fully Diluted Basis" means, at any date as of
which the number of shares of Common Stock is to be determined, such number of
shares determined on a basis that includes all shares of Common Stock
outstanding at such date and the maximum shares of Common Stock issuable in
respect of Common Stock Equivalents (giving effect to the then current
respective conversion prices) and other rights to purchase (directly or
indirectly) shares of Common Stock or Common Stock Equivalents, outstanding on
such date, whether or not such rights to convert, exchange or exercise
thereunder are presently exercisable,
"Principal Holders" means each of the following two groups (i) Nassau
Capital Partners L. P. and its general and limited partners and any Affiliates
of the foregoing and (ii) Harold N. Kamine and his parents, siblings, spouse,
descendants, heirs and devices, and any trust or Person the sole beneficiaries
or equity holders of which are the foregoing Persons.
"Tag-Along Notice" has the meaning ascribed to such term in Section
8.5.
"Tag-Along Purchaser" has the meaning ascribed to such term in Section
8.5.
"Tag-Along Shares" has the meaning ascribed to such term in Section
8.5.
"Third Party Purchaser" has the meaning ascribed to such term in
Section 8.6.
2. ADDITION OF SECTION 8.5. A new Section 8.5 is added to the
Agreement to read in its entirety as follows:
SECTION 8.5. TAG-ALONG RIGHT. (a) If any Principal Holder intends to
transfer to any Person (other than another Person that is included within the
defined group of such Principal Holder, provided that such transferee agrees in
writing to be bound by the terms of this Section 8.5 and new stock certificates
containing a restrictive legend referring to the transfer restrictions of this
Section 8.5 are issued to such transferee) (the "TAG-ALONG PURCHASER"), in one
transaction or a series of related transactions (excluding securities offerings
registered under the Securities Act), shares of Capital Stock constituting, in
the aggregate, more than 20% of the total number of shares of Common Stock on a
Fully Diluted Basis owned by such Principal Holder as of April 30, 1999, then
such Principal Holder shall permit each of the Purchasers, at such Purchaser's
option, to transfer, for the same consideration, and on the same terms and
conditions, if any, upon which the Principal Holder intends to transfer such
shares, a number of shares of Common Stock (including shares subject to then
exercisable Warrants and Warrants that will become exercisable as a result of
such transaction or series of transactions) then owned by such Purchaser
determined in accordance with this Section 8.5(a) (the "TAG-ALONG SHARES"). Such
Purchaser shall have the right, pursuant to this Section 8.5(a), to sell
<PAGE>
pursuant to the offer by the Tag-Along Purchaser, a percentage of the shares of
Common Stock (including shares subject to then exercisable Warrants) held by
such Purchaser equal to the Applicable Percentage.
(b) For purposes hereof, the "APPLICABLE PERCENTAGE" shall be
determined as follows:
(i) if such transaction or series of related transactions
constitutes the first instance in which the rights under Section 8.5(a) apply,
the Applicable Percentage shall be equal to the percentage of the holdings of
Capital Stock (on a Fully Diluted Basis) then owned by the applicable Principal
Holder being transferred in such transaction or series of related transactions
by such Principal Holder (the "APPLICABLE HOLDER" for such transaction(s));
(ii) if such transaction or series of related transactions does
not constitute the first instance in which the rights under Section 8.5(a)
apply, the Applicable Percentage shall be equal to the percentage of the
holdings of Capital Stock (on a Fully Diluted Basis) then owned by the
Applicable Holder being transferred in such transaction or series of related
transactions by the Applicable Holder; provided that the Applicable Percentage
shall be zero if the percentage of the holdings of Capital Stock (on a Fully
Diluted Basis) then owned by the Applicable Holder being transferred in such
transaction or series of related transactions by the Applicable Holder is not
greater than five percent.
(c) Not less than 15 Business Days prior to any proposed transfer
pursuant to this Section 8.5, the Principal Holders shall deliver to each of the
Purchasers written notice thereof (the "TAG-ALONG Notice"), which notice shall
set forth the consideration to be paid by the Tag-Along Purchaser and the other
terms and conditions, if any, of such transaction. If any Purchaser elects to
transfer some or all of the Tag-Along Shares pursuant to this Section 8.5, then
(i) such Purchaser shall so notify the Principal Holders within 10 Business Days
after the date of such Purchaser's receipt of Tag-Along Notice, and, (ii) at the
Principal Holders' request not less than two Business Days prior to the proposed
transfer, such Purchaser shall deliver to counsel to the Principal Holders, to
be held in escrow, certificates representing such Tag-Along Shares (and/or other
appropriate documentation to permit the exercise of Warrants), duly endorsed or
with duly completed and executed stock powers attached, in proper form for
transfer, together with a limited power-of-attorney authorizing the Principal
Holders to transfer the Tag-Along Shares to the Tag-Along Purchaser (in
accordance with the terms and conditions set forth in the Tag-Along Notice) and
to execute all other documents required to be executed in connection with such
transaction.
(d) If, within 30 Business Days after any Purchaser notifies the
Principal Holder of such Purchaser's election to transfer some or all of its
Tag-Along Shares, no transfer of shares held by the Principal Holders and
Tag-Along Shares in accordance with the provisions of this Section 8.5 shall
have been completed, then such Purchaser shall have the right at any time
thereafter to revoke its prior election relating to the Tag--Along Shares. Upon
any such revocation, or earlier if the Principal Holder shall determine not to
proceed with such transfer, then the Principal Holder's counsel shall promptly
return to such Purchaser, in proper form, all certificates representing the
Tag-Along Shares and the limited power-of-attorney previously delivered by such
Purchaser to the Principal Holders. If, within 30 Business Days after such
<PAGE>
Purchaser notifies the Principal Holder of such Purchaser's decision not to
transfer any Tag--Along Shares (or, if no such notice is given, the expiration
of the 10 Business Day period for notice of an election to transfer Tag--Along
Shares), no transfer of shares held by the Principal Holders shall have been
completed in accordance with the Tag--Along Notice, then the Principal Holders
must comply again with all of the provisions of this Section 8.5, including
without limitation a new Tag--Along Notice and another opportunity for each of
the Purchasers to elect to transfer Tag--Along Shares.
(e) Concurrently with the consummation of the transfer of the
Tag-Along Shares pursuant to this Section 8.5, the Principal Holders shall remit
or cause to be remitted to such Purchaser the consideration with respect to the
Tag-Along Shares so transferred and shall furnish such other evidence of the
completion of such transfer and the terms and conditions (if any) thereof as may
reasonably be requested by such Purchaser.
(f) The provisions of this Section 8.5 shall remain in effect,
notwithstanding any return to any Purchaser of Tag-Along Shares as provided
herein.
(g) Notwithstanding the exercise date described in Section 3.2, in the
event that such Purchaser holds Warrants that are not then exercisable under
Section 3.2 and such Purchaser would be entitled to tag-along rights pursuant to
this Section 8.5 if such Warrants were exercisable, then such Warrants shall
become exercisable, at the election of such Purchaser, to the extent necessary
to permit such Purchaser to utilize all of such tag-along rights. Alternatively,
such Purchaser shall be entitled to transfer to the Tag-Along Purchaser such
portion of its Warrants representing the number of Tag-Along Shares which would
be transferred to the Tag-Along Purchaser if such Warrants were exercisable, in
exchange for the consideration which would be payable with respect to such
Tag-Along Shares, less the Exercise Price for such Warrants.
