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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 September 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
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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 (I.R.S. Employer Identification No.)
of 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
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Common Stock, par value $0.01 852,676 shares,
per share. as of November 12, 1999
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<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 September 30, 1999...................... 2
Unaudited Condensed Consolidated Statements of Operations,
Three Months Ended September 30, 1998 and 1999
and Nine Months Ended September 30, 1998 and 1999 ............ 3
Unaudited Condensed Consolidated Statements of Cash Flows,
Nine Months Ended September 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..................................... 14
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk....... 21
PART II. OTHER INFORMATION
- -------- -----------------
ITEM 1. Legal Proceedings................................................ 22
ITEM 2. Changes in Securities and Use of Proceeds........................ 22
ITEM 3. Defaults Upon Senior Securities.................................. 22
ITEM 4. Submission of Matters to a Vote of Security Holders.............. 22
ITEM 5. Other Information................................................ 22
ITEM 6. Exhibits and Reports on Form 8-K................................. 22
SIGNATURES.................................................................. 24
<PAGE>
PART I - FINANCIAL INFORMATION
KMC TELECOM HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, SEPTEMBER 30,
1998 1999
--------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 21,181 $ 21,207
Restricted investments....................................................... - 37,125
Accounts receivable, net of allowance for doubtful accounts of $350 and
$2,095 in 1998 and 1999, respectively 7,539 23,810
Prepaid expenses and other current assets.................................... 1,315 1,076
--------------- ------------------
Total current assets............................................................ 30,035 83,218
Investments held for future capital expenditures................................ 27,920 75,000
Long term restricted investments................................................ - 68,348
Networks and equipment, net..................................................... 224,890 426,782
Intangible assets, net.......................................................... 2,829 2,985
Deferred financing costs, net................................................... 20,903 40,045
Other assets.................................................................... 4,733 1,118
--------------- ------------------
$ 311,310 $ 697,496
=============== ==================
LIABILITIES, REDEEMABLE AND NONREDEEMABLE EQUITY (DEFICIENCY) Current
liabilities:
Accounts payable............................................................. $ 21,052 $ 33,232
Accrued expenses............................................................. 10,374 49,109
Notes payable................................................................ - 125,000
--------------- ------------------
Total current liabilities....................................................... 31,426 207,341
Notes payable................................................................... 41,414 -
Senior discount notes payable................................................... 267,811 292,161
Senior notes payable............................................................ - 275,000
--------------- ------------------
Total liabilities............................................................... 340,651 774,502
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 63 shares in 1999 ($62,681
liquidation preference)................................................. - 48,130
Series F, - 0 - shares in 1998 and 43 shares in 1999 ($42,599
liquidation preference)................................................. - 39,143
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 50,813
Series C, 175 shares in 1998 and 1999 ($17,500 liquidation preference).. 21,643 30,727
Redeemable common stock, 224 shares issued and outstanding................... 27,459
22,305
Redeemable common stock warrants............................................. 674 11,664
--------------- ------------------
Total redeemable equity......................................................... 75,012 207,936
--------------- ------------------
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) (6,227)
Accumulated deficit.......................................................... (112,285) (278,721)
--------------- ------------------
Total nonredeemable equity (deficiency)......................................... (104,353) (284,942)
--------------- ------------------
$ 311,310 $ 697,496
=============== ==================
</TABLE>
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
1998 1999 1998 1999
---------------- ---------------- ---------------- ---------------
Revenue................................................ $ 6,250 $ 15,572 $ 13,588 $ 42,284
Operating expenses:
Network operating costs............................. 10,658 31,154 24,577 75,209
Selling, general and administrative................. 6,081 14,956 15,301 41,680
Stock option compensation expense................... 398 (6,961) 6,594 13,240
Depreciation and amortization....................... 3,142 7,593 5,198 19,230
---------------- ---------------- ---------------- ---------------
Total operating expenses......................... 20,279 46,742 51,670 149,359
---------------- ---------------- ---------------- ---------------
Loss from operations................................... (14,029) (38,082) (107,075)
(31,170)
Other expense.......................................... - - - (4,297)
Interest income........................................
5,330 3,980 10,349 7,035
Interest expense....................................... (11,407) (21,834) (25,970) (47,848)
---------------- ---------------- ---------------- ---------------
Net loss............................................... (20,106) (49,024) (53,703) (152,185)
Dividends and accretion on redeemable preferred stock.. (4,117) 1,330 (14,157) (42,085)
---------------- ---------------- ---------------- ---------------
Net loss applicable to common shareholders............. $ (24,223) $ ( 47,694) $ (67,860) $ (194,270)
================ ================ ================ ===============
Net loss per common share.............................. $ (28.91) $ (55.93) $ (81.94) $ (228.20)
================ ================ ================ ===============
Weighted average number of common shares outstanding. 837,876 852,676 828,181 851,321
================ ================ ================ ===============
</TABLE>
See accompanying notes.
3
<PAGE>
KMC TELECOM HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
<S> <C> <C>
1998 1999
--------------- ----------------
OPERATING ACTIVITIES
Net loss........................................................................ $ (53,703) $ (152,185)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................ 5,198 19,230
Non-cash interest expense.................................................... 22,774 40,174
Non-cash stock option compensation expense................................... 6,593 13,240
Changes in assets and liabilities:
Accounts receivable....................................................... (3,941) (16,271)
Prepaid expenses and other current assets................................. (354) 239
Other assets.............................................................. (584) 1,065
Accounts payable.......................................................... (2,653) 14,707
Accrued expenses.......................................................... 3,571 12,585
Due from affiliate........................................................ (47) -
--------------- ----------------
Net cash used in operating activities........................................... (23,146) (67,216)
--------------- ----------------
INVESTING ACTIVITIES
Construction of networks and purchases of equipment............................. (90,938) (216,508)
Acquisitions of franchises, authorizations and related assets................... (1,100) (1,221)
Deposit on purchases of equipment............................................... (3,055) -
Purchases of investments, net................................................... (90,000) (47,080)
--------------- ----------------
Net cash used in investing activities........................................... (185,093) (264,809)
--------------- ----------------
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 ..... 10,000 -
Proceeds from exercise of stock options......................................... - 333
Proceeds from issuance of senior discount notes, net of issuance costs.......... 236,369 -
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....................................... 224,976 332,051
--------------- ----------------
Net increase in cash and cash equivalents....................................... 16,737 26
Cash and cash equivalents, beginning of period.................................. 15,553 21,181
--------------- ----------------
Cash and cash equivalents, end of period........................................ $ 32,290 $ 21,207
=============== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest, net of amounts capitalized............ $ 3,274 $ 5,751
=============== ================
</TABLE>
See accompanying notes.
4
<PAGE>
KMC TELECOM HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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.
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. KMC
Services LLC has been consolidated with the Company since July 1, 1999.
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 September 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 $69.8
million and debt securities (US government obligations and commercial bonds due
within 1 year) of $5.2 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 September 30, 1999, the
carrying value of such held-to-maturity debt securities approximated their fair
value.
5
<PAGE>
3. NETWORKS AND EQUIPMENT
Networks and equipment are comprised of the following (in thousands):
DECEMBER 31, SEPTEMBER 30,
1998 1999
----------------- -----------------
Fiber optic systems...................... $ 99,502 $ 138,577
Telecommunications equipment............. 115,769 162,011
Furniture and other...................... 7,340 19,209
Leasehold improvements................... 1,177 1,555
Construction-in-progress................. 11,770 132,703
----------------- -----------------
235,558 454,055
Less accumulated depreciation............ (10,668) (27,273)
----------------- -----------------
$ 224,890 $ 426,782
================= =================
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 nine months ended September 30, 1998 and 1999 amounted to
$2.9 million and $3.5 million, respectively.
4. INTANGIBLE ASSETS
Intangible assets are comprised of the following (in thousands):
DECEMBER 31, SEPTEMBER 30,
1998 1999
---------------- ----------------
Franchise costs.......................... $ 1,690 $ 1,672
Authorizations and rights-of-way......... 1,455 1,965
Building access agreements and other..... 1,062 697
---------------- ----------------
4,207 4,334
Less accumulated amortization............ (1,378) (1,349)
---------------- ----------------
$ 2,829 $ 2,985
================ ================
5. ACCRUED EXPENSES
Accrued expenses are comprised of the following (in thousands):
DECEMBER 31, SEPTEMBER 30,
1998 1999
-------------- --------------
Accrued compensation........................... $ 4,138 $ 10,721
Deferred revenue............................... 1,187 2,934
Accrued costs related to financing activities.. 380 8,423
Accrued interest payable....................... 162 17,502
Accrued cost of sales.......................... 565 2,549
Other accrued expenses......................... 3,942 6,980
============== ===============
$ 10,374 $ 49,109
============== ===============
6
<PAGE>
6. LUCENT LOAN AND SECURITY AGREEMENT
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 September 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
7
<PAGE>
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
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.
WAIVER AND AMENDMENTS TO FINANCIAL COVENANTS
The Company obtained a waiver of compliance, for the quarter ended
September 30, 1999, with certain financial covenants (related to revenue and
EBITDA) contained in the Senior Secured Credit Facility (for a description of
the Senior Secured Credit Facility, see Note 6 of the Notes to the Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998). In addition, the EBITDA covenant was amended for the
fourth quarter of 1999 to a level which the Company expects to achieve.
The Company has received a signed commitment from Lucent to refinance
the existing Lucent Facility upon terms which would involve the provision of
additional funding to the Company and the resetting of the financial covenants
for periods after the fourth quarter of 1999. The Company is currently engaged
in discussions with the agents for the lenders under the Senior Secured Credit
Facility which presently contemplate comparable amendments to the financial
covenants in the Senior Secured Credit Facility. The Company believes that these
negotiations will lead to definitive agreements during the first quarter of
2000. If, however, the Company is not successful in completing the negotiations
as presently contemplated and amending the financial covenants in the Senior
Secured Credit Facility and the Lucent Facility, the Company is likely to fail
to comply with one or more of the covenants presently contained in those
facilities for the quarter ended March 31, 2000, which failure, unless waived,
would constitute a default under those credit facilities. Given that, as of this
date, the Company has not yet signed definitive agreements with Lucent and the
agents for the lenders under the Senior Secured Credit Facility implementing the
foregoing refinancings, under applicable financial accounting standards, the
Company was required to reclassify the $125 million outstanding at September 30,
1999 under the Senior Secured Credit Facility as current liabilities in the
accompanying balance sheet. If, as expected, the Company successfully completes
the contemplated refinancings of the Senior Secured Credit Facility and Lucent
Facility prior to the issuance of its financial statements for the year ended
December 31, 1999, the applicable accounting standards will permit it to
classify the amounts outstanding under the Senior Secured Credit Facility as
long-term debt in its balance sheet as of December 31, 1999. A covenant default
under the Senior Secured Credit Facility or the Lucent Facility is not an
automatic default under the Company's other outstanding indebtedness but, under
certain circumstances, may become one, depending upon the actions of the lenders
under the Senior Secured Credit Facility and Lucent Facility.
7. INTEREST RATE SWAP AGREEMENT
The Company has entered into an interest rate swap agreement with a
commercial bank to reduce the impact of changes in interest rates on its
outstanding variable rate debt. The agreement effectively fixes the Company's
interest rate on the $125 million of outstanding variable rate borrowings under
8
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the Senior Secured Credit Facility due 2007. The interest rate swap agreement
terminates in April 2004. The Company is exposed to credit loss in the event of
nonperformance by the other party to the interest rate swap agreement. However,
the Company does not anticipate nonperformance by the counterparty.
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 shares 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 and July 15, 1999, the Company issued 695 shares and 1,986 shares,
respectively, of Series E Preferred Stock to pay the dividends due for such
periods.
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)
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
9
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$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 and July 15, 1999, the Company issued 1,112 shares and 1,486
shares, respectively, 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)
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
10
<PAGE>
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. SERVICE REVENUES
The Company provides on-net switched and dedicated services and resells
switched services previously purchased from the incumbent local exchange
carrier. On-net services include both services provided through direct
connections to our own networks and services provided by means of unbundled
network elements leased from the incumbent local exchange carrier.
The Company's service revenues consist of the following (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ----------------------------
1998 1999 1998 1999
---------- ----------- ----------- -------------
On-net.............. $ 2,125 $ 9,693 $ 4,240 $ 23,992
Resale.............. 4,125 5,879 9,348 18,292
---------- ----------- ----------- -------------
Total............... $ 6,250 $15,572 $ 13,588 $ 42,284
========== =========== =========== =============
10. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
As of September 30, 1999, the Company has outstanding commitments
aggregating approximately $92.8 million related to purchases of
telecommunications equipment and fiber optic cable and its obligations under its
agreements with certain suppliers.
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.
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
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<PAGE>
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
September 30, 1999, the aggregate redemption value of the redeemable equity was
approximately $235 million, reflecting per share redemption amounts of $897 for
the Series A Preferred Stock, $352 for the Series C Preferred Stock and $185 for
the redeemable common stock and redeemable common stock warrants.