3. ADDITION OF SECTION 8.6. A new Section 8.6 is added to the
Agreement to read in its entirety as follows:
SECTION 8.6. BRING ALONG RIGHT. If the Company or one or more of the
Existing Stockholders receives a bona fide offer from a person or persons not
then an Affiliate or Affiliates of the Company or such Existing Stockholders (a
"Third Party Purchaser") to purchase Capital Stock representing more than 50% of
the total number of shares of Common Stock then outstanding on a Fully Diluted
Basis, then the Company shall have the right to deliver a written notice (a
"Buyout Notice") to each of the Purchasers which shall state (i) that the
Company or such Existing Stockholders propose to effect such transaction, (ii)
the proposed purchase price per share of Capital Stock to be paid by the Third
Party Purchaser, and (iii) the name or names of the Third Party Purchaser, and
which attaches a copy of all writings between the Company or such Existing
Stockholders and the other parties to such transaction necessary to establish
the terms of such transaction. Each of the Purchasers agrees that, upon receipt
of a Buyout Notice, it shall be obligated to sell a percentage of its shares of
Common Stock equal to the Bring Along Percentage (as defined below) upon the
terms and conditions of such transaction (and otherwise take all necessary
action to cause consummation of the proposed transaction); PROVIDED, HOWEVER,
that each such Purchaser shall only be obligated as provided above in this
<PAGE>
Section 8.6 if (i) more than 50% of the total number of shares of Common Stock
then outstanding on a Fully Diluted Basis actually is sold to the Third Party
Purchaser pursuant to the terms contained in the Buyout Notice, (ii) each such
Purchaser receives the same per share (or per share equivalent) consideration as
the Company or such Existing Stockholders receive in the transaction and (iii)
the consideration received by such Purchaser is in the form of cash or a
combination of cash and securities that will become freely tradable in the
public securities markets within 180 days of receipt of such consideration by
such Purchaser. The Bring Along Percentage shall be the percentage of the total
number of shares of Common Stock outstanding an a Fully Diluted Basis that is
actually sold to the Third Party Purchaser pursuant to the terms contained in
the Buyout Notice; PROVIDED THAT if, after giving effect to such sale, the
Existing Stockholders would own not more than twenty percent of the
fully-diluted common equity interests in the Company, the Bring Along Percentage
shall be one hundred percent.
4. Except as expressly amended hereby, all of the provisions of the
Agreement are hereby affirmed and shall continue in full force and effect in
accordance their terms.
5. This Amendment shall be governed and construed in accordance with
the laws of the state of New York applicable to agreements made and to be
performed entirely within, such state, without regard to the principles of
conflicts of laws thereof.
6. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together, shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed, or have caused to
be executed, this Agreement on the date first written above.
KMC TELECOM HOLDINGS, INC.
By: /s/ James D. Grenfell
----------------------------------
Name: James D. Grenfell
Title. Chief Financial Officer
THE CHASE MANHATTAN BANK
By: /s/ P. Kelly
----------------------------------
Name: Patricia Kelly
Title. Vice President
NEWCOURT COMMERCIAL FINANCE
CORPORATION
By: /s/ John P. Sirico, II
----------------------------------
Name: John P. Sirico, II
Title. Vice President
LUCENT TECHNOLOGIES INC,
By: /s/ Leslie L. Rogers
----------------------------------
Name: Leslie L. Rogers
Title. Managing Director
Signature page to
Amendment
No. 2 to existing Warrant
Agreement
<PAGE>
CONSENT
Harold N. Kamine and Nassau Capital Partners, L. P. hereby consent to
the foregoing Amendment No. 1 for the purpose of being bound by Sections 8.5 and
8.6 added to the Warrant Agreement by the Amendment.
-------------------------------
Harold N. Kamine
NASSAU CAPITAL PARTNERS, L.P.
By: Nassau Capital L.L.C.,
its General Partner
By: /s/ John G. Quigley
-------------------------
Name: John G. Quigley
Title. Member
Signature page to
Amendment
No. 2 to existing Warrant
Agreement
PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT
PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT, dated as of April 30,
1999 (this "AGREEMENT"), between KMC TELECOM HOLDINGS, INC., a Delaware
corporation (the "COMPANY"), and FIRST UNION INVESTORS, INC., a North Carolina
corporation ("FIRST UNION").
WHEREAS, pursuant to the terms of a Securities Purchase Agreement of
even date herewith (the "PURCHASE AGREEMENT") between the Company and First
Union, the Company has agreed to issue and sell to First Union a unit (the
"SERIES E UNIT"), consisting of 35,000 shares of the Company's Series E Senior
Redeemable, Exchangeable, PIK Preferred Stock (the "SERIES E PREFERRED STOCK")
and 94,513 warrants (each, a "WARRANT" and collectively, the "WARRANTS"), each
Warrant initially entitling the holder thereof to purchase 0.471756 shares of
Common Stock (as defined below) of the Company at an exercise price of $.01 per
Common Share (as defined below);
WHEREAS, the Company and First Union wish to set forth their agreement
with respect to certain rights and obligations regarding the registration of
shares of the Preferred Stock.
In consideration of the foregoing and of the mutual agreements
contained herein and in the Purchase Agreement, the Company and the Purchaser
hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Affiliate" means, with respect to any Person, (i) each Person that,
directly or indirectly, owns or controls, whether beneficially or as a trustee,
guardian or other fiduciary, 25% or more of the capital stock having ordinary
voting power in the election of directors of such Person, (ii) each Person that
controls, is controlled by or is under common control with such Person or any
Affiliate of such Person, or (iii) each of such Person's executive officers and
directors. For the purpose of this definition, "control" of a Person shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise.
"Board of Directors" means the board of directors of the Company from
time to time.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means the common stock, par value $.01 per share, of
the Company.
<PAGE>
"Company" has the meaning specified in the recitals to this Agreement.
"Demand Holder" has the meaning specified in Section 2.1.
"Demand Registrations" has the meaning specified in Section 2.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"Fully Diluted Basis" means at any date as of which the number of
shares of Common Stock is to be determined, on a basis including all shares of
Common Stock outstanding at such date and the maximum shares of Common Stock
issuable in respect of Common Stock Equivalents (giving effect to the then
current respective conversion prices) and other rights to purchase (directly or
indirectly) shares of Common Stock or Common Stock Equivalents, outstanding on
such date, to the extent such rights to convert, exchange or exercise thereunder
are presently exercisable. For purposes of this definition, "Common Stock
Equivalents" means any security or obligation which is by its terms convertible
into shares of Common Stock and any option, warrant or other subscription or
purchase right with respect to Common Stock.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotations System.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, fund, unincorporated
association or organization or government or other agency or political
subdivision thereof.
"Purchase Agreement" has the meaning specified in the recitals.