11. 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
1998 1999 1998 1999
---------------- ---------------- ---------------- ---------------
Numerator:
Net loss.......................................... $ (20,106) $ (49,024) $ (53,703) $ (152,185)
Dividends and accretion on redeemable preferred stock (4,117) 1,330 (14,157) (42,085)
---------------- ---------------- ---------------- ---------------
Numerator for net loss per common share - basic... $ (24,223) $ ( 47,694) $ (67,860) $ (194,270)
================ ================ ================ ===============
Denominator:
Denominator for net loss per common share -
weighted average number of common shares
outstanding.......................................... 837,876 852,676 828,181 851,321
================ ================ ================ ===============
Net loss per common share - basic.................... $ (28.91) $ (55.93) $ (81.94) $ (228.20)
================ ================ ================ ===============
</TABLE>
Options and warrants to purchase an aggregate of 373,135 and 483,273
shares of common stock were outstanding as of September 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.
12. LOUISIANA RECIPROCAL REVENUE
During 1998 and the first nine months of 1999 the Company recognized
revenue which it believed was due from incumbent local exchange carriers for
terminating local traffic of Internet service providers (ISPs). The Company
determined to recognize this revenue because, based upon all of the facts and
circumstances known at the time, 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 those amounts was reasonably assured. On October 13, 1999,
however, the Louisiana Public Service Commission ruled that local traffic to
ISPs in Louisiana is not eligible for reciprocal compensation. As a result of
that ruling, the Company determined that it could no longer conclude that
realization of amounts attributable to termination of local calls to ISPs in
Louisiana was reasonably assured. Accordingly, an adjustment was recorded to
reduce revenue in the 1999 Third Quarter, which reversed all reciprocal revenue
recognized related to ISP traffic in Louisiana for the entire year of 1998 and
the first nine months of 1999. The adjustment amounted to $4.4 million, of which
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<PAGE>
$1.1 million relates to the year ended December 31, 1998 and $3.3 million
relates to the nine months ended September 30, 1999.
The Company has been advised by its regulatory counsel that this
decision appears to be well out of the mainstream on the issue. To date,
Louisiana is the only state which has rendered a decision, pursuant to an
existing agreement, that has permitted an incumbent local exchange carrier to
use a competitive local exchange carriers' facilities to complete calls without
compensation to the competitive local exchange carrier. Thirty-three other
states have ruled that the originating carrier must compensate the terminating
carrier for such use. Many of these decisions have been affirmed by state and
federal courts on appeal and none have been reversed. The Company intends to
appeal the decision to the appropriate authority.
13
<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 SEPTEMBER 30, 1999 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1998
REVENUE. Revenue increased from $6.3 million for the three months ended
September 30, 1998 (the "1998 Third Quarter") to $15.6 million for the three
months ended September 30, 1999 (the "1999 Third Quarter"). This increase is
primarily attributable to the fact that we derived revenues from 23 markets
during the 1999 Third Quarter compared to 11 markets during the 1998 Third
Quarter. During 1998 and the first nine months of 1999 we recognized revenue
which we believed was due to us from incumbent local exchange carriers for
terminating local traffic of Internet service providers (ISPs). We determined to
recognize this revenue because we concluded, based upon all of the facts and
circumstances known to us at the time, 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 those amounts was reasonably assured. On October 13, 1999,
however, the Louisiana Public Service Commission ruled that local traffic to
ISPs in Louisiana is not eligible for reciprocal compensation. As a result of
that ruling, we determined that we could no longer conclude that realization of
amounts attributable to termination of local calls to ISPs in Louisiana was
reasonably assured. Accordingly, we recorded an adjustment to reduce revenue in
the 1999 Third Quarter, which reversed all reciprocal revenue recognized related
to ISP traffic in Louisiana for the entire year of 1998 and the first nine
months of 1999. The adjustment amounted to $4.4 million, of which $1.1 million
relates to the year ended December 31, 1998 and $3.3 million relates to the nine
months ended September 30, 1999.
Excluding the effect of the adjustment, revenue for the 1999 Third
Quarter would have been $20.0 million, including $4.7 million of revenue related
to reciprocal compensation. With the exception of our two Louisiana systems,
which are affected by the Louisiana Public Service Commission's reciprocal
compensation decision, each of our systems that generated revenue during the
1998 Third Quarter generated higher revenue during the 1999 Third Quarter.
Excluding the effect of the adjustment, our two systems located in Louisiana
also generated higher revenue during the 1999 Third Quarter than during the 1998
Third Quarter.
Revenue for the 1998 Third Quarter and 1999 Third Quarter included $4.2
million and $5.9 million, respectively, of revenue derived from resale of
switched services and an aggregate of $2.1 million and $9.7 million (including,
after giving effect to the $4.4 million adjustment for Louisiana, $0.3 million
of revenue related to reciprocal compensation during the 1999 Third Quarter),
respectively, of revenue derived from on-net special access, private line and
switched services.
14
<PAGE>
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 ISPs and
disputed the entitlement of competitive local exchange carriers to reciprocal
compensation for such calls in jurisdictions other than Louisiana as well, we
have determined to continue to recognize amounts due to us for reciprocal
compensation for such calls in jurisdictions other than Louisiana 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 $10.7
million in the 1998 Third Quarter to $31.2 million in the 1999 Third Quarter.
This increase of $20.5 million was due primarily to the increase in the number
of markets in which we operated in the 1999 Third Quarter and the related
increases of $5.0 million in personnel costs, $4.8 million in costs associated
with providing resale services and leasing unbundled network element services,
$2.5 million in consultant and professional services related costs, $1.8 million
in contracted network support costs, $1.4 million in reciprocal expense,
$700,000 in telecommunications costs, $700,000 in facility costs, and $3.6
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 were greater than the
revenues generated from these services because of narrow discounts provided by
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 $6.1 million for the 1998 Third Quarter
to $15.0 million for the 1999 Third Quarter. This increase of $8.9 million
resulted primarily from increases of $6.4 million in personnel costs, $1.2
million in professional costs (consisting primarily of legal costs), $800,000 in
travel related expenses and $100,000 in advertising costs, along with increases
in other marketing and general and administrative costs aggregating
approximately $400,000.
STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense, a
non-cash charge, decreased from $398,000 for the 1998 Third Quarter to a credit
of $7.0 million for the 1999 Third Quarter. This decrease primarily resulted
from a decrease in the estimated fair value of the Company's Common Stock.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased from $3.1 million for the 1998 Third Quarter to $7.6 million for the
1999 Third Quarter primarily as a result of depreciation expense associated with
the greater number of networks in commercial operation during the 1999 Third
Quarter.
INTEREST EXPENSE. Interest expense increased from $11.4 million in the
1998 Third Quarter to $21.8 million in the 1999 Third Quarter. The increase
resulted primarily from the issuance of the Senior Notes in May 1999, additional
accretion on the Senior Discount Notes and increased interest charges related to
higher borrowings under the Senior Secured Credit Facility. The Company
15
<PAGE>
capitalized interest related to network construction projects of $1.5 million
during the 1998 Third Quarter and $2.2 million during the 1999 Third Quarter.
NET LOSS. For the reasons stated above, net loss increased from $20.1
million for the 1998 Third Quarter to $49.0 million for the 1999 Third Quarter.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1998
REVENUE. Revenue increased from $13.6 million for the nine months ended
September 30, 1998 (the "1998 Nine Months") to $42.3 million for the nine months
ended September 30, 1999 (the "1999 Nine Months"). This increase is primarily
attributable to the fact that we derived revenue from 23 markets during the 1999
Nine Months compared to 11 markets during the 1998 Nine Months. During 1998 and
the first nine months of 1999 we recognized revenue which we believed was due to
us from incumbent local exchange carriers for terminating local traffic of ISPs.
We determined to recognize this revenue because we concluded, based upon all of
the facts and circumstances known to us at the time, 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 those amounts was reasonably assured. On October
13, 1999, however, the Louisiana Public Service Commission ruled that local
traffic to ISPs in Louisiana is not eligible for reciprocal compensation. As a
result of that ruling, we determined that we could no longer conclude that
realization of amounts attributable to termination of local calls to ISPs in
Louisiana was reasonably assured. Accordingly, we recorded an adjustment to
reduce revenue in the 1999 Third Quarter, which reversed all reciprocal revenue
recognized related to ISP traffic in Louisiana for the entire year of 1998 and
the first nine months of 1999. The adjustment amounted to $4.4 million, of which
$1.1 million relates to the year ended December 31, 1998 and $3.3 million
relates to the nine months ended September 30, 1999.
Excluding the effect of the adjustment, revenue for the 1999 Nine
Months would have been $46.7 million, including $9.2 million of revenue related
to reciprocal compensation. Each of our systems that generated revenue during
the 1998 Nine Months generated higher revenue during the 1999 Nine Months.
Revenue for the 1998 Nine Months and 1999 Nine Months included $9.4
million and $18.3 million, respectively, of revenue derived from resale of
switched services and an aggregate of $4.2 million and $24.0 million (including,
after giving effect to the $4.4 million adjustment for Louisiana, $4.8 million
of revenue related to reciprocal compensation during the 1999 Nine 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 calls to ISPs and
disputed the entitlement of competitive local exchange carriers to reciprocal
compensation for such calls in jurisdictions other than Louisiana as well, we
have determined to continue to recognize amounts due to us for reciprocal
compensation for such calls in jurisdictions other than Louisiana, 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 $24.6
million in the 1998 Nine Months to $75.2 million in the 1999 Nine Months. This
increase of $50.6 million was due primarily to the increase in the number of
markets in which we operated in the 1999 Nine Months and the related increases
of $13.4 million in personnel costs, $12.4 million in costs associated with
providing resale services and leasing unbundled network element services, $5.4
million in contracted network support costs, $5.1 million in consultant and
16
<PAGE>
professional services related costs, $2.7 million in reciprocal expense, $1.8
million in facility costs, $1.5 million in telecommunications costs, and $8.3
million in other direct operating costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $15.3 million for the 1998 Nine Months to
$41.7 million for the 1999 Nine Months. This increase of $26.4 million resulted
primarily from increases of $15.6 million in personnel costs, $4.0 million in
professional costs (consisting primarily of legal costs), $2.4 million in travel
related expenses, and $400,000 in advertising costs, along with increases in
other marketing and general and administrative costs aggregating approximately
$4.0 million.
STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense, a
non-cash charge, increased from $6.6 million for the 1998 Nine Months to $13.2
million for the 1999 Nine Months. This increase primarily resulted from an
increase in the estimated fair value of the Company's Common Stock.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased from $5.2 million for the 1998 Nine Months to $19.2 million for the
1999 Nine Months primarily as a result of depreciation expense associated with
the greater number of networks in commercial operation during the 1999 Nine
Months.
OTHER EXPENSE. 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.
INTEREST EXPENSE. Interest expense increased from $26.0 million in the
1998 Nine Months to $47.8 million in the 1999 Nine Months. The increase resulted
primarily from the issuance of the Senior Notes in May 1999, 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 $2.9 million
during the 1998 Nine Months and $3.5 million during the 1999 Nine Months.
NET LOSS. For the reasons stated above, net loss increased from $53.7
million for the 1998 Nine Months to $152.2 million for the 1999 Nine 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
of our networks. We have financed our operating losses and capital expenditures
with equity invested by our founders, preferred stock placements, credit
facility borrowings, the 12 1/2% Senior Discount Notes and 13 1/2% Senior Notes.
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.
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.
17
<PAGE>
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 September 30, 1999 the Company
had no borrowings outstanding under this facility.
Net cash provided by financing activities from borrowings and equity
issuances was $332.1 million for the nine months ended September 30, 1999. Our
net cash used in operating and investing activities was $332.0 million for the
nine months ended September 30, 1999.
We made capital expenditures of $218.5 million in the nine months ended
September 30, 1999. We currently plan to make additional capital expenditures of
approximately $132.0 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 September 30, 1999, the Company had outstanding commitments
aggregating approximately $92.8 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.
At September 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. On the same date, the Company had no indebtedness
outstanding under the Lucent Facility and had $250.0 million in borrowing
capacity available thereunder.
We obtained a waiver of compliance, for the quarter ended September 30,
1999, with certain financial covenants (related to revenue and EBITDA) contained
in the Senior Secured Credit Facility. In addition, the EBITDA covenant was
amended for the fourth quarter of 1999 to a level which we expect to achieve.
We have received a signed commitment from Lucent to refinance the
existing Lucent Facility upon terms which would involve the provision of
additional funding to the Company and the resetting of the financial covenants
for periods after the fourth quarter of 1999. We are currently engaged in
discussions with the agents for the lenders under the Senior Secured Credit
Facility which presently contemplate comparable amendments to the financial
covenants in the Senior Secured Credit Facility. We believe that these
negotiations will lead to definitive agreements during the first quarter of
2000. If, however, we are not successful in completing the negotiations as
presently contemplated and amending the financial covenants in the Senior
Secured Credit Facility and the Lucent Facility, it is likely that we will fail
to comply with one or more of the covenants presently contained in those
facilities for the quarter ended March 31, 2000, which failure, unless waived,
would constitute a default under those credit facilities. A covenant default
under the Senior Secured Credit Facility or the Lucent Facility is not an
automatic default under our other outstanding indebtedness but, under certain
18
<PAGE>
circumstances, may become one, depending upon the actions of the lenders under
the Senior Secured Credit Facility and Lucent Facility.