"Registrable Securities" means the shares of Series E Preferred Stock
issued and sold to First Union under the Purchase Agreement.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation
all Commission and stock exchange or NASD registration and filing fees and
expenses, fees and expenses of compliance with securities or blue sky laws
(including without limitation reasonable fees and disbursements of counsel for
the underwriters in connection with blue sky qualificaitons of the Registrable
Securities), rating agency fees, printing expenses, messenger, telephone and
delivery expenses, the fees and expenses incurred in connection with the listing
of the securities to be registered on each securities exchange or national
market system on which similar securities issued by the Company are then listed,
fees and disbursements of counsel for the Company and all independent certified
public accountants (including the expenses of any annual audit, special audit
and "cold comfort" letters required by or incident to such performance and
compliance), securities laws liability insurance (if the Company so desires),
the fees and disbursements of underwriters (including without limitation all
fees and expenses of any "qualified independent underwriter" required by the
rules of the NASD) customarily paid by issuers or sellers of securities (but not
2
<PAGE>
including any underwriting discounts or commissions attributable to the sale of
Registrable Securities by the sellers of Registrable Securities), the reasonable
fees of counsel selected pursuant to Section 2.4(b) hereof by First Union in
connection with each such registration, the reasonable fees and expenses of any
special experts retained by the Company in connection with such registration,
fees and expenses of other persons retained by the Company.
"Registration Notice" has the meaning specified in Section 2.1(a).
"Registration Statement" means a registration statement filed pursuant
to the Securities Act.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"Series E Preferred Stock" has the meaning specified in the recitals
to this Agreement.
"Series E Unit" has the meaning specified in the recitals to this
Agreement.
2. DEMAND REGISTRATION RIGHTS.
(a) RIGHT TO DEMAND. At any time and from time to time after October
__, 1999, First Union (referred to in this Section 2 as the "Demand Holder") may
request the Company to register its Registrable Securities in the manner set
forth herein by written notice (the "REGISTRATION NOTICE") to the Company only
if a disposition of the Registrable Securities may not, in the opinion of the
Demand Holder, be effected in the public marketplace (as opposed to a private
transaction under the Securities Act) at equally favorable net terms to the
Demand Holder without registration of such shares under the Securities Act. In
the event that the Company receives a Registration Notice, the Company shall
effect a registration under the Securities Act of the number of Registrable
Securities determined in accordance with Section 2.1(c) on Form S-1 or any
similar long-form registration ("LONG-FORM REGISTRATIONS") or on Form S-2 or S-3
or any similar short-form registration ("SHORT-FORM REGISTRATIONS") if
available. All registrations requested pursuant to this Section 2.1(a) are
referred to herein as "Demand Registrations".
(b) NUMBER OF DEMAND REGISTRATIONS. First Union will be entitled to
obtain up to two (2) Long-Form Registrations and two (2) Short-Form
Registrations. A registration will not count as a Long-Form Registration or
Short-Form Registration, as the case may be, until such Demand Registration has
become effective and unless the Demand Holder is able to register and sell at
least 66 2/3% of the Registrable Securities requested to be included in such
registration. Demand Registrations will be Short-Form Registrations whenever the
Company is permitted to use any applicable short form. After the Company has
become subject to the reporting requirements of the Exchange Act, the Company
will use its best efforts to make Short-Form Registrations available for the
sale of Registrable Securities. The Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to this Section 2.1(b)
(including the Company's internal costs in proceeding on such request, as
reasonably determined by the Company's Board of Directors) if the registration
request is subsequently withdrawn, unless the Demand Holder agrees to treat the
withdrawn request as a registration undertaken pursuant to this Section 2.1(b);
PROVIDED, that if the Demand Holder withdraws a request as a result of a
3
<PAGE>
material adverse change in the condition, business or prospects of the Company
or in the market for the Company's securities from that known to the Demand
Holder at the time of its request, the Company, and not the Demand Holder, shall
be required to pay all the expenses relating to the proposed registration and
such request shall not be treated as a registration for purposes of this Section
2.1(b).
(c) DEMAND REGISTRATIONS. Within (a) 75 days after the Company
receives a Registration Notice with respect to the first offer for sale of
Shares pursuant to an effective registration statement filed by the Company
under the Securities Act or (b) within 45 days after the Company receives a
Registration Notice with respect to any other demand registration, the Company
shall file with the Commission a registration statement under the Securities Act
for such Demand Registration. The Company shall use its best efforts to cause
the Demand Registration to be declared effective under the Securities Act as
soon as is practical after filing, and once effective, the Company shall cause
such Demand Registration to remain effective for such time period as is
specified in such request, but for no time period longer than the period ending
on the earlier of (i) the one-year anniversary of the effective date of such
Demand Registration, (ii) the date on which all Registrable Securities have been
sold pursuant to the Demand Registration or (iii) the date as of which there are
no longer any Registrable Securities in existence. Each request for a Demand
Registration shall specify the approximate number of Registrable Securities
requested to be registered and the anticipated per share price range for such
offering.
(d) PRIORITY ON DEMAND REGISTRATIONS. The Company will not include in
any Demand Registration any securities which are not Registrable Securities
without the prior written consent of the Demand Holder. 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, which
can be sold therein without adversely affecting the marketability of the
offering, the Company will include in such registration, (i) first, the
Registrable Securities requested to be included in such registration; and (ii)
second, other securities, if any, requested to be included in such registration,
pro rata among the holders of such other securities, on the basis of the number
of shares of other securities owned by each such holder and requested to be
included therein.
(e) RESTRICTIONS ON DEMAND REGISTRATIONS. The Company will not be
obligated to effect any Demand Registration within six months after the
effective date of a previous Demand Registration. If at the time of any request
to register Registrable Securities pursuant to Section 2.1 hereof, the Company
is engaged, or has fixed plans to engage within 90 days of the time of the
request, in a registered public offering or is engaged in any activity which, in
the good faith determination of the Board of Directors, would be adversely
affected by the requested registration to the material detriment of the Company,
then the Company may at its option direct that such request be delayed for a
period not in excess of 60 days from the effective date of such offering, or the
date of commencement of such other material activity, as the case may be, such
right to delay a request to be exercised by the Company not more than once
within any twelve month period.
4
<PAGE>
(f) SELECTION OF UNDERWRITERS. In the case of a Demand Registration,
the Company shall have the right to select the investment banker or bankers,
underwriters and managers to administer the offering; PROVIDED, HOWEVER, that
such investment banker or bankers, underwriters and managers shall be
satisfactory to the Demand Holder.
2.2. HOLDBACK AGREEMENTS.
(a) First Union agrees not to effect any public sale or distribution
(including sales pursuant to Rule 144 under the Securities Act) of equity
securities, including, without limitation, the Common Stock, of the Company, or
any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 180-day period beginning on
the effective date of any Demand Registration for a public offering to be
underwritten on a firm commitment basis (except as part of such underwritten
registration), unless the investment bankers or underwriters managing the public
offering otherwise agree.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, including, without limitation, the Common
Stock, or any securities convertible into or exchangeable or exercisable for
such securities, during the seven days prior to and during the 180-day period
beginning on the effective date of any underwritten Demand Registration (except
as part of such underwritten registration), unless the underwriters managing the
registered public offering otherwise agree, and (ii) to use best efforts to
cause each holder of at least 5% (on a Fully Diluted Basis) of its equity
securities, including, without limitation, Common Stock, or any securities
convertible into or exchangeable or exercisable for such securities, purchased
from the Company at any time after the date of this Agreement (other than in a
registered public offering or distribution) to agree not to effect any public
sale or distribution (including sales pursuant to Rule 144 under the Securities
Act) of any such securities during such period (except as part of such
underwritten registration), unless the underwriters managing the public offering
or distribution otherwise agree.