We believe that our cash, investments held for future capital
expenditures and borrowings available under our Senior Secured Credit Facility
and the Lucent Facility, will be sufficient to meet our liquidity needs through
the completion of the 14 additional networks currently under development and
anticipated to be completed in the first half of 2000, 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 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 have completed the initial installation and are continuing
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.
19
<PAGE>
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 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.
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 $250,000 calculated based upon our current revenues.
20
<PAGE>
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. The Company has entered into an interest rate swap
agreement with a commercial bank to reduce the impact of changes in interest
rates on its outstanding variable rate debt. The agreement effectively fixes the
Company's interest rate on the $125 million of outstanding variable rate
borrowings under the Senior Secured Credit Facility due 2007. The interest rate
swap agreement terminates in April 2004.
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 Future Principal Payments
Value on
<S> <C> <C> <C> <C> <C> <C> <C> <C>
September 1999 2000 2001 2002 2003 Thereafter Total
30, 1999
-------------------------------------------------------------------
Long-Term Debt
Fixed Rate:
Senior Discount Notes,
Interest payable at 12 1/2%,
Maturing 2008 $ 282.2 - - - - - $ 292.3 $ 292.3
Senior Notes,
Interest payable at 13 1/2 %,
Maturing 2009 275.0 - - - - - 275.0 275.0
Interest Rate Swap Derivative:
Variable to fixed
Senior Secured Credit Facility
Pay rate at September 30, 1999 - 9.113%(a)
Receive rate at September 30, 1999 - 6.075% 125.0 - - - 0.6 0.8 123.6 125.0
-------------------------------------------------------------------
Total $ 682.2 - - - $.6 $.8 $ 690.9 $ 692.3
===================================================================
</TABLE>
(a) Pay 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.
21
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For a discussion of an arbitration proceeding between the Company's
subsidiary, KMC Telecom, Inc. and Wang Laboratories, Inc. (as successor to
I-Net, Inc.) see Item 3 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 and Item 1 of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
4.1 First Supplemental Indenture dated as of May 24, 1999 among
KMC Telecom Holdings, Inc., KMC Telecom Financing, Inc. and
The Chase Manhattan Bank, as Trustee, to the Indenture dated
as of January 29, 1998 between KMC Telecom Holdings, Inc. and
The Chase Manhattan Bank, as Trustee.
4.2 Indenture dated as of May 24, 1999 among KMC Telecom Holdings,
Inc., KMC Telecom Financing, Inc. and The Chase Manhattan
Bank, as Trustee, including specimen of KMC Telecom Holdings,
Inc.'s 13 1/2% Senior Notes due 2009.
4.3 Purchase Agreement dated May 19, 1999 among KMC Telecom
Holdings, Inc. and Morgan Stanley & Co. Incorporated, Credit
Suisse First Boston Corporation, First Union Capital Markets
Corp., CIBC World Markets Corp., BancBoston Robertson Stephens
Inc. and Wasserstein Perella Securities, Inc.
4.4 Collateral Pledge and Security Agreement made and entered into
as of May 24, 1999 by KMC Telecom Financing, Inc. in favor of
The Chase Manhattan Bank, as Trustee.
4.5 Registration Rights Agreement dated May 19, 1999 among KMC
Telecom Holdings, Inc. and Morgan Stanley & Co. Incorporated,
Credit Suisse First Boston Corporation, First Union Capital
Markets Corp., CIBC World Markets Corp., BancBoston Robertson
Stephens Inc. and Wasserstein Perella Securities, Inc.
27.1 Financial Data Schedule.
22
<PAGE>
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended September 30, 1999.
23
<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: November 12, 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)
24
<PAGE>
EXHIBIT INDEX
NO. DESCRIPTION
4.1 First Supplemental Indenture dated as of May 24, 1999 among
KMC Telecom Holdings, Inc., KMC Telecom Financing, Inc. and
The Chase Manhattan Bank, as Trustee, to the Indenture dated
as of January 29, 1998 between KMC Telecom Holdings, Inc. and
The Chase Manhattan Bank, as Trustee.
4.2 Indenture dated as of May 24, 1999 among KMC Telecom Holdings,
Inc., KMC Telecom Financing, Inc. and The Chase Manhattan
Bank, as Trustee, including specimen of KMC Telecom Holdings,
Inc.'s 13 1/2% Senior Notes due 2009.
4.3 Purchase Agreement dated May 19, 1999 among KMC Telecom
Holdings, Inc. and Morgan Stanley & Co. Incorporated, Credit
Suisse First Boston Corporation, First Union Capital Markets
Corp., CIBC World Markets Corp., BancBoston Robertson Stephens
Inc. and Wasserstein Perella Securities, Inc.
4.4 Collateral Pledge and Security Agreement made and entered into
as of May 24, 1999 by KMC Telecom Financing, Inc. in favor of
The Chase Manhattan Bank, as Trustee.
4.5 Registration Rights Agreement dated May 19, 1999 among KMC
Telecom Holdings, Inc. and Morgan Stanley & Co. Incorporated,
Credit Suisse First Boston Corporation, First Union Capital
Markets Corp., CIBC World Markets Corp., BancBoston Robertson
Stephens Inc. and Wasserstein Perella Securities, Inc.
27.1 Financial Data Schedule.
EXHIBIT 4.1
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.
(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,
<PAGE>
4
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.
<PAGE>
5
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.
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
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.
<PAGE>
7
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.
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:
Title:
EXHIBIT 4.2
KMC TELECOM HOLDINGS, INC.,
as Issuer,
KMC TELECOM FINANCING, INC.
as Guarantor,
and
THE CHASE MANHATTAN BANK,
as Trustee
Indenture
Dated as of May 24, 1999
13 1/2% Senior Notes due 2009
<PAGE>
CROSS-REFERENCE TABLE
TIA SECTIONS INDENTURE SECTIONS
ss. 310(a)(1)..................................... 7.10
(a)(5)..................................... 7.10
(b)........................................ 7.03; 7.08
ss. 311........................................... 7.03
ss. 313(a)........................................ 7.06
(c)........................................ 7.05; 7.06
ss. 314(a)........................................ 4.17
(b)........................................ 10.01
(c)(1)..................................... 1.01
(d)........................................ 10.01
(e)........................................ 1.01
ss. 315(a)........................................ 7.02
(b)........................................ 7.05; 10.02
ss. 316(a)........................................ 6.06
Note: The Cross-Reference Table shall not for any purpose be deemed to be a
part of the Indenture.
<PAGE>
iii
TABLE OF CONTENTS
Page
RECITALS OF THE COMPANY...................................................1
ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions................................................1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.........25
SECTION 1.03. Rules of Construction.....................................26
ARTICLE TWO THE NOTES
SECTION 2.01. Form and Dating...........................................26
SECTION 2.02. Restrictive Legends.......................................28
SECTION 2.03. Execution, Authentication and Denominations...............30
SECTION 2.04. Registrar and Paying Agent................................31
SECTION 2.05. Paying Agent to Hold Money in Trust.......................32
SECTION 2.06. Transfer and Exchange.....................................32
SECTION 2.07. Book-Entry Provisions for Global Notes....................33
SECTION 2.08. Special Transfer Provisions...............................35
SECTION 2.09. Replacement Notes.........................................38
SECTION 2.10. Outstanding Notes.........................................38
SECTION 2.11. Temporary Notes...........................................39
SECTION 2.12. Cancellation..............................................39
SECTION 2.13. CUSIP Numbers.............................................39
SECTION 2.14. Defaulted Interest........................................40
SECTION 2.15. Issuance of Additional Notes..............................40
ARTICLE THREE REDEMPTION
SECTION 3.01. Right of Redemption.......................................40
SECTION 3.02. Notices to Trustee........................................41
SECTION 3.03. Selection of Notes to Be Redeemed.........................41
SECTION 3.04. Notice of Redemption......................................41
SECTION 3.05. Effect of Notice of Redemption............................43
SECTION 3.06. Deposit of Redemption Price...............................43
SECTION 3.07. Payment of Notes Called for Redemption....................43
SECTION 3.08. Notes Redeemed in Part....................................43
<PAGE>
iv
Page
ARTICLE FOUR COVENANTS
SECTION 4.01. Payment of Notes..........................................44
SECTION 4.02. Maintenance of Office or Agency...........................44
SECTION 4.03. Limitation on Indebtedness................................45
SECTION 4.04. Limitation on Restricted Payments.........................48
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.........................52
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries...................................53
SECTION 4.07. Limitation on Issuances of Guarantees by Restricted
Subsidiaries..............................................54
SECTION 4.08. Limitation on Transactions with Shareholders and Affiliates55
SECTION 4.09. Limitation on Liens.......................................56
SECTION 4.10. Limitation on Sale-Leaseback Transactions.................57
SECTION 4.11. Limitation on Asset Sales.................................57
SECTION 4.12. Repurchase of Notes upon a Change of Control..............59
SECTION 4.13. Existence.................................................59
SECTION 4.14. Payment of Taxes and Other Claims.........................59
SECTION 4.15. Maintenance of Properties and Insurance...................59
SECTION 4.16. Notice of Defaults........................................60
SECTION 4.17. Compliance Certificates...................................60
SECTION 4.18. Commission Reports and Reports to Holders.................60
SECTION 4.19. Waiver of Stay, Extension or Usury Laws...................61
SECTION 4.20 Limitation on Incurrence of Liability by Guarantor .......61
ARTICLE FIVE SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc...............................61
SECTION 5.02. Successor Substituted.....................................62
ARTICLE SIX DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.........................................63
SECTION 6.02. Acceleration..............................................64
SECTION 6.03. Other Remedies............................................65
SECTION 6.04. Waiver of Past Defaults...................................65
SECTION 6.05. Control by Majority.......................................65
SECTION 6.06. Limitation on Suits.......................................66
SECTION 6.07. Rights of Holders to Receive Payment......................66
SECTION 6.08. Collection Suit by Trustee................................66
SECTION 6.09. Trustee May File Proofs of Claim..........................67
SECTION 6.10. Priorities................................................67
SECTION 6.11. Undertaking for Costs.....................................68
SECTION 6.12. Restoration of Rights and Remedies........................68
SECTION 6.13. Rights and Remedies Cumulative............................68
SECTION 6.14. Delay or Omission Not Waiver..............................68
<PAGE>
v
Page
ARTICLE SEVEN TRUSTEE
SECTION 7.01. General...................................................69
SECTION 7.02. Certain Rights of Trustee.................................69
SECTION 7.03. Individual Rights of Trustee..............................70
SECTION 7.04. Trustee's Disclaimer......................................70
SECTION 7.05. Notice of Default.........................................71
SECTION 7.06. Reports by Trustee to Holders.............................71
SECTION 7.07. Compensation and Indemnity................................71
SECTION 7.08. Replacement of Trustee....................................72
SECTION 7.09. Successor Trustee by Merger, Etc..........................73
SECTION 7.10. Eligibility...............................................73
SECTION 7.11. Money Held in Trust.......................................73
SECTION 7.12. Withholding Taxes.........................................73
ARTICLE EIGHT DISCHARGE OF INDENTURE
SECTION 8.01. Termination of the Company's Obligations...................74
SECTION 8.02. Defeasance and Discharge of Indenture.....................75
SECTION 8.03. Defeasance of Certain Obligations.........................76
SECTION 8.04. Application of Trust Money................................77
SECTION 8.05. Repayment to Company......................................77
SECTION 8.06. Reinstatement.............................................77
SECTION 8.07. Defeasance and Certain Other Events of Default............78
ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders................................78
SECTION 9.02. With Consent of Holders...................................79
SECTION 9.03. Revocation and Effect of Consent..........................80
SECTION 9.04. Notation on or Exchange of Notes..........................81
SECTION 9.05. Trustee to Sign Amendments, Etc...........................81
SECTION 9.06. Conformity with Trust Indenture Act.......................81
ARTICLE TEN SECURITY
SECTION 10.01. Security.................................................81
<PAGE>
vi
Page
ARTICLE ELEVEN GUARANTEE
SECTION 11.01. Guarantee................................................81
SECTION 11.02. Obligations Unconditional................................81
SECTION 11.03. Notice to Trustee........................................81
SECTION 11.03. This Article Not to Prevent Events of Default............81
SECTION 11.03. Net Worth Limitation.....................................81
ARTICLE TWELVE MISCELLANEOUS
SECTION 12.01. Trust Indenture Act of 1939..............................83
SECTION 12.02. Notices..................................................83
SECTION 12.03. Certificate and Opinion As to Conditions Precedent.......85
SECTION 12.04. Statements Required in Certificate or Opinion............85
SECTION 12.05. Rules by Trustee, Paying Agent or Registrar..............85
SECTION 12.06. Payment Date Other Than a Business Day...................85
SECTION 12.07. Governing Law; Submission to Jurisdiction; Agent for
Service..................................................86
SECTION 12.08. No Adverse Interpretation of Other Agreements............86
SECTION 12.09. No Recourse Against Others...............................86
SECTION 12.10. Successors...............................................86
SECTION 12.11. Duplicate Originals......................................86
SECTION 12.12. Separability.............................................86
SECTION 12.13. Table of Contents, Headings, Etc.........................87
EXHIBIT A Form of Note.............................................A-1
EXHIBIT B Form of Certificate......................................B-1
EXHIBIT C Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S.......................C-1
EXHIBIT D Form of Certificate to Be Delivered in Connection with
Transfers to Non-QIB Accredited Investors................D-1
<PAGE>
INDENTURE, dated as of May 24, 1999, among KMC TELECOM HOLDINGS,
INC., a Delaware corporation, as issuer (the "COMPANY"), KMC TELECOM FINANCING,
INC., as guarantor (the "GUARANTOR"), and THE CHASE MANHATTAN BANK, as trustee
(the "TRUSTEE").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of 13 1/2% Senior Notes
due 2009 as well as the Exchange Notes (collectively, the "NOTES") issuable as
provided in this Indenture. Pursuant to the terms of a Purchase Agreement dated
as of May 19, 1999 (the "PURCHASE AGREEMENT") between the Company and Morgan
Stanley & Co. Incorporated, Credit Suisse First Boston Corporation, First Union
Capital Markets Corp., CIBC World Markets Corp., BancBoston Robertson Stephens
Inc. and Wasserstein Perella Securities, Inc. (collectively, the "INITIAL
PURCHASERS"), the Company has agreed to issue and sell $275,000,000 aggregate
principal amount of the Notes. All things necessary to make this Indenture a
valid agreement of the Company and the Guarantor, in accordance with its terms,
have been done, and the Company has done all things necessary to make the Notes,
when executed by the Company and authenticated and delivered by the Trustee
hereunder and duly issued by the Company, the valid obligations of the Company
as hereinafter provided. The Guarantor has done all things necessary to make the
Note Guarantee (as defined herein), when executed by the Guarantor and the Notes
are authenticated by and delivered by the Trustee, the valid obligation of the
Guarantor as hereinafter provided. The Notes will be secured pursuant to the
terms of a Pledge Agreement (as defined herein) by Pledged Securities as
provided by Article Eleven of this Indenture.
This Indenture will, upon the effectiveness of the registration
statement provided for under the Registration Rights Agreement, be subject to,
and governed by, the provisions of the Trust Indenture Act of 1939, as amended,
that are required to be a part of and to govern indentures qualified under the
Trust Indenture Act of 1939, as amended.
For and in consideration of the premises and the purchase of the
Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders, as follows.
<PAGE>
2
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"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 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.
<PAGE>
3
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Company 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 Company
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 (iv) (C) of
paragraph (a) of Section 4.04 hereof (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 Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by the
Company 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 or the termination of discontinued
operations; (v) except for purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (iv) (C) of paragraph (a) of
Section 4.04 hereof, any amount paid or accrued as dividends on Preferred Stock
of the Company or any Restricted Subsidiary owned by Persons other than the
Company 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 Closing Date; and (viii) at the irrevocable election of the
Company 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 under Section 4.04 hereof, 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 Company 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 Company 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 Company and its Restricted Subsidiaries,
prepared in conformity with GAAP, and filed with the Commission or provided to
the Trustee pursuant to Section 4.18 hereof.
"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.
"Agent" means any Registrar, Paying Agent, authenticating agent
or co-Registrar.
"Agent Members" has the meaning provided in Section 2.07(a).
"Asset Acquisition" means (i) an investment by the Company 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 Company or any of its Restricted Subsidiaries or (ii) an acquisition by
the Company or any of its Restricted Subsidiaries of the property and assets of
any Person other than the Company or any of its Restricted Subsidiaries that
constitute substantially all of a division or line of business of such Person.
<PAGE>
4
"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 Company or any of its
Restricted Subsidiaries to any Person other than the Company 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 Company 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 Company or any of its
Restricted Subsidiaries outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not governed by Article
Five hereof; 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 (B)
of paragraph (b) of Section 4.11 hereof, (c) a disposition of cash or Temporary
Cash Investments, (d) any Restricted Payment that is permitted to be made, and
is made, under Section 4.04 hereof, (e) sales or other dispositions of assets
with a fair market value (as certified in an Officers' Certificate) not in
excess of $500,000 (provided that any series of related sales or dispositions in
excess of $500,000 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
Company or any of its Restricted Subsidiaries otherwise permitted under this
Indenture and the indenture for the Senior Discount Notes, including such
pledges securing Indebtedness under the Senior Secured Credit Facility or under
the Lucent Facility, and (i) the exercise of warrants to acquire Common Stock of
the Company and the exercise of warrants to acquire Common Stock of KMC Telecom,
Inc. by Newcourt Finance.
"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 Company or
the Guarantor as required by the context or any committee of such Board of
Directors duly authorized to act under this Indenture.
"Board Resolution" means a copy of a resolution, certified by the
Secretary or Assistant Secretary of the Company or the Guarantor as required by
the context to have been duly adopted by the Board of Directors of such Person
and to be in full force and effect on the date of such certification, and
delivered to the Trustee.
"Business Day" means any day except a Saturday, Sunday or other day
on which commercial banks in The City of New York, or in the city of the
Corporate Trust Office of the Trustee, are authorized by law to close.
<PAGE>
5
"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, 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.
"Certificated Notes" has the meaning provided in Section 2.01.
"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 35% of the total voting power of the Voting Stock of the
Company on a fully diluted basis and such ownership represents a greater
percentage of the total voting power of the Voting Stock of the Company, 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 Company'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
previously so approved) cease for any reason to constitute a majority of the
members of the Board of Directors then in office.
"Closing Date" means the date on which the Notes are originally
issued under this Indenture.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the TIA, then the body performing
such duties at such time.
<PAGE>
6
"Common Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's common stock, whether now
outstanding or issued after the date of this Indenture, including, without
limitation, all series and classes of such common stock.
"Company" means the party named as such in the first paragraph of
this Indenture until a successor replaces it pursuant to the applicable
provisions of this Indenture and thereafter means the successor.
"Company Order" means a written request or order signed in the name
of the Company (i) by its Chairman of the Board, its Vice Chairman of the Board,
its President or a Vice President and (ii) by its Chief Financial Officer,
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary and
delivered to the Trustee; PROVIDED, HOWEVER, that such written request or order
may be signed by any two of the officers or directors listed in clause (i) above
in lieu of being signed by one of such officers or directors listed in such
clause (i) and one of the officers listed in clause (ii) above.
"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 Company
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 Company or any of its Restricted
Subsidiaries.
<PAGE>
7
"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
Company 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 Company 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 Senior Secured Credit Facility and the offerings of the
Series E Preferred Stock, the Series F Preferred Stock, the Senior Discount
Notes and the Notes, all as determined on a consolidated basis (without taking
into account Unrestricted Subsidiaries) in conformity with GAAP.
<PAGE>
8
"Consolidated Leverage Ratio" means, on any Transaction Date, the
ratio of (i) the aggregate amount of Indebtedness of the Company 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 Company have
been filed with the Commission or provided to the Trustee pursuant to Section
4.18 hereof (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"): (1) 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; (2) the Incurrence, repayment or retirement of any other Indebtedness by
the Company 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; (3) in the case of Acquired Indebtedness,
the related acquisition, as if such acquisition occurred at the beginning of the
Four Quarter Period; (4) any acquisition or disposition by the Company and its
Restricted Subsidiaries of any company 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 Company 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 Trustee 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 Company 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 (5) the occurrence of any
of the events described in clauses (1) - (4) above by any Person that has become
a Restricted Subsidiary or has been merged with or into the Company or any
Restricted Subsidiary during such Reference Period; 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 (taking into
account any Interest Rate Agreements applicable to such Indebtedness) and (B)
which was not outstanding during the period for which the computation is being
made but which bears, at the option of the Company, a fixed or floating rate of
interest shall be computed by applying, at the option of the Company, either the
fixed or floating rate, and (y) in making such computation, the Consolidated
Interest Expense of the Company 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.
"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 Company 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 Company 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).
<PAGE>
9
"Corporate Trust Office" means the office of the Trustee at which
the corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date of this Indenture,
located at 450 West 33rd Street, 15th Floor, New York, NY 10001-2697, Attention:
Capital Markets Fiduciary Services.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of
time or both would be, an Event of Default.
"Depository" shall mean The Depository Trust Company, its nominees,
and their respective successors.
"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 Stated Maturity of the Notes, (ii) redeemable at the option of the holder
of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes 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 Stated Maturity of the Notes; 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 Stated Maturity of the Notes 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
Sections 4.11 and 4.12 hereof 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 Company's repurchase of such Notes as are
required to be repurchased pursuant to Sections 4.11 and 4.12 hereof.
"Equity Offering" means any public or private sale of Common Stock
or Preferred Stock of the Company (excluding Disqualified Stock), other than
public offerings with respect to the Company's Common Stock registered on Form
S-8.
"Event of Default" has the meaning provided in Section 6.01.
<PAGE>
10
"Excess Proceeds" has the meaning provided in Section 4.11.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means any notes of the Company containing terms
identical to the Notes (except that such Exchange Notes (i) shall be registered
under the Securities Act, (ii) will not provide for an increase in the rate of
interest (other than with respect to overdue amounts) and (iii) will not contain
terms with respect to transfer restrictions) that are issued and exchanged for
the Notes pursuant to the Registration Rights Agreement and this Indenture.
"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 (ix) of paragraph (b) of Section 4.03 hereof, (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 Company exceeds $10 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 Trustee.
"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. All ratios and computations contained or referred
to in this Indenture 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
Indenture shall be made without giving effect to (i) the amortization of any
expenses incurred in connection with the Lucent Facility, the Senior Secured
Credit Facility and the offerings of the Notes, the Senior Discount Notes and
the Company's Series C, Series D, Series E and 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.
"Global Notes" has the meaning provided in Section 2.01.
<PAGE>
11
"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.
"Guaranteed Indebtedness" has the meaning provided in Section
4.07.
"Guarantor" means KMC Telecom Financing, Inc. and its successors
and assigns.
"Guarantor Order" means a written request or order signed in the
name of the Guarantor (i) by its Chairman of the Board, the Vice Chairman of the
Board, its President or a Vice President and (ii) by its Chief Financial
Officer, Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary and delivered to the Trustee; PROVIDED, HOWEVER, that such written
request or order may be signed by any two of the officers or directors listed in
clause (i) above in lieu of being signed by one of such officers or directors
listed in such clause (i) and one of the officers listed in clause (ii) above.
"Holder" or "Noteholder" means the registered holder of any
Note.
"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>
12
"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.
"Indenture" means this Indenture as originally executed or as it
may be amended or supplemented from time to time by one or more indentures
supplemental to this Indenture entered into pursuant to the applicable
provisions of this Indenture.
"Initial Purchasers" has the meaning specified in the first
paragraph of the recitals to this Indenture.
"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) under the Securities Act.
"Interest Payment Date" means each semiannual interest payment date
on May 15 and November 15 of each year, commencing November 15, 1999.
"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.
<PAGE>
13
"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 Company 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 Company 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 4.06 hereof; 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 4.04 hereof, (i) "Investment" shall
include the fair market value of the assets (net of liabilities (other than
liabilities to the Company 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 Company 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 Baa1 or higher by Moody's or the equivalent
of such rating by such rating organization, or, if no rating of 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 Company 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.
<PAGE>
14
"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 Facility" means the vendor financing facility among Lucent
Technologies Inc., KMC Telecom III, Inc. 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, as the same may be
amended, restated, modified, renewed, refunded, replaced, or refinanced, in
whole or in part, from time to time (and whether or not with the original
administrative agent and lenders or other administrative agent or agents or
other lenders and whether provided under the original Lucent Facility or any
other credit agreement or indenture).
"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 Company 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 Company 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
Company 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
<PAGE>
15
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 Company 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.
"Non-U.S. Person" means a Person who is not a U.S. person, as
defined in Regulation S.
"Note Amount" has the meaning provided in Section 4.11 hereof.
"Note Guarantee" means the Guarantee of the Notes by the
Guarantor as provided for in this Indenture.
"Notes" means any of the notes, as defined in the first paragraph
of the recitals hereof, that are authenticated and delivered under this
Indenture. For all purposes of this Indenture, the term "Notes" shall include
any Exchange Notes to be issued and exchanged for any Notes pursuant to the
Registration Rights Agreement and this Indenture and, for purposes of this
Indenture, all Notes and Exchange Notes shall vote together as one series of
Notes under this Indenture.
"Note Register" has the meaning provided in Section 2.04.