2.3. REGISTRATION PROCEDURES. Whenever First Union has requested that
any Registrable Securities be registered pursuant to this Agreement, the Company
will use its best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof, and pursuant thereto 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 best efforts to cause such
registration statement to become effective (provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will furnish to the counsel selected by First Union copies of all
such documents proposed to be filed);
(b) subject to Section 2.3 (e) , prepare and file with the Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than six months and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
5
<PAGE>
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to First Union such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary prospectus) and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions of
the United States of America as First Union reasonably requests and do any and
all other acts and things which may be reasonably necessary or advisable to
enable First Union to consummate the disposition in such jurisdictions of the
Registrable Securities (provided that the Company will 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 subsection, (ii) subject itself to
taxation in any such jurisdiction or (iii) consent to general service of process
(i.e., service of process which is not limited solely to securities law
violations) in any such jurisdiction);
(e) notify First Union, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading, and, at the request of
any such seller, the Company will promptly prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omit to state any fact necessary to make the statements
therein not misleading; PROVIDED, that upon not less than five days, notice to
First Union, the Company may defer the filing of an amendment or withdraw an
amendment or may defer the effectiveness of an amendment or the preparation of a
supplement if the Board of Directors determines, in good faith, that such
amendment or supplement, or the disclosure of any information in connection
therewith, would have a material adverse affect upon the Company or its
subsidiaries; and PROVIDED, FURTHER, that the Company may not defer the filing
of any such amendment or supplement for more than 30 days;
(f) use its best efforts to cause all such Registrable Securities to
be listed on each securities exchange on which similar securities issued by the
Company are then listed and, if not so listed, to be listed on the NASDAQ and,
if listed on the NASDAQ, use its best efforts to secure designation of all such
Registrable Securities covered by such registration statement as a "national
market system security" within the meaning of Rule 11Aa2-1 of the Commission or,
failing that, to secure NASDAQ authorization for such Registrable Securities
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register as such with respect to such Registrable
Securities with the NASD;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as First Union or
the underwriters, if any, reasonably request in order to expedite or facilitate
6
<PAGE>
the disposition of such Registrable Securities (including, without limitation,
effecting a stock split or a combination of shares);
(i) make available, subject to any confidentiality agreements
reasonably requested by the Company, for inspection by First Union any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by First Union or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors,
employees and independent accountants to supply all information reasonably
requested by any First Union, such underwriter, attorney, accountant or agent in
connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and, if required, 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 thereunder;
(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 equity securities, including, without limitation, the Common stock, included
in such registration statement for sale in any jurisdiction, the Company will
use its reasonable best efforts promptly to obtain the withdrawal of such order;
(1) use its best efforts to cause such Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the sellers
thereof to consummate the disposition of such Registrable Securities; and
(m) obtain a "cold comfort" letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by "cold comfort" letters as First Union reasonably
requests; and
It shall be a condition precedent to the obligation of the Company to
take any action pursuant to this Agreement in respect of the securities which
are to be registered at the request of First Union that First Union shall
furnish to the Company such information regarding the securities held by First
Union and the intended method of disposition thereof as the Company shall
reasonably request in connection with such registration.
2.4. REGISTRATION EXPENSES.
(a) Except as otherwise expressly provided in this Agreement, all
Registration Expenses will be borne by the Company.
(b) Except as otherwise expressly provided in this Agreement, in
connection with each Demand Registration, the Company will reimburse First Union
for the reasonable fees and disbursements of one counsel chosen by First Union.
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<PAGE>
2.5. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless, to the full
extent permitted by law, First Union, its officers and directors and each Person
who controls First Union (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses arising out of or based upon
any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and shall reimburse First Union, such director, officer or
controlling person for any legal or other expenses reasonably incurred by First
Union, such director, officer or controlling person in connection with the
investigation or defense of such loss, claim, damage, liability or expense,
except insofar as the same are contained in any information furnished in writing
to the Company by First Union expressly for use therein or by First Union's
failure to deliver a copy of the registration statement or prospectus or any
amendments or supplements thereto after the Company has furnished First Union
with a sufficient number of copies of the same. In connection with an
underwritten offering, the Company will 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 as provided above with
respect to the indemnification of First Union.
(b) In connection with any registration statement in which First Union
is participating, First Union will furnish to the Company in writing such
information as the Company reasonably requests for use in connection with any
such registration statement or prospectus and, to the full extent permitted by
law, will indemnify and hold harmless the Company, its directors and officers
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 untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
contained in any information so furnished in writing by First Union; PROVIDED,
that the obligation to indemnify will be limited to the net amount of proceeds
received by First Union from the sale of Registrable Securities pursuant to such
registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
8
<PAGE>
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement will be in
addition to any liability the indemnifying party may otherwise have and without
prejudice to any other right or remedy the indemnified party may otherwise have,
which will remain in full force and effect regardless of any omission to give
notice (except to the extent such omission effects the ability of the
indemnifying party to defend such claim) or any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and will survive the transfer of securities. The
Company also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
2.6. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all customary
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements; PROVIDED, that First Union shall not be required to make any
representations or warranties to the Company or the underwriters other than
representations and warranties regarding First Union and First Union's intended
method of distribution.
3. MISCELLANEOUS.
3.1. NOTICES. All notices or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telecopied or
sent by certified, registered or express mail, postage prepaid. Any such notice
shall be deemed given when so delivered personally, telecopied or sent by
certified, registered or express mail or, if mailed, five days after the date of
deposit in the United States mail, as follows:
(a) if to the Company:
KMC Telecom Holdings, Inc.
1545 Route 206
Bedminster, New Jersey 07921
Attn: James D. Grenfell
Chief Financial Officer
Telecopier No: (908) 719-8775
9
<PAGE>
with a copy to:
Kelley Drye & Warren, LLP
101 Park Avenue
New York, New York 10178
Attn: Alan Epstein, Esq.
Telecopier No: (212) 808-7898/7899
if to First Union:
First Union Investors, Inc.
1 First Union Center
5th Floor
301 South College
Charlotte, NC 28288
Attn: L. Watts Hamrick, III
Telecopier No: (704) 374-6711
with a copy to:
Kennedy Covington Lobdell & Hickman, LLP
Bank of America Corporate Center
Suite 4200
100 North Tryon Street
Charlotte, North Carolina 28202-4006
Attn: Eugene C. Pridgen, Esq.
Telecopier No: (704) 331-7598
Any party may by notice given in accordance with this Section 3.1
designate another address or person for receipt of notices hereunder.
3.2. AMENDMENT AND WAIVER.
(a) No failure or delay on the part of any party hereto in exercising
any right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. The remedies provided for herein are cumulative and are not exclusive
of any remedies that may be available to the parties hereto at law, in equity or
otherwise.
(b) 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 by any party 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 parties and (ii) only in the specific instance and for the
specific purpose for which made or given.