"Offer to Purchase" means an offer to purchase Notes by the Company
from the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the Payment Date; (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the Company
defaults in the payment of the purchase price, any Note accepted for payment
pursuant to the Offer to Purchase shall cease to accrue interest on and after
the Payment Date; (v) that Holders electing to have a Note purchased pursuant to
the Offer to Purchase will be required to surrender the Note, together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse side of
the Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding the
Payment Date; (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 principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
<PAGE>
16
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; PROVIDED
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or an integral multiple thereof. On the Payment Date, the Company
shall: (i) accept for payment on a pro rata basis Notes 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 Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The Paying Agent shall promptly mail to the Holders of Notes so accepted payment
in an amount equal to the purchase price (or, if the Notes are represented by
one or more permanent global Notes registered in the name of The Depository
Trust Company or its nominee, by such other method as required thereby), and the
Trustee shall promptly authenticate and mail to such Holders a new Note equal in
principal amount to any unpurchased portion of the Note surrendered; PROVIDED
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or an integral multiple thereof. The Company will publicly announce
the results of an Offer to Purchase as soon as practicable after the Payment
Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. The
Company 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 Company is required to
repurchase Notes pursuant to an Offer to Purchase.
"Officer" means, with respect to the Company or the Guarantor, (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 Company or the Guarantor, as the case may be.
"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. Each Officers' Certificate (other than certificates provided pursuant
to TIA Section 314(a)(4)) shall include the statements provided for in Section
12.04.
"Offshore Global Note" has the meaning provided in Section 2.01.
"Offshore Certificated Notes" has the meaning provided in
Section 2.01.
"Opinion of Counsel" means a written opinion signed by legal
counsel who may be an employee of or counsel to the Company or the Guarantor.
Each such Opinion of Counsel shall include the statements provided for in TIA
Section 314(e).
"Paying Agent" has the meaning provided in Section 2.04, except
that, for the purposes of Article Eight, the Paying Agent shall not be the
Company or a Subsidiary of the Company or an Affiliate of any of them. The term
"Paying Agent" includes any additional Paying Agent.
<PAGE>
17
"Payment Date" means the date of purchase, which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date notice
is mailed pursuant to an Offer to Purchase.
"Permanent Regulation S Global Notes" means the permanent global
Notes issued in exchange for one or more Temporary Regulation S Global Notes
upon certification that the beneficial interests in such global Note are owned
by either Non-U.S. Persons or U.S. Persons who purchased such interests pursuant
to an exemption from, or in transactions not subject to, the registration
requirements of the Securities Act.
"Permitted Investment" means (i) an Investment in the Company 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 Company
or a Restricted Subsidiary; PROVIDED that such Person's primary business is
related, ancillary or complementary to the businesses of the Company 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 Company
or any of its Restricted Subsidiaries (x) in exchange for any other Investment
or accounts receivable held by the Company 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 Company 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 Capital Stock (other than Disqualified
Stock) or the proceeds of the issuance of Capital Stock (other than Disqualified
Stock) to the extent such amounts have not been previously applied to a
Restricted Payment pursuant to clause (iv) (C)(2) of paragraph (a) of Section
4.04 hereof or clause (iii) or (iv) of paragraph (b) of Section 4.04 hereof or
used to support the Incurrence of Indebtedness pursuant to clause (x) of
paragraph (b) under Section 4.03 hereof and Investments acquired as a capital
contribution; (vi) Guarantees permitted by Section 4.03 hereof; (vii) loans or
advances to employees of the Company 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 4.03 hereof;
(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 Company and its
Subsidiaries on the date of such Investments in an amount not to exceed at any
time outstanding the sum of (x) $23.0 million plus (y) 10% of the Company'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 4.11 hereof; and
(xiv) Investments in an amount not to exceed $5.0 million at any time
outstanding.
"Permitted Joint Venture" means any Unrestricted Subsidiary or any
other Person in which the Company 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
Company and its Restricted Subsidiaries at the time of determination.
<PAGE>
18
"Permitted Liens" means: (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made; (ii) statutory and common law
Liens of landlords, carriers, warehousemen, mechanics, suppliers, materialmen
and repairmen, or other similar Liens arising in the ordinary course of business
and with respect to amounts not yet delinquent or that are bonded or being
contested in good faith by appropriate legal proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been made; (iii)
Liens incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, licenses, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, trade or government contracts, performance
and return-of-money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements (including reciprocal easement agreements),
rights-of-way, municipal, building and zoning ordinances and similar charges,
utility agreements, covenants, reservations, restrictions, encroachments,
charges, encumbrances, title defects or other irregularities that do not
materially interfere with the ordinary course of business of the Company or any
of its Restricted Subsidiaries; (vi) Liens (including extensions and renewals
thereof) upon real or personal property acquired after the Closing Date;
PROVIDED that (a) such Lien is created solely for the purpose of securing Trade
Payables that the Company reasonably expects to pay within 90 days or
Indebtedness Incurred, in accordance with Section 4.03 hereof, to finance the
cost (including the cost of improvements or construction) of the item of
property or assets subject thereto and such Lien is created prior to, at the
time of or within six months after the later of the acquisition, the completion
of construction or the commencement of full operation of such property, (b) the
principal amount of the Trade Payables or Indebtedness secured by such Lien does
not exceed 100% of such cost and (c) any such Lien shall not extend to or cover
any property or assets other than such item of property or assets and any
improvements on such item; (vii) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of the Company and
its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property
or assets under construction arising from progress or partial payments by a
customer of the Company or its Restricted Subsidiaries relating to such property
or assets; (ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xi) Liens on property
of, or on shares of Capital Stock or Indebtedness of, any Person existing at the
time such Person becomes, or becomes a part of, any Restricted Subsidiary;
PROVIDED that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets acquired;
(xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens
arising from the rendering of a final judgment or order against the Company or
any Restricted Subsidiary that does not give rise to an Event of Default; (xiv)
Liens securing reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of credit and the
products and proceeds thereof; (xv) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (xvi) Liens encumbering customary
initial deposits and margin deposits, and other Liens that are within the
general parameters customary in the industry and incurred in the ordinary course
of business, in each case, securing Indebtedness under Interest Rate Agreements
and Currency Agreements and forward contracts, options, future contracts,
<PAGE>
19
futures options or similar agreements or arrangements designed solely to protect
the Company or any of its Restricted Subsidiaries from fluctuations in interest
rates, currencies or the price of commodities; (xvii) Liens arising out of
conditional sale, title retention, consignment or similar arrangements for the
sale of goods entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business in accordance with the past practices of the
Company and its Restricted Subsidiaries prior to the Closing Date; (xviii) Liens
on or sales of receivables; and (xix) Liens on cash set aside at the time of the
Incurrence of any Indebtedness, or government securities purchased with such
cash, in either case to the extent that such cash or government securities
prefund or secure the payment of interest on such Indebtedness and are held in
an escrow account or similar arrangements to be applied for such purpose.
"Person" means an individual, a corporation, a partnership, a
limited liability company, a joint venture, an association, a trust, an
unincorporated organization or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Pledge Account" means the account established with the Trustee, or
any successor trustee, pursuant to the terms of the Pledge Agreement for the
purchase of the Pledged Securities.
"Pledge Agreement" means the Collateral Pledge and Security
Agreement and the Notification and Control Agreement, each dated as of the
Closing Date, made in favor of the Trustee, governing the disbursement of funds
from the Pledge Account, as such agreement may be amended, restated,
supplemented or otherwise modified from time to time.
"Pledged Securities" means the United States Treasury securities
and/or security entitlements relating thereto to be held in the Pledge Account
and pledged by the Guarantor in favor of the Trustee for the benefit of the
Trustee and the Holders of the Notes in accordance with the Pledge Agreement.
"Preferred Stock" or "preferred stock" means, with respect to any
Person, any and all shares, interests, participations or other equivalents
(however designated, whether voting or non-voting) of such Person's preferred or
preference stock, whether now outstanding or issued after the date of this
Indenture, including, without limitation, all series and classes of such
preferred or preference stock.
"principal" of a debt security, including the Notes, means the
principal amount due on the Stated Maturity as shown on such debt security.
"Private Placement Legend" means the legend initially set forth on
the Notes in the form set forth in Section 2.02(a).
"Public Equity Offering" means an underwritten primary public
offering of Common Stock of the Company pursuant to an effective registration
statement under the Securities Act.
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20
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
"Redemption Date", when used with respect to any Note or part
thereof to be redeemed, means the date fixed for such redemption by or pursuant
to the terms of the Notes and this Indenture.
"Redemption Price", when used with respect to any Note or part
thereof to be redeemed, means the price at which such Note is to be redeemed
pursuant to the terms of the Notes and this Indenture.
"Registrar" has the meaning provided in Section 2.04.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of May 19, 1999, between the Company and the Initial
Purchasers relating to the Notes.
"Registration Statement" means any registration statement of the
Company and the Guarantor that covers any of the Exchange Notes, and all
amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the May 1 or November 1 (whether or not a Business Day), as
the case may be, immediately preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer", when used with respect to the Trustee, means
any officer of the Trustee with direct responsibility for the administration of
this Indenture and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"Restricted Payments" has the meaning provided in Section 4.04.
"Restricted Subsidiary" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
<PAGE>
21
"Senior Discount Notes" means the Company's 12 1/2% Senior Discount
Notes due 2008 issued in the original aggregate principal amount at maturity of
$460,800,000 under an indenture dated as of January 29, 1998 between the Company
and The Chase Manhattan Bank, as trustee.
"Senior Secured Credit Facility" means the Loan and Security
Agreement dated as of December 22, 1998 among KMC Telecom Inc., KMC Telecom II,
Inc., KMC Telecom of Virginia, Inc. and Newcourt Commercial Finance Corporation
and any other lenders or borrowers from time to time party thereto, any
collateral documents, instruments and agreements executed in connection
therewith and any amendments, supplements, modifications, extensions, renewals,
restatements, refinancings or refundings thereof.
"Series E Preferred Stock" means the Company's Series E Senior
Redeemable, Exchangeable, PIK Preferred Stock.
"Series F Preferred Stock" means the Company's Series F Senior
Redeemable, Exchangeable, PIK Preferred Stock.
"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.
"Specified Date" means any Redemption Date, any Payment Date for an
Offer to Purchase or any date on which the Notes first become due and payable
after an Event of Default.
"S&P" means Standard & Poor's Ratings Services 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 (i) Investments that the Board of
Directors has determined in good faith will enable the Company or any of its
Restricted Subsidiaries to obtain additional business that it might not be able
to obtain without making such Investment, and (ii) 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 Company 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.
<PAGE>
22
"Strategic Subordinated Indebtedness" means Indebtedness of the
Company 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 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 Company's obligations under the 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 Company 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.
"Subsidiary Guarantee" has the meaning provided in Section 4.07
hereof.
"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
<PAGE>
23
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 Company)
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.
"Temporary Regulation S Global Note" means the Global Note bearing
the Private Placement Legend in bearer form without interest coupons, that will
be issued in a denomination equal to the outstanding principal amount of the
Notes sold in reliance on Regulation S and deposited with the Trustee, as
custodian for the Depository.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of
1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbb), as in effect on the date
this Indenture was executed, except as provided in Section 9.06; PROVIDED,
HOWEVER, that, in the event the Trust Indenture Act of 1939 is amended after
such date, "TIA" or "Trust Indenture Act" means, to the extent required by any
such amendment, the Trust Indenture Act of 1939 as so amended.
"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.
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24
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company 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.
"Trustee" means the party named as such in the first paragraph of
this Indenture until a successor replaces it in accordance with the provisions
of Article Seven of this Indenture and thereafter means such successor.
"United States Bankruptcy Code" means the Bankruptcy Reform Act of
1978, as amended and as codified in Title 11 of the United States Code, as
amended from time to time hereafter, or any successor federal bankruptcy law.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
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 Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; PROVIDED that (A) any Guarantee by the Company 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
Company 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 under Section 4.04 hereof and (C) if
applicable, the Incurrence of Indebtedness and the Investment referred to in
clause (A) of this proviso would be permitted under Sections 4.03 and 4.04
hereof. The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED that (i) no Default or Event of Default shall
have occurred and be continuing at the time of or after giving effect to such
designation and (ii) all Liens and 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 Indenture. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the Trustee
a Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
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25
"U.S. Global Note" has the meaning provided in Section 2.01.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof at any time prior
to the Stated Maturity of the Notes, and shall also include depository receipts
issued by a bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on or principal of any
such U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt; PROVIDED that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of interest on
or principal of the U.S. Government Obligation evidenced by such depository
receipt.
"U.S. Person" has the meaning ascribed thereto in Rule 902 under
the Securities Act.
"U.S. Certificated Notes" has the meaning provided in Section
2.01.
"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.
"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.
SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
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26
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the indenture securities means the Company, the
Guarantor or any other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. RULES OF CONSTRUCTION. Unless the context
otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii)"or" is not exclusive;
(iv) words in the singular include the plural, and words in the
plural include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision; and
<PAGE>
(vii)all references to Sections or Articles refer to Sections or
Articles of this Indenture unless otherwise indicated.