10
<PAGE>
3.3. SPECIFIC PERFORMANCE. The parties hereto intend that each of the
parties have the right to seek damages or specific performance in the event that
any other party hereto fails to perform such party's obligations hereunder.
Therefore, if any party shall institute any action or proceeding to enforce the
provisions hereof, any party against whom such action or proceeding is brought
hereby waives any claim or defense therein that the plaintiff party has an
adequate remedy at law.
3.4. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
3.5. 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.
3.6. ENTIRE AGREEMENT. This Agreement 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 supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
3.7. TERM OF AGREEMENT. The provisions of this Agreement shall become
effective upon the execution hereof and shall terminate as provided herein.
3.8. VARIATIONS IN PRONOUNS. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
3.9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW THEREOF.
3.10. FURTHER ASSURANCES. Each of the parties shall, and shall cause
their respective Affiliates to, execute such instruments and take such action as
may be reasonably required or desirable to carry out the provisions hereof and
the transactions contemplated hereby.
3.11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors, heirs,
legatees and legal representatives. This Agreement is not assignable except in
connection with a transfer of Shares in accordance with this Agreement.
3.12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed, or have cause to be
executed, this Agreement on the date first written above.
KMC TELECOM HOLDINGS, INC.
By: /s/ Michael Sternberg
_____________________________________
Name: Michael A. Sternberg
Title: President
FIRST UNION INVESTORS, INC.
By: /s/ Pearce Landry
____________________________
Name: Pearce A. Landry
Title: Vice President
AMENDMENT NO. 1 TO
PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT
This Amendment No. 1 to Preferred Stock Registration Rights Agreement
dated as of April 30, 1999 is made as of June 1, 1999 by KMC Telecom Holdings,
Inc. (the "Company"), First Union Investors, Inc. ("First Union"), Newcourt
Commercial Finance Corporation ("Newcourt") and Lucent Technologies, Inc.
("Lucent").
W I T N E S S E T H
WHEREAS, First Union owns shares of the Company's Series E Senior,
Redeemable, Exchangeable, PIK Preferred Stock (the "Series E Preferred Stock");
WHEREAS, the Company and First Union are parties to the Preferred Stock
Registration Rights Agreement dated as of April 30, 1999 concerning First
Union's Series E Preferred Stock (the "Agreement");
WHEREAS, Newcourt owns shares of the Company's Series E Preferred
Stock, and shares of the Company's Series F Senior, Redeemable, Exchangeable,
PIK Preferred Stock (the "Series F Preferred Stock"), and Lucent owns shares of
the Series F Preferred Stock;
WHEREAS, the Company wishes to extend the registration rights granted
to First Union with respect to its Series E Preferred Stock to Newcourt and
Lucent with respect to their shares of Series E Preferred Stock and Series F
Preferred Stock, respectively;
WHEREAS, First Union wishes to consent to the granting of such
registration rights to Newcourt and Lucent.
NOW, THEREFORE, in consideration of the premises, the parties hereto
agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, all capitalized
terms defined in the Agreement and used herein are used as so defined. In
addition, the following terms shall have the meanings set forth below, and, to
the extent that such terms also appear in the Agreement, the meanings set forth
below shall replace the meanings set forth in the Agreement:
"Registrable Securities" means the shares of Series E Preferred Stock
issued and sold to First Union under the Securities Purchase Agreement dated as
of April 30, 1999, the shares of Series E Preferred Stock, the shares of Series
F Preferred Stock issued and sold to Newcourt under the Securities Purchase
Agreement dated as of February 4, 1999, and the shares of Series F Preferred
Stock issued and sold to Lucent under the Securities Purchase Agreement dated as
of February 4, 1999.
2. INSERTION OF NEW SUBHEADING. A new subheading is inserted below the
heading "2. DEMAND REGISTRATION RIGHTS." to read "2.1 DEMAND RIGHTS."
<PAGE>
3. AMENDMENT TO SECTION 2.1(A). The first sentence of Section 2.1(a) of
the Agreement is amended to read in its entirety as follows:
"At any time and from time to time after October 30, 1999, First
Union, Newcourt and Lucent (each referred to in this Section 2 as the
"Demand Holder") may request the Company to register its Registrable
Securities in the manner set forth herein by written notice (the
"REGISTRATION NOTICE") to the Company only if a disposition of the
Registrable Securities may not, in the opinion of the Demand Holder, be
effected in the public marketplace (as opposed to a private transaction
under the Securities Act) at equally favorable net terms to the Demand
Holder without registration of such shares under the Securities Act."
4. AMENDMENT TO SECTION 2.1(B). The first sentence of Section 2.1(b) of
the Agreement is amended to read in its entirety as follows:
"Each of First Union, Newcourt and Lucent will be entitled to obtain
up to two (2) Long-Form Registrations and two (2) Short-Form
Registrations."
5. AMENDMENT TO SECTION 2.2(A). The first sentence of Section 2.2(a) of
the Agreement is amended by replacing the words "First Union" with the words
"Each of First Union, Newcourt and Lucent".
6. AMENDMENT TO SECTION 2.3. The introductory language of Section 2.3
of the Agreement is amended by replacing the words "First Union" with the words
"any of First Union, Newcourt and Lucent".
7. AMENDMENT TO SECTION 2.3(A), (C), (D), (E), (H), (I) AND (M).
Sections 2.3(a), (c), (d), (e), (h), (i) and (m) of the Agreement are amended,
in each case by replacing each occurrence of the words "First Union" with the
words "First Union, Newcourt or Lucent, as the case may be,". Section 2.3(m) is
further amended by deleting ";and" at the end and replacing the deleted material
with a period. The final paragraph of Section 2.3, which is not designated by an
alphabetic character, is also amended by replacing each occurrence of the words
"First Union" with the words "First Union, Newcourt or Lucent, as the case may
be,".
8. AMENDMENT TO SECTION 2.4(B). Section 2.4(b) of the Agreement is
amended to read in its entirety as follows:
"(b) Except as otherwise expressly provided in this Agreement, in
connection with each Demand Registration, the Company will reimburse
First Union, Newcourt or Lucent, as the case may be, for the reasonable
fees and disbursements of counsel chosen by it. If more than one of
First Union, Newcourt and Lucent are participating in a registration,
whether by virtue of coincident demand or otherwise, they shall jointly
select counsel and the Company will only be obligated to reimburse any
or all of them for the reasonable fees and disbursements of once
counsel chosen by them."
2
<PAGE>
9. AMENDMENT TO SECTION 2.5(A) AND (B). Sections 2.5(a) and (b) of the
Agreement are amended, in each case by replacing each occurrence of the words
"First Union" with the words "First Union, Newcourt or Lucent, as the case may
be,".
10. AMENDMENT TO SECTION 2.6. Section 2.6 of the Agreement is amended
to read in its entirety as follows:
"2.6. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any registration hereunder which is underwritten unless
such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Person or
Persons entitled hereunder to approve such arrangements and (b)
completes and executes all customary questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements;
PROVIDED, that First Union, Newcourt or Lucent, as the case may be,
shall not be required to make any representations or warranties to the
Company or the underwriters other than representations and warranties
regarding itself and its intended method of distribution."