ARTICLE TWO
THE NOTES
SECTION 2.01. FORM AND DATING. The Notes and the Trustee's
certificate of authentication shall be substantially in the form annexed hereto
as Exhibit A. The Notes may have such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture and may have letters, notations, legends or endorsements required by
law, stock exchange agreements to which the Company is subject or usage. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note. The Company shall approve
the form of the Notes and any notation, legend or endorsement on the Notes. Each
Note shall be dated the date of its authentication.
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part of
this Indenture. Each of the Company, the Guarantor and the Trustee, by its
execution and delivery of this Indenture, expressly agrees to the terms and
provisions of the Notes applicable to it and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global Notes in registered form,
substantially in the form set forth in Exhibit A (the "U.S. GLOBAL Note"),
deposited on behalf of the purchasers of the Notes represented thereby with the
Trustee, as custodian for the Depository, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of a U.S. Global Note may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the Depository
or its nominee, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of one or more temporary
global Notes in registered form substantially in the form set forth in Exhibit A
(the "TEMPORARY REGULATION S GLOBAL NOTE"), deposited on behalf of the
purchasers of the Notes represented thereby with the Trustee, as custodian for
the Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. At any time following July 2, 1999 upon receipt by the
Trustee and the Company of a certificate substantially in the form of Exhibit B
hereto, one or more permanent global Notes in registered form substantially in
the form set forth in Exhibit A (the "PERMANENT REGULATION S GLOBAL NOTE" and,
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27
together with the Temporary Regulation S Global Note, the "OFFSHORE GLOBAL
NOTE") duly executed by the Company and authenticated by the Trustee as
hereinafter provided shall be deposited with the Trustee, as custodian for the
Depository, which shall reflect on its books and records the date and a decrease
in the principal amount of the Temporary Regulation S Global Notes in an amount
equal to the principal amount of the beneficial interest in the Temporary
Regulation S Global Notes transferred. The aggregate principal amount of an
Offshore Global Note may from time to time be increased or decreased by
adjustments made in the records of the Trustee, as custodian for the Depository
or its nominee, as herein provided.
Notes which are issued to Institutional Accredited Investors which
are not QIBs (excluding Non-U.S. Persons) shall be issued in the form of
permanent certificated Notes in registered form in substantially the form set
forth in Exhibit A (the "U.S. CERTIFICATED NOTES"). Notes issued pursuant to
Section 2.07 in exchange for interests in the Offshore Global Note shall be in
the form of certificated Notes in registered form substantially in the form set
forth in Exhibit A (the "OFFSHORE CERTIFICATED NOTES"). Notes issued pursuant to
Section 2.07 in exchange for interests in the U.S. Global Note shall be in the
form of the U.S. Certificated Note.
The Offshore Certificated Notes and the U.S. Certificated Notes are
sometimes collectively referred to herein as the "CERTIFICATED NOTES". The U.S.
Global Notes and Offshore Global Notes are sometimes collectively herein
referred to as the "GLOBAL NOTES".
The definitive Notes 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
Notes may be listed, all as determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
SECTION 2.02. RESTRICTIVE LEGENDS. (a) NOTE LEGENDS. Unless and
until a Note is exchanged for an Exchange Note or otherwise disposed of in
connection with an effective Registration Statement pursuant to the Registration
Rights Agreement, (i) each U.S. Global Note and each U.S. Certificated Note
shall bear the legend, set forth below on the face thereof and (ii) each
Offshore Certificated Note and each Temporary Regulation S Global Note shall
bear the legend set forth below on the face thereof until at least 41 days after
the Closing Date and receipt by the Company and the Trustee of a certificate
substantially in the form of Exhibit B hereto.
THIS NOTE HAS 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
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS 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") OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903
OF REGULATION S UNDER THE SECURITIES ACT; (2) AGREES THAT IT WILL NOT,
WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) AS IN EFFECT ON THE DATE
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28
OF SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO KMC
TELECOM HOLDINGS, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE
A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING
TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN
BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF NOTES OF LESS THAN $500,000, AN OPINION OF
COUNSEL ACCEPTABLE TO KMC TELECOM HOLDINGS, INC. THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS NOTE 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 TRUSTEE. IF
THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH THE TRUSTEE AND KMC TELECOM
HOLDINGS, INC. SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS
SUCH PERSONS 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. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER
ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
<PAGE>
29
(b) GLOBAL NOTE LEGEND. Each Global Note, whether or not an
Exchange Note, shall also bear the following legend on the face thereof:
UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY TO KMC TELECOM HOLDINGS, INC. OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY
OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.08 OF THE INDENTURE.
SECTION 2.03. EXECUTION, AUTHENTICATION AND DENOMINATIONS. Subject
to Article Four, the aggregate principal amount of Notes (including Exchange
Notes) which may be authenticated and delivered under this Indenture is
unlimited. The Notes shall be executed by two Officers of the Company, by
facsimile or manual signature, in the name and on behalf of the Company.
If an Officer whose signature is on a Note no longer holds that
office at the time the Trustee or authenticating agent authenticates the Note,
the Note shall be valid nevertheless.
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30
A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
At any time and from time to time after the execution of this
Indenture, the Trustee or an authenticating agent shall, upon receipt of a
Company Order, authenticate for original issue Notes in the aggregate principal
amount specified in such Company Order; PROVIDED that the Trustee shall be
entitled to receive an Officers' Certificate and an Opinion of Counsel of the
Company if it so reasonably requests in connection with such authentication of
Notes. Such Company Order shall specify the amount of Notes to be authenticated,
the date on which the issue of Notes is to be authenticated and in case of an
issuance of Notes pursuant to Section 2.15, shall certify that such issuance is
in compliance with Article Four.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Notes. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such authenticating agent. An authenticating
agent has the same rights as an Agent to deal with the Company or an Affiliate
of the Company.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 in principal amount and any integral
multiple of $1,000 in excess thereof.
SECTION 2.04. REGISTRAR AND PAYING AGENT. The Company shall
maintain an office or agency where Notes may be presented for registration of
transfer or for exchange (the "REGISTRAR"), an office or agency where Notes may
be presented for payment (the "PAYING AGENT") and an office or agency where
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served, which shall be in the Borough of Manhattan, The City of
New York. The Company shall cause the Registrar to keep a register of the Notes
and of their transfer and exchange (the "NOTE REGISTER"). The Company may have
one or more co-Registrars and one or more additional Paying Agents.
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31
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall give
prompt written notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Company fails to maintain a
Registrar, Paying Agent and/or agent for service of notices and demands, the
Trustee shall act as such Registrar, Paying Agent and/or agent for service of
notices and demands for so long as such failure shall continue. The Company may
remove any Agent upon written notice to such Agent and the Trustee; PROVIDED
that no such removal shall become effective until (i) the acceptance of an
appointment by a successor Agent to such Agent as evidenced by an appropriate
agency agreement entered into by the Company and such successor Agent and
delivered to the Trustee or (ii) notification to the Trustee that the Trustee
shall serve as such Agent until the appointment of a successor Agent in
accordance with clause (i) of this proviso. The Company, any Subsidiary of the
Company, or any Affiliate of any of them may act as Paying Agent, Registrar or
co-Registrar, and/or agent for service of notice and demands; PROVIDED, HOWEVER,
that neither the Company, a Subsidiary of the Company nor an Affiliate of any of
them shall act as Paying Agent in connection with the defeasance of the Notes or
the discharge of this Indenture under Article Eight.
The Company initially appoints the Trustee as Registrar, Paying
Agent, authenticating agent and agent for service of notice and demands. If, at
any time, the Trustee is not the Registrar, the Registrar shall make available
to the Trustee on or before each Interest Payment Date and at such other times
as the Trustee may reasonably request, the names and addresses of the Holders as
they appear in the Note Register.
SECTION 2.05. PAYING AGENT TO HOLD MONEY IN TRUST. Not later than
12:00 p.m. New York City time on each due date of the principal, premium, if
any, or interest on any Notes, the Company shall deposit with the Paying Agent
money in immediately available funds sufficient to pay such principal, premium,
if any, or interest so becoming due. The Company shall require each Paying
Agent, if any, other than the Trustee to agree in writing that such Paying Agent
shall hold in trust for the benefit of the Holders or the Trustee all money held
by the Paying Agent for the payment of principal of, premium, if any, or
interest on the Notes (whether such money has been paid to it by the Company or
any other obligor on the Notes), and that such Paying Agent shall promptly
notify the Trustee of any default by the Company (or any other obligor on the
Notes) in making any such payment. The Company at any time may require a Paying
Agent to pay all money held by it to the Trustee and account for any funds
disbursed, and the Trustee may at any time during the continuance of any payment
default, upon written request to a Paying Agent, require such Paying Agent to
pay all money held by it to the Trustee and to account for any funds disbursed.
Upon doing so, the Paying Agent shall have no further liability for the money so
paid over to the Trustee. If the Company or any Subsidiary of the Company or any
Affiliate of any of them acts as Paying Agent, it will, on or before each due
date of any principal of, premium, if any, or interest on the Notes, segregate
and hold in a separate trust fund for the benefit of the Holders a sum of money
sufficient to pay such principal, premium, if any, or interest so becoming due
until such sum of money shall be paid to such Holders or otherwise disposed of
as provided in this Indenture, and will promptly notify the Trustee of its
action or failure to act as required by this Section 2.05.
SECTION 2.06. TRANSFER AND EXCHANGE. The Notes are issuable only in
registered form. A Holder may transfer a Note by written application to the
Registrar stating the name of the proposed transferee and otherwise complying
with the terms of this Indenture. No such transfer shall be effected until, and
such transferee shall succeed to the rights of a Holder only upon, registration
of the transfer by the Registrar in the Note Register. Prior to the registration
of any transfer by a Holder as provided herein, the Company, the Trustee, and
any agent of the Company or the Trustee shall treat the Person in whose name the
Note is registered as the owner thereof for all purposes whether or not the Note
shall be overdue, and neither the Company, the Trustee, nor any such agent shall
be affected by notice to the contrary. Furthermore, any Holder of a Global Note
shall, by acceptance of such Global Note, agree that transfers of beneficial
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32
interests in such Global Note may be effected only through a book-entry system
maintained by the Depository (or its agent), and that ownership of a beneficial
interest in the Note shall be required to be reflected in a book entry. When
Notes are presented to the Registrar or a co-Registrar with a request to
register the transfer or to exchange them for an equal principal amount of Notes
of other authorized denominations (including on exchange of Notes for Exchange
Notes), the Registrar shall register the transfer or make the exchange as
requested if its requirements for such transactions are met; PROVIDED that no
exchanges of Notes for Exchange Notes shall occur until a Registration Statement
shall have been declared effective by the Commission and that any Notes that are
exchanged for Exchange Notes shall be cancelled by the Trustee. To permit
registrations of transfers and exchanges in accordance with the terms,
conditions and restrictions hereof, the Company shall execute and the Trustee
shall authenticate Notes at the Registrar's request. No service charge shall be
made to any Holder for any registration of transfer or exchange or redemption of
the Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith
(other than any such transfer taxes or other similar governmental charge payable
upon transfers, exchanges or redemptions pursuant to Sections 2.11, 3.08, 4.11,
4.12 or 9.04 hereof).
The Registrar shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Notes selected for redemption under Section 3.03 or Section 3.08 and ending at
the close of business on the day of such mailing, or (ii) to register the
transfer of or exchange any Note so selected for redemption in whole or in part,
except the unredeemed portion of any Note being redeemed in part.
SECTION 2.07. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES. (a) Each U.S.
Global Note and Offshore Global Note initially shall (i) be registered in the
name of the Depository for such Global Notes or the nominee of such Depository,
(ii) be delivered to the Trustee as custodian for such Depository and (iii) bear
legends as set forth in Section 2.02.
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33
Members of, or participants in, the Depository ("AGENT MEMBERS")
shall have no rights under this Indenture with respect to any Global Note held
on their behalf by the Depository, or the Trustee as its custodian, or under any
Global Note, and the Depository may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a beneficial owner of any Note.
(b) Transfers of a Global Note shall be limited to transfers of
such Global Note in whole, but not in part, to the Depository, its successors or
their respective nominees. Interests of beneficial owners in a Global Note may
be transferred in accordance with the applicable rules and procedures of the
Depository and the provisions of Section 2.08. In addition, U.S. Certificated
Notes or Offshore Certificated Notes shall be transferred to all beneficial
owners in exchange for their beneficial interests in a U.S. Global Note or an
Offshore Global Note, respectively, if (i) the Depository notifies the Company
that it is unwilling or unable to continue as Depository for the U.S. Global
Notes or the Offshore Global Notes, as the case may be, and a successor
depositary is not appointed by the Company within 90 days of such notice or (ii)
an Event of Default has occurred and is continuing and the Registrar has
received a request to the foregoing effect from the Depository or the Trustee.
(c) Any beneficial interest in one of the Global Notes that is
transferred to a Person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
(d) In connection with any transfer pursuant to paragraph (b) of
this Section 2.07 of a portion of the beneficial interests in a U.S. Global Note
or Offshore Global Note to beneficial owners who are required to hold U.S.