11. AMENDMENT TO SECTION 3.1. Section 3.1 of the Agreement is amended
by adding the following after the address for First Union and its counsel:
if to Newcourt:
Newcourt Commercial Finance Corporation
2 Gatehall Drive
Parsippany, New Jersey 07054
Attn: Vice President--Credit
Fax: (973) 355-7644
with a copy to:
Newcourt Commercial Finance Corporation
2 Gatehall Drive
Parsippany, New Jersey 07054
Attn: Vice President--Legal
Fax: (973) 355-7645
if to Lucent:
Lucent Technologies, Inc.
283 King George Road
Room A1D 27
Warren, New Jersey 07059
Attn: Sue Colross
Fax: (908) 558-1705
with a copy to:
Sidley & Austin
875 Third Avenue
New York, New York 10001
Attn: Irving L. Rotter
Fax: (212) 906-2021
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<PAGE>
12. Except as expressly amended hereby, all of the provisions of the
Agreement are hereby affirmed and shall continue in full force and effect in
accordance with their terms.
13. This Amendment shall be governed and construed in accordance with
the laws of the state of Delaware applicable to agreements made and to be
performed entirely within such state, without regard to the principles of
conflicts of laws thereof.
14. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together, shall
constitute one and the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Amendment on the date first written above.
KMC TELECOM HOLDINGS, INC.
By: /s/ James D. Grenfell
-----------------------------
Name: James D. Grenfell
Title: Chief Financial Officer
FIRST UNION INVESTORS, INC.
By: /s/ Pearce Landry
-----------------------------
Name: Pearce A. Landry
Title: Vice President
NEWCOURT COMMERCIAL FINANCE
CORPORATION
By: /s/ John P. Sirico II
-----------------------------
Name: John P. Sirico II
Title: Vice President
LUCENT TECHNOLOGIES, INC.
By: /s/ Leslie L. Rogers
-----------------------------
Name: Leslie L. Rogers
Title: Managing Director
Signature Page to
Amendment No. 1 to
Preferred Stock
Registration Rights
Agreement
AMENDMENT NO. 5 TO
THE AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
AMENDMENT NO. 5 dated as of April 30, 1999 to the Amended and Restated
Stockholders Agreement, dated as of October 31, 1997 (as heretofore amended, the
"Stockholders Agreement") among KMC Telecom Holdings, Inc., Nassau Capital
Partners L.P., NAS Partners I L.L.C., Harold N. Kamine, Newcourt Commercial
Finance Corporation (as successor to AT&T Credit Corporation), General Electric
Capital Corporation, First Union National Bank (as successor to CoreStates Bank,
N.A.), CoreStates Holdings, Inc., and ., KMC Telecommunications L.P.
W I T N E S S E T H
WHEREAS, the parties hereto desire to make certain amendments to the
Stockholders Agreement;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, all capitalized
terms defined in the Stockholders Agreement and used herein are so used as so
defined. In addition, the following terms shall have the meanings set forth
below:
"HYDO II" means the offering and sale of not more than $300,000,000
aggregate principal amount of Senior Notes due 2009 of the Company,
substantially in the manner contemplated by a purchase agreement to be entered
into between the Company and Morgan Stanley & Co. Incorporated, Credit Suisse
First Boston, First Union Capital Markets, CIBC Oppenheimer, BancBoston
Robertson Stephens Inc. and Wasserstein Perella & Co. Inc..
"PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT" means the Preferred
Stock Registration Rights Agreement dated as of April 30, 1999 between the
Company and First Union Investors, Inc.
"PREFERRED STOCK WARRANT AGREEMENT 2" means the Warrant Agreement
dated as of April 30, 1999 among the Company, The Chase Manhattan Bank, as
Warrant Agent and First Union Investors, Inc., which Preferred Stock Warrant
Agreement 2 is being entered into in connection with the execution and delivery
of the Purchase Agreement 2.
"PREFERRED STOCK WARRANT SHARES 2" means shares of Common Stock
<PAGE>
issuable upon exercise of Preferred Stock Warrants 2, such other securities as
shall be issuable upon the exercise of Preferred Stock Warrants 2, or shares of
Common Stock or other securities received upon the exercise of Preferred Stock
Warrants 2.
"PREFERRED STOCK WARRANTS 2" means Warrants issued to holders of
Series E Preferred Stock pursuant to the Preferred Stock Warrant Agreement 2,
each such Warrant initially entitling the holder thereof to purchase 0.471756
shares of Common Stock at an exercise price of $.01 per share.
"PURCHASE AGREEMENT 2" means the Securities Purchase Agreement dated
as of April 30, 1999 among the Company and First Union Investors, Inc.
"REGISTRATION RIGHTS AGREEMENT II" means the Registration Rights
Agreement to be entered into between the Company and Morgan Stanley & Co.
Incorporated, Credit Suisse First Boston, First Union Capital Markets, CIBC
Oppenheimer, BancBoston Robertson Stephens Inc. and Wasserstein Perella & Co.,
Inc., relating to the granting by the Company of Registration Rights with
respect to the 2009 Senior Notes.
"2009 SENIOR NOTES" means the Senior Notes due 2009 to be issued by
the Company in connection with the HYDO II.
"WARRANT REGISTRATION RIGHTS AGREEMENT 2" means the Warrant
Registration Rights Agreement dated as of April 30, 1999 among the Company and
First Union Investors, Inc., which Warrant Registration Rights Agreement 2 is
being entered into in connection with the execution and delivery of the
Preferred Stock Warrant Agreement 2.
2. AMENDMENTS TO SECTION 5 OF THE STOCKHOLDERS AGREEMENT. Paragraph(a)
of Section 5 of the Stockholders Agreement is amended to read as follows:
PUT RIGHT. (a) Subject to the covenants contained in the
indentures entered into in connection with the Senior Discount Notes and 2009
Senior Notes if no Liquidity Event shall have occurred by the later of October
22, 2003 or 90 days following the final maturity date of debt securities issued
in the HYDO II, then each of Nassau and its Affiliates, AT&T, GECC and
CoreStates shall have the right, at any time thereafter, by giving written
notice to the Company (a "PUT NOTICE"), to require the Company to repurchase (a
"PUT") all or any portion of the shares of Convertible Preferred Stock or Common
Stock held by such Stockholder for an amount (the "PUT AMOUNT") equal to (A) the
fair market value of the shares subject to such Put as determined within 30 days
of each Put Notice by an investment bank of national reputation which is
mutually acceptable to the Company and holders of a majority of the voting power
of Common Stock and Common Stock Equivalents held by all parties exercising Puts
hereunder or (B) in the case of any shares of Convertible Preferred Stock, at
<PAGE>
the liquidation preference thereof plus all accrued and unpaid dividends, at the
option of holders thereof; provided that AT&T, GECC and CoreStates shall not
have the right to exercise a Put hereunder unless Nassau or its Affiliates have
exercised a Put; and provided further that the Company may not repurchase any
shares of Convertible Preferred Stock or Common Stock hereunder so long as the
Series E Preferred Stock or the Series F Preferred Stock remain outstanding
unless the holders of the Series E Preferred Stock and the holders of the Series
F Preferred Stock have waived in writing their right to have the Company
repurchase their Series E Preferred Stock and Series F Preferred Stock prior to
the repurchase by the Company of any shares of Convertible Preferred Stock or
Common Stock hereunder. The Company shall give AT&T, GECC and CoreStates prompt
notice of Nassau's intent to exercise a Put. The Company shall give notice to
Nassau and the other Stockholders of any exercise of the Put right under Section
14 of either of the Subsidiary Warrants or hereunder. The Company shall pay to
the party exercising a Put the Put Amount within 60 days of the date of such
determination of fair market value. Any unpaid balance of a Put Amount
thereafter shall bear interest, which interest shall be paid together with any
payment of such Put Amount, at a rate of 18.0% per annum (the "DEFAULT RATE");
provided that accrual of interest at the Default Rate shall not constitute a
waiver of any party exercising a Put hereunder to receive immediate payment of
the Put Amount.
2. AMENDMENTS TO SECTIONS 6.1 AND 6.2 OF THE STOCKHOLDERS AGREEMENT.
Paragraph (g) of Section 6.1 and paragraph (c) of Section 6.2 of the
Stockholders Agreement are amended to read as follows:
6.1 DEMAND REGISTRATIONS.
(g) OTHER REGISTRATION RIGHTS. (i) Within the limitations prescribed
by this paragraph (i), but not otherwise, the Company may grant to subsequent
investors in the Company rights of incidental registration (such as those
provided in Section 6.2). Such rights may only pertain to the Senior Discount
Notes and Warrant Shares, in the case of the HYDEO, Preferred Stock Warrant
Shares, in the case of the Preferred Stock Warrant Agreement, 2009 Senior Notes,
in the case of the HYDO II, and Preferred Stock Warrant Shares 2, in the case of
the Preferred Stock Warrant Agreement 2. Such rights may be granted with respect
to (a) registrations actually requested by a Demand Holder pursuant to Section
6.1, but only in respect of that portion of any such registration as remains
after inclusion of all Registrable Securities requested by the Demand Holder and
(b) registrations initiated by the Company, but only in respect of that portion
of such registration as is available under the limitations set forth in Section
6.2(c) (which limitations shall apply pro rata to all holders of Registrable
Securities) and such rights shall be limited in all cases to sharing in the
available portion of the registration in question with holders of Registrable
Securities and other investors as provided in Section 6.2(c), such sharing to be
based on the number of shares of Common Stock held by the respective holders of
Registrable Securities and held by such other investors, plus the number of
<PAGE>
shares of Common Stock into which other securities held by the holders of
Registrable Securities and such other investors are convertible, which are
entitled to registration rights. With respect to registrations which are for
underwritten public offerings, "available portion" as used above shall mean the
portion of the underwritten shares which is available as specified in clauses
(a) and (b) of the third sentence of this paragraph (i). Shares not included in
such underwriting shall not be registered.
(ii) The Company may not grant to subsequent investors in the
Company rights of registration upon request (such as those provided in Section
6.1) unless (a) such rights are limited to shares of Common Stock; (b) the
Demand Holders are given enforceable contractual rights to participate in
registrations requested by such subsequent investors (but subject to the right
of priority of registration in the following order: such subsequent investors
and the holders of Registrable Securities on a pro rata basis), such
participation to be on the pro rata basis and subject to the limitations
described in the final three sentences of paragraph (i) of this Section 6.1(g);
(c) such rights shall not become effective prior to 90 days after the effective
date of the first registration pursuant to Section 6.1; and (d) such rights
shall not be more favorable than those granted to the Demand Holders.
Notwithstanding the foregoing or anything to the contrary contained in this
Agreement, the Company may file shelf registrations under the Securities Act (v)
as required by Section 3 of the Warrant Registration Rights Agreement,
substantially upon the terms and subject to the conditions contained therein,
(w) as required by Section 2(b) of the Registration Rights Agreement,
substantially upon the terms and subject to the conditions contained therein,
(x) as required by Section 3 of the 1999 Warrant Registration Rights Agreement,
substantially upon the terms and subject to the conditions contained therein,
(y) as required by Section 2(b) of the Registration Rights Agreement II,
substantially upon the terms and subject to the conditions contained therein and
(z) as required by Section 3 of the Warrant Registration Rights Agreement 2,
substantially upon the terms and subject to the conditions contained therein.
Notwithstanding the foregoing or anything to the contrary contained in this
Agreement, the Company may grant registration rights to the holders of Series E
Preferred Stock pursuant to the Preferred Stock Registration Rights Agreement as
provided therein.
6.2 PIGGYBACK REGISTRATIONS.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, the Company will
include in such registration all securities requested to be included in such
registration; PROVIDED, that if the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering
without adversely affecting the price, timing or distribution of the offering,
the Company will include in such registration (i) first, the securities the
Company proposes to sell, (ii) second, the Registrable Securities requested to
be included in such registration, pro rata among the holders of such Registrable
<PAGE>
Securities on the basis of the number of Registrable Securities owned by each
such holder and requested to be included therein, and (iii) third, other
securities (including Warrant Shares, Preferred Stock Warrant Shares and
Preferred Stock Warrant Shares 2, if any, requested to be included in such
registration (in such relative order of priority among such securities as may be
specified with respect thereto).
4. Except as expressly amended hereby, all of the provisions of the
Stockholders Agreement are hereby affirmed and shall continue in full force and
effect in accordance with their terms.
5. This Amendment shall be governed and construed in accordance with
the laws of the state of Delaware applicable to agreements made and to be
performed entirely within such state, without regard to the principles of
conflicts of laws thereof.
6. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together, shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed, or caused to be
executed, this Agreement as of the date first above written.
KMC TELECOM HOLDINGS, INC.
By:/s/ Michael Sternberg
_______________________________
Name: Michael A. Sternberg
Title: President
NASSAU CAPITAL PARTNERS L.P.
By: Nassau Capital L.L.C., its General Partner
By: /s/ John G. Quigley
_____________________________
Name: John G. Quigley
Title: Member
NAS PARTNERS I L.L.C.
By: /s/ John G. Quigley
_____________________________
Name: John G. Quigley
Title: Member
HAROLD N. KAMINE
/s/ Harold N. Kamine
___________________________________
NEWCOURT COMMERCIAL FINANCE
CORPORATION
By:/s/ John P. Sirico II
______________________________
Name: John P. Sirico II
Title: Vice President
Signature Page to
Amendment No. 5 to the
Amended and Restated
Stockholders Agreement
<PAGE>
FIRST UNION NATIONAL BANK
By:/s/ Pearce Landry
____________________________
Name: Pearce A. Landry
Title: Vice President
CORESTATES HOLDINGS, INC.
By:/s/ Tracey M. Chaffin
_______________________________
Name: Tracey M. Chaffin
Title: Manager-Operating
GENERAL ELECTRIC CAPITAL
CORPORATION
By:/s/ M. Mylon
________________________________
Name: Mark F. Mylon
Title: Manager-Operating
Signature Page to
Amendment No. 5 to the
Amended and Restated
Stockholders Agreement
<PAGE>
KMC TELECOMMUNICATIONS L.P.