Certificated Notes, the Registrar shall reflect on its books and records the
date and a decrease in the principal amount of such U.S. Global Note or Offshore
Global Note in an amount equal to the principal amount of the beneficial
interest in such U.S. Global Note or Offshore Global Note to be transferred, and
the Company shall execute, and the Trustee shall authenticate and deliver, one
or more U.S. Certificated Notes or Offshore Certificated Notes, as the case may
be, of like tenor and amount.
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34
(e) In connection with the transfer of all the U.S. Global Notes or
Offshore Global Notes to beneficial owners pursuant to paragraph (b) of this
Section 2.07, the U.S. Global Notes or Offshore Global Notes, as the case may
be, shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depository in exchange for its beneficial
interest in the U.S. Global Notes or Offshore Global Notes, as the case may be,
an equal aggregate principal amount of U.S. Certificated Notes or Offshore
Certificated Notes, as the case may be, of authorized denominations.
(f) Any U.S. Certificated Note delivered in exchange for an
interest in a U.S. Global Note pursuant to paragraph (b), (d) or (e) of this
Section 2.07 shall, except as otherwise provided by paragraphs (d) and (f)(i)(x)
of Section 2.08 hereof, bear the legend regarding transfer restrictions
applicable to the U.S. Certificated Note set forth in Section 2.02.
(g) Any Offshore Certificated Note delivered in exchange for an
interest in an Offshore Global Note pursuant to paragraph (b), (d) or (e) of
this Section 2.07 shall, except as otherwise provided by paragraphs (d) and
(f)(i)(x) of Section 2.08 hereof, bear the legend regarding transfer
restrictions applicable to the Offshore Certificated Note set forth in Section
2.02 hereof.
(h) The registered holder of a Global Note may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
(i) QIBs that are beneficial owners of interests in a Global Note
may receive Certificated Notes (which shall bear the Private Placement Legend if
required by Section 2.02) in accordance with the procedures of the Depository.
In connection with the execution, authentication and delivery of such
Certificated Notes, the Registrar shall reflect on its books and records a
decrease in the principal amount of the relevant Global Note equal to the
principal amount of such Certificated Notes and the Company shall execute and
the Trustee shall authenticate and deliver one or more Certificated Notes having
an equal aggregate principal amount.
SECTION 2.08. SPECIAL TRANSFER PROVISIONS. Unless and until a Note
is exchanged for an Exchange Note in connection with an effective Registration
Statement pursuant to the Registration Rights Agreement, the following
provisions shall apply:
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35
(a) TRANSFERS TO QIBS. The following provisions shall apply with
respect to the registration of any proposed transfer of a U.S. Certificated Note
or an interest in a U.S. Global Note to a QIB (excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of (x) U.S. Certificated
Notes, the Registrar shall register the transfer if such transfer is being
made by a proposed transferor who has checked the box provided for on the
form of Note stating, or has otherwise advised the Company and the
Registrar 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 Note stating, or has otherwise advised the
Company and the Registrar in writing, that it is purchasing the Note 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 or
(y) an interest in a U.S. Global Note, the transfer of such interest may
be effected only through the book entry system maintained by the
Depository.
(ii) If the proposed transferee is an Agent Member, and the Note to
be transferred consists of U.S. Certificated Notes, upon receipt by the
Registrar of the documents referred to in clause (i) and instructions
given in accordance with the Depository's and the Registrar's procedures,
the Registrar shall reflect on its books and records the date and an
increase in the principal amount of such U.S. Global Note in an amount
equal to the principal amount of the U.S. Certificated Notes to be
transferred, and the Trustee shall cancel the Certificated Notes so
transferred.
(b) TRANSFERS OF INTERESTS IN OFFSHORE GLOBAL NOTES OR OFFSHORE
CERTIFICATED NOTES TO U.S. PERSONS. The following provisions shall apply
with respect to any transfer of interests in Offshore Global Notes or
Offshore Certificated Notes to U.S. Persons:
(i) prior to the removal of the Private Placement Legend from
Offshore Global Notes or Offshore Certificated Notes pursuant to Section
2.02, the Registrar shall refuse to register such transfer; and
(ii) after such removal, the Registrar shall register the transfer
of any such Note without requiring any additional certification.
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36
(c) TRANSFERS TO NON-U.S. PERSONS AT ANY TIME. The following
provisions shall apply with respect to any transfer of a Note to a Non-U.S.
Person:
(i) The Registrar shall register any proposed transfer to any
Non-U.S. Person if the Note to be transferred is a U.S. Certificated Note
or an interest in a U.S. Global Note only upon receipt of a certificate
substantially in the form of Exhibit C hereto from the proposed
transferor.
(ii) (a) If the proposed transferor is an Agent Member holding a
beneficial interest in a U.S. Global Note, upon receipt by the Registrar
of (x) the documents required by paragraph (i) and (y) instructions in
accordance with the Depository's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and a decrease
in the principal amount of such U.S. Global Note in an amount equal to the
principal amount of the beneficial interest in the U.S. Global Note to be
transferred, and (b) if the proposed transferee is an Agent Member, upon
receipt by the Registrar of instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall reflect
on its books and records the date and an increase in the principal amount
of such Offshore Global Note in an amount equal to the principal amount of
the U.S. Certificated Notes or the U.S. Global Notes, as the case may be,
to be transferred, and the Trustee shall cancel the Certificated Note, if
any, so transferred or decrease the amount of the U.S. Global Notes.
(d) PRIVATE PLACEMENT LEGEND. Upon the registration of transfer,
exchange or replacement of Notes not bearing the Private Placement Legend, the
Registrar shall deliver Notes that do not bear the Private Placement Legend.
Upon the registration of transfer, exchange or replacement of Notes bearing the
Private Placement Legend, the Registrar shall deliver only Notes that bear the
Private Placement Legend unless either (i) the Private Placement Legend is no
longer required by Section 2.02 or (ii) there is delivered to the Registrar an
Opinion of Counsel reasonably satisfactory to the Company and the Trustee 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.
(e) GENERAL. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture. The Registrar shall not register a transfer of any Note unless such
transfer complies with the restrictions on transfer of such Note set forth in
this Indenture. In connection with any transfer of Notes to an Institutional
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37
Accredited Investor, each Holder agrees by its acceptance of the Notes to
furnish the Registrar 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; PROVIDED that
the Registrar 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.
(f) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS. The
following provisions shall apply with respect to the registration of any
proposed transfer of a Note to any Institutional Accredited Investor which is
not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Note, whether
or not such Note bears the Private Placement Legend, if (x) the requested
transfer is after the time period referred to in Rule 144(k) under the
Securities Act as in effect with respect to such transfer or (y) the
proposed transferee has delivered to the Registrar (A) a certificate
substantially in the form of Exhibit D hereto and (B) if the aggregate
principal amount of the Notes being transferred is less than $500,000 at
the time of such transfer, an Opinion of Counsel acceptable to the Company
that such transfer is in compliance with the Securities Act.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in a U.S. Global Note, upon receipt by the Registrar
and the Company of (x) the documents, if any, required by paragraph (i)
and (y) instructions given in accordance with the Depository's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of such U.S.
Global Note in an amount equal to the principal amount of the beneficial
interest in the U.S. Global Note to be transferred, and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more U.S.
Certificated Notes of like tenor and amount.
The Registrar shall retain, in accordance with its customary
procedures, copies of all letters, notices and other written communications
received pursuant to Section 2.07 or this Section 2.08. 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 Registrar.
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SECTION 2.09. REPLACEMENT NOTES. If a mutilated Note is surrendered
to the Trustee or if the Holder claims that the Note has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding; PROVIDED that the requirements of the second
paragraph of Section 2.10 are met. If required by the Trustee or the Company, an
indemnity bond must be furnished that is sufficient in the judgment of both the
Trustee and the Company to protect the Company, the Trustee or any Agent from
any loss that any of them may suffer if a Note is replaced. The Company may
charge such Holder for its expenses and the expenses of the Trustee in replacing
a Note. In case any such mutilated, lost, destroyed or wrongfully taken Note has
become or is about to become due and payable, the Company in its discretion may
pay such Note instead of issuing a new Note in replacement thereof.
Every replacement Note is an additional obligation of the Company
and shall be entitled to the benefits of this Indenture.
SECTION 2.10. OUTSTANDING NOTES. Notes outstanding at any time are
all Notes that have been authenticated by the Trustee except for those cancelled
by it, those delivered to it for cancellation and those described in this
Section 2.10 as not outstanding.
If a Note is replaced pursuant to Section 2.09, it ceases to be
outstanding unless and until the Trustee and the Company receive proof
reasonably satisfactory to them that the replaced Note is held by a protected
purchaser.
If the Paying Agent (other than the Company or an Affiliate of the
Company) holds on the maturity date or a redemption date money sufficient to pay
all principal, premium, if any, and interest payable on that date with respect
to the Notes (or portions thereof) to be redeemed or payable on that date, then
on and after that date such Notes cease to be outstanding and interest on them
shall cease to accrue.
A Note does not cease to be outstanding because the Company or one
of its Affiliates holds such Note; PROVIDED, HOWEVER, that, in determining
whether the Holders of the requisite principal amount of the outstanding Notes
have given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Notes owned by the Company or any other obligor upon the Notes
or any Affiliate of the Company or of such other obligor shall be disregarded
and deemed not to be outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes which a
Responsible Officer of the Trustee knows to be so owned shall be so disregarded.
Notes so owned which have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Notes and that the pledgee is not
the Company or any other obligor upon the Notes or any Affiliate of the Company
or of such other obligor.
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39
SECTION 2.11. TEMPORARY NOTES. Until definitive Notes are ready for
delivery, the Company may prepare and the Trustee shall authenticate temporary
Notes. Temporary Notes shall be substantially in the form of definitive Notes
but may have insertions, substitutions, omissions and other variations
determined to be appropriate by the Officers executing the temporary Notes, as
evidenced by their execution of such temporary Notes. If temporary Notes are
issued, the Company will cause definitive Notes to be prepared without
unreasonable delay. After the preparation of definitive Notes, the temporary
Notes shall be exchangeable for definitive Notes upon surrender of the temporary
Notes at the office or agency of the Company designated for such purpose
pursuant to Section 4.02, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Notes the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Notes of authorized denominations. Until so exchanged, the
temporary Notes shall be entitled to the same benefits under this Indenture as
definitive Notes.
SECTION 2.12. CANCELLATION. The Company at any time may deliver to
the Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and may
deliver to the Trustee for cancellation any Notes previously authenticated
hereunder which the Company has not issued and sold. The Registrar and the
Paying Agent shall forward to the Trustee any Notes surrendered to them for
registration of transfer, exchange, purchase or payment. The Trustee shall
cancel all Notes surrendered for registration of transfer, exchange, purchase,
payment or cancellation and shall dispose of them in accordance with its normal
procedure. The Company shall not issue new Notes to replace Notes it has paid in
full or delivered to the Trustee for cancellation.
SECTION 2.13. CUSIP NUMBERS. The Company in issuing the Notes may
use "CUSIP" and "CINS" numbers (if then generally in use), and the Trustee shall
use CUSIP numbers or CINS numbers, as the case may be, in notices of redemption
or exchange as a convenience to Holders; PROVIDED that any such notice shall
state that no representation is made as to the correctness of such numbers
either as printed on the Notes or as contained in any notice of redemption or
exchange and that reliance may be placed only on the other identification
numbers printed on the Notes.
SECTION 2.14. DEFAULTED INTEREST. If the Company defaults in a
payment of interest on the Notes, it shall pay, or shall deposit with the Paying
Agent money in immediately available funds sufficient to pay, the defaulted
interest, plus (to the extent lawful) interest on the defaulted interest, to the
Persons who are Holders on a subsequent special record date. A special record
date, as used in this Section 2.14 with respect to the payment of any defaulted
interest, shall mean the 15th day immediately preceding the date fixed by the
Company for the payment of defaulted interest, whether or not such day is a
Business Day. At least 15 days before the subsequent special record date, the
Company shall mail to each Holder and to the Trustee a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest to be paid.
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SECTION 2.15. ISSUANCE OF ADDITIONAL NOTES. The Company may,
subject to Article Four of this Indenture, issue additional Notes under this
Indenture. The Notes issued on the Closing Date and any additional Notes
subsequently issued shall be treated as a single class for all purposes under
this Indenture.
ARTICLE THREE
REDEMPTION
SECTION 3.01. RIGHT OF REDEMPTION. (a) The Notes may be redeemed at
the election of the Company, in whole or in part, at any time and from time to
time on or after May 15, 2004, upon not less than 30 nor more than 60 days'
prior notice mailed by first-class mail to each Holder's last address as it
appears in the Note Register, at the following Redemption Prices (expressed as
percentages of principal amount), plus accrued and unpaid interest, if any, to
the Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date) if redeemed during the 12-month period commencing on May 15 of the
applicable year set forth below:
REDEMPTION
YEAR PRICE
---- -----
2004 106.750%
2005 104.500%
2006 102.250%
2007 and thereafter 100.000%
(b) In addition, at any time or from time to time, on or prior to
May 15, 2002, the Company may, at its option, redeem up to 35% of the aggregate
principal amount of the Notes with proceeds of one or more public or private
Equity Offerings, at a Redemption Price (expressed as a percentage of principal
amount) of 113.500%, plus accrued and unpaid interest to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date); PROVIDED that
at least 65% of the aggregate principal amount of the Notes issued on May 24,
1999 remains outstanding after each such redemption and notice of any such
redemption is mailed within 60 days after the applicable Equity Offering and in
accordance with the requirements of Section 3.04.