By: /s/ Gerard Russomagno
______________________________
Name: Gerard M. Russomagno
Title: General Managing Partner
Signature Page to
Amendment No. 5 to the
Amended and Restated
Stockholders Agreement
AMENDMENT NO. 6 TO
THE AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
AMENDMENT NO. 6 dated as of June 1, 1999 to the Amended and Restated
Stockholders Agreement, dated as of October 31, 1997 (as heretofore amended, the
"Stockholders Agreement") among KMC Telecom Holdings, Inc., Nassau Capital
Partners L.P., NAS Partners I L.L.C., Harold N. Kamine, Newcourt Commercial
Finance Corporation (as successor to AT&T Credit Corporation), General Electric
Capital Corporation, First Union National Bank (as successor to CoreStates Bank,
N.A.), KMC Telecommunications L.P., and CoreStates Holdings, Inc.
W I T N E S S E T H
WHEREAS, the parties hereto desire to make certain amendments to the
Stockholders Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS; AMENDMENTS TO SECTION 1 OF THE STOCKHOLDERS
AGREEMENT. Unless otherwise defined herein, all capitalized terms defined in the
Stockholders Agreement and used herein are so used as so defined. In addition,
Section 1 of the Stockholders Agreement is amended by replacing the existing
definitions with those set forth below.
"PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT" means the Preferred
Stock Registration Rights Agreement dated as of April 30, 1999 between the
Company and First Union Investors, Inc., as amended by Amendment No. 1 dated as
of the date hereof.
"PREFERRED STOCK WARRANT AGREEMENT" means the Warrant Agreement dated
as of February 4, 1999 among the Company, The Chase Manhattan Bank, as Warrant
Agent, Newcourt Capital USA, Inc., Lucent Technologies Inc. and any Additional
Purchasers (as defined therein), as amended by Amendment No. 1 dated as of April
30, 1999, and as further amended by Amendment No. 2 dated as of the date hereof.
2. AMENDMENTS TO SECTIONS 6.1 OF THE STOCKHOLDERS AGREEMENT. The last
sentence of paragraph (g)(ii) of Section 6.1 of the Stockholders Agreement is
amended to read as follows:
6.1 DEMAND REGISTRATIONS.
<PAGE>
(g) OTHER REGISTRATION RIGHTS.
(ii) Notwithstanding the foregoing or anything to the contrary
contained in this Agreement, the Company may grant registration rights to the
holders of Series E Preferred Stock and Series F Preferred Stock pursuant to the
Preferred Stock Registration Rights Agreement as provided therein.
3. Except as expressly amended hereby, all of the provisions of the
Stockholders Agreement are hereby affirmed and shall continue in full force and
effect in accordance with their terms.
4. This Amendment shall be governed and construed in accordance with
the laws of the state of Delaware applicable to agreements made and to be
performed entirely within such state, without regard to the principles of
conflicts of laws thereof.
5. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together, shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed, or caused
to be executed, this Agreement as of the date first above written.
KMC TELECOM HOLDINGS, INC.
By:/s/ James D. Greenfell
_______________________________
Name: James D. Greenfell
Title: Chief Financial Officer
NASSAU CAPITAL PARTNERS L.P.
By: Nassau Capital L.L.C., its General Partner
By: /s/ John G. Quigley
_____________________________
Name: John G. Quigley
Title: Member
NAS PARTNERS I L.L.C.
By: /s/ John G. Quigley
_____________________________
Name: John G. Quigley
Title: Member
HAROLD N. KAMINE
in his individual capacity
/s/ Harold N. Kamine
____________________________________
Harold N. Kamine
NEWCOURT COMMERCIAL FINANCE
CORPORATION
By:/s/ John P. Sirico
______________________________
Name: John P. Sirico, II
Title: Vice President
Signature Page to
Amendment No. 6 to the
Amended and Restated
Stockholders Agreement
<PAGE>
FIRST UNION NATIONAL BANK
By:/s/ Pearce Landry
____________________________
Name: Pearce A. Landry
Title: Vice President
CORESTATES HOLDINGS, INC.
By:/s/ Tracey M. Chaffin
_______________________________
Name: Tracey M. Chaffin
Title: Vice President
GENERAL ELECTRIC CAPITAL
CORPORATION
By:/s/ M. Mylon
________________________________
Name: Mark F. Mylon
Title: Manager-Operating
KMC TELECOMMUNICATIONS L.P.
By:/s/ Gerard M. Russomagno
________________________________
Name: Gerard M. Russomagno
Title: General Managing Partner
Signature Page to
Amendment No. 6 to the
Amended and Restated
Stockholders Agreement
AMENDMENT NO. 1 TO
1998 STOCK PURCHASE AND OPTION PLAN
FOR KEY EMPLOYEES OF
KMC TELECOM HOLDINGS, INC. AND AFFILIATES
This Amendment No. 1 to 1998 Stock Purchase and Option Plan for Key
Employees of KMC Telecom Holdings, Inc. and Affiliates dated as of July 15, 1998
is made as of June 7, 1999 (the "Amendment").
W I T N E S S E T H
WHEREAS, the Corporation designed the 1998 Stock Purchase and Option Plan
for Key Employees of the Corporation and Affiliates (the "Plan");
WHEREAS, the Corporation wishes to increase the number of shares of the
authorized Common Stock available for Grants under the Plan;
NOW THEREFORE, in consideration of the premises, it is hereby agreed as
follows:
1. DEFINED TERMS. Unless otherwise defined herein, all capitalized terms
defined in the Amendment and used herein are defined in the Plan.
2. AMENDMENT TO SECTION 6(A). Section 6(a) of the Plan is amended to read
in its entirety as follows:
"The number of Shares available for Grants under this Plan shall be
600,000 shares of the authorized Common Stock as of the effective date of the
Plan, subject to adjustment in accordance with Section 8 or 9 hereof. The number
of Shares subject to Grants under this Plan to any one Participant shall not be
more than 75,000 shares, subject to adjustment in accordance with Section 8 or 9
hereof. Unless restricted by applicable law, Shares related to Grants that are
forfeited, terminated, cancelled or expired unexercised, shall immediately
become available for Grants."
3. Except as expressly amended hereby, all of the provisions of the Plan
are hereby affirmed and shall continue in full force and effect in accordance
with their terms.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet of KMC Telecom Holdings, Inc. as of June 30, 1999 and the related
statement of operations for the six months ended June 30, 1999, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Jun-30-1999
<CASH> 187,992,000
<SECURITIES> 0
<RECEIVABLES> 20,946,000
<ALLOWANCES> (1,007,000)
<INVENTORY> 0
<CURRENT-ASSETS> 246,149,000
<PP&E> 406,255,000
<DEPRECIATION> (19,829,000)
<TOTAL-ASSETS> 808,752,000
<CURRENT-LIABILITIES> 146,246,000
<BONDS> 683,472,000
212,268,000
0
<COMMON> 6,000
<OTHER-SE> (233,240,000)
<TOTAL-LIABILITY-AND-EQUITY> 808,752,000
<SALES> 0
<TOTAL-REVENUES> 26,712,000
<CGS> 0
<TOTAL-COSTS> 44,055,000
<OTHER-EXPENSES> 58,561,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,014,000
<INCOME-PRETAX> (103,160,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (103,160,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (103,160,000)
<EPS-BASIC> (172.31)
<EPS-DILUTED> 0
</TABLE>