SECTION 3.02. NOTICES TO TRUSTEE. If the Company elects to redeem
Notes pursuant to Section 3.01, it shall notify the Trustee in writing of the
Redemption Date and the principal amount of Notes to be redeemed.
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The Company shall give each notice provided for in this Section 3.02
in an Officers' Certificate at least 60 days before the Redemption Date (unless
a shorter period shall be satisfactory to the Trustee).
SECTION 3.03. SELECTION OF NOTES TO BE REDEEMED. If less than all of
the Notes are to be redeemed at any time, the Trustee shall select the Notes to
be redeemed in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or if the Notes are
not listed on a national securities exchange, by lot or by such other method as
the Trustee in its sole discretion shall deem to be fair and appropriate;
PROVIDED that no Notes of $1,000 in principal amount or less shall be redeemed
in part.
The Trustee shall make the selection from the Notes outstanding and
not previously called for redemption. Notes in denominations of $1,000 in
principal amount may only be redeemed in whole. The Trustee may select for
redemption portions (equal to $1,000 in principal amount or any integral
multiple thereof) of Notes that have denominations larger than $1,000 in
principal amount. Provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption. The Trustee
shall notify the Company and the Registrar promptly in writing of the Notes or
portions of Notes to be called for redemption.
SECTION 3.04. NOTICE OF REDEMPTION. With respect to any redemption
of Notes pursuant to Section 3.01, at least 30 days but not more than 60 days
before a Redemption Date, the Company shall mail a notice of redemption by first
class mail to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be surrendered to the
Paying Agent in order to collect the Redemption Price;
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(v) that, unless the Company defaults in making the redemption
payment, interest on Notes (or portions thereof) called for redemption
ceases to accrue on and after the Redemption Date and the only remaining
right of the Holders is to receive payment of the Redemption Price plus
accrued interest to the Redemption Date upon surrender of the Notes to the
Paying Agent;
(vi) that, if any Note is being redeemed in part, the portion of the
principal amount (equal to $1,000 in principal amount or any integral
multiple thereof) of such Note to be redeemed and that, on and after the
Redemption Date, upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion thereof will be reissued;
and
(vii) that, if any Note contains a CUSIP number as provided in
Section 2.13, no representation is being made as to the correctness of the
CUSIP number either as printed on the Notes or as contained in the notice
of redemption.
At the Company's request (which request may be revoked by the
Company at any time prior to the time at which the Trustee shall have given such
notice to the Holders), made in writing to the Trustee at least 60 days (or such
shorter period as shall be satisfactory to the Trustee) before a Redemption
Date, the Trustee shall give the notice of redemption in the name and at the
expense of the Company. If, however, the Company gives such notice to the
Holders, the Company shall concurrently deliver to the Trustee an Officers'
Certificate stating that such notice has been given.
SECTION 3.05. EFFECT OF NOTICE OF REDEMPTION. Once notice of
redemption is mailed, Notes called for redemption become due and payable on the
Redemption Date and at the Redemption Price. Upon surrender of any Notes to the
Paying Agent, such Notes shall be paid at the Redemption Price, plus accrued
interest, if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed,
whether or not the Holder receives the notice. In any event, failure to give
such notice, or any defect therein, shall not affect the validity of the
proceedings for the redemption of Notes held by Holders to whom such notice was
properly given.
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SECTION 3.06. DEPOSIT OF REDEMPTION PRICE. On or prior to any
Redemption Date, the Company shall deposit with the Paying Agent (or, if the
Company, one of its Subsidiaries or any of their Affiliates is acting as Paying
Agent, shall segregate and hold in trust as provided in Section 2.05) money
sufficient to pay the Redemption Price of and accrued interest on all Notes to
be redeemed on that date other than Notes or portions thereof called for
redemption on that date that have been delivered by the Company to the Trustee
for cancellation.
SECTION 3.07. PAYMENT OF NOTES CALLED FOR REDEMPTION. If notice of
redemption has been given in the manner provided above, the Notes or portion of
Notes specified in such notice to be redeemed shall become due and payable on
the Redemption Date at the Redemption Price stated therein, together with
accrued interest to such Redemption Date, and on and after such date (unless the
Company shall default in the payment of such Notes at the Redemption Price and
accrued interest to the Redemption Date, in which case the principal, until
paid, shall bear interest from the Redemption Date at the rate prescribed in the
Notes), such Notes shall cease to accrue interest. Upon surrender of any Note
for redemption in accordance with a notice of redemption, such Note shall be
paid and redeemed by the Company at the Redemption Price, together with accrued
interest, if any, to the Redemption Date; PROVIDED that installments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders registered as such at the close of business on the relevant Regular
Record Date.
SECTION 3.08. NOTES REDEEMED IN PART. Upon surrender of any Note
that is redeemed in part, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder a new Note equal in principal amount to
the unredeemed portion of such surrendered Note.
ARTICLE FOUR
COVENANTS
SECTION 4.01. PAYMENT OF NOTES. The Company shall pay the principal
of, premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes and this Indenture. An installment of principal, premium,
if any, or interest shall be considered paid on the date due if the Trustee or
Paying Agent (other than the Company, a Subsidiary of the Company, or any
Affiliate of any of them) holds on that date money designated for and sufficient
to pay the installment. If the Company or any Subsidiary of the Company or any
Affiliate of any of them, acts as Paying Agent, an installment of principal,
premium, if any, or interest shall be considered paid on the due date if the
entity acting as Paying Agent complies with the last sentence of Section 2.05.
As provided in Section 6.09, upon any bankruptcy or reorganization procedure
relative to the Company, the Trustee shall serve as the Paying Agent and
conversion agent, if any, for the Notes.
The Company shall pay interest on overdue principal, premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
the rate per annum specified in the Notes.
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SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company will
maintain in the Borough of Manhattan, the City of New York, an office or agency
where Notes may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company or
the Guarantor in respect of the Notes, the Note Guarantee and this Indenture may
be served. The Company will give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 12.02 hereof.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the City of New York) where the Notes may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; PROVIDED that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain an office or
agency in the Borough of Manhattan, the City of New York for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby initially designates the Corporate Trust Office
of the Trustee, located in the Borough of Manhattan, the City of New York, as
such office of the Company in accordance with Section 2.04.
SECTION 4.03. LIMITATION ON INDEBTEDNESS. (a) The Company will not,
and will not permit any of its Restricted Subsidiaries to, Incur any
Indebtedness (other than the Notes and Indebtedness existing on the Closing
Date); PROVIDED that the Company 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.
(b) Notwithstanding the foregoing, the Company and any Restricted
Subsidiary (except as specified below) may Incur each and all of the following:
(i) Indebtedness of the Company or its Restricted Subsidiaries
outstanding at any time in an aggregate principal amount not to exceed
$100.0 million of unsubordinated Indebtedness and $100.0 million of
subordinated Indebtedness, less any amount of such Indebtedness
permanently repaid as provided under Section 4.11 hereof (and any
Guarantees thereof by the Company or its Restricted Subsidiaries);
(ii) the Incurrence by the Company of Indebtedness represented by
the Notes;
(iii) Indebtedness in existence on the Closing Date;
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(iv) Indebtedness of the Company to a Restricted Subsidiary and
Indebtedness of a Restricted Subsidiary to the Company or another
Restricted Subsidiary; PROVIDED that such Indebtedness is made pursuant to
an intercompany note (which, in the case of Indebtedness owed to the
Company, shall be unsubordinated) 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 Company or
another Restricted Subsidiary) shall be deemed, in each case, to
constitute an Incurrence of such Indebtedness not permitted by this clause
(iv);
(v) 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 clauses (i), (iv), (vi), (viii) or
(xi) of this paragraph (b)) 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 Indebtedness the proceeds of
which are used to refinance or refund Indebtedness that is subordinated in
right of payment to the Notes shall only be permitted under this clause
(v) if (A) such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new Indebtedness is issued
or remains outstanding, is expressly made subordinate in right of payment
to the Notes at least to the extent that the Indebtedness to be refinanced
is subordinated to the Notes and (B) such new Indebtedness, determined as
of the date of Incurrence of such new Indebtedness, does not mature 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;
and PROVIDED FURTHER that in no event may Indebtedness of the Company be
refinanced by means of any Indebtedness of any Restricted Subsidiary
pursuant to this clause (v);
(vi) 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 (1) are designed solely to protect the
Company or its Restricted Subsidiaries against fluctuations in foreign
currency exchange rates or interest rates and (2) 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)
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46
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
Company 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 Company or any Restricted Subsidiary in
connection with such disposition;
(vii) Indebtedness of the Company, to the extent the net proceeds
thereof are promptly (A) used to purchase the Notes or the Senior Discount
Notes tendered in an Offer to Purchase made as a result of a Change in
Control or (B) deposited to defease the Notes or the Senior Discount Notes
as described below under Article Eight hereof;
(viii) Guarantees of the Notes and the Senior Discount Notes and
Guarantees of Indebtedness of the Company by any Restricted Subsidiary
provided the Guarantee of such Indebtedness is permitted by and made in
accordance with Section 4.07 hereof and any Guarantee by the Company of
Indebtedness or other obligations of any of its Restricted Subsidiaries so
long as the incurrence of such Indebtedness Incurred by such Restricted
Subsidiary is permitted under the terms of this Section 4.03;
(ix) 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 Company or a Restricted
Subsidiary after the Closing Date;
(x) Indebtedness of the Company not to exceed, at any one time
outstanding, two times the sum of (A) the Net Cash Proceeds received by
the Company 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 Company, to the extent such Net Cash Proceeds have not
been used pursuant to clause (iv)(C)(2) of paragraph (a) or clause (iii)
or (iv) of paragraph (b) of Section 4.04 hereof 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
<PAGE>
47
equivalents) received by the Company 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 Company, to the extent such sale of Capital Stock
has not been used pursuant to clause (iii) or (iv) of paragraph (b) of
Section 4.04 hereof to make a Restricted Payment; PROVIDED that such
Indebtedness Incurred pursuant to this clause (x) does not mature prior to
the Stated Maturity of the Notes and has an Average Life longer than the
Notes;
(xi) Indebtedness Incurred by the Company 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;
(xii) Indebtedness of Persons that are acquired by the Company or
any of its Restricted Subsidiaries or merged into a Restricted Subsidiary
in accordance with the terms of this Indenture; 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 Company would be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Consolidated Leverage
Ratio test set forth in paragraph (a) of this Section 4.03 or (y) the
Consolidated Leverage Ratio is lower (if greater than zero) or higher (if
less than zero) than immediately prior to such acquisition; and
(xiii) Strategic Subordinated Indebtedness.
(c) For purposes of determining any particular amount of
Indebtedness under this Section 4.03, (1) Guarantees, Liens or obligations with
respect to letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (2) any Liens
granted pursuant to the equal and ratable provisions referred to in the first
paragraph of Section 4.09 shall not be treated as Indebtedness. For purposes of
determining compliance with this Section 4.03, in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in clauses (i) through (xiii) of paragraph (b) above, the Company, in
its sole discretion, shall classify, and may from time to time reclassify, such
item of Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
(d) Notwithstanding any other provision of this Section 4.03, the
maximum amount of Indebtedness that the Company or any Restricted Subsidiary may
Incur pursuant to this Section 4.03 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.
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48
SECTION 4.04. LIMITATION ON RESTRICTED PAYMENTS. (a) The
Company will not, and will 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 Capital Stock (other than (x) dividends or distributions
payable solely in shares of its Capital Stock (other than Disqualified
Stock) or in options, warrants or other rights to acquire shares of such
Capital Stock and (y) pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders) held by Persons
other than the Company or any of its Restricted Subsidiaries,
(ii) purchase, redeem, retire or otherwise acquire for value any
shares of Capital Stock of (A) the Company or an Unrestricted Subsidiary
(including options, warrants or other rights to acquire such shares of
Capital Stock) 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 Capital Stock) held by any
Affiliate of the Company (other than a Wholly-Owned Restricted
Subsidiary),
(iii) make any voluntary or optional principal payment, or voluntary
or optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of Indebtedness of the Company that is subordinated
in right of payment to the Notes (other than the purchase, redemption,
repurchase or other acquisition of such subordinated Indebtedness
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within six
months of the date of acquisition) or
(iv) make any Investment, other than a Permitted Investment, in any
Person (such payments or any other actions described in clauses (i)
through (iv) above being collectively "Restricted Payments") if, at the
time of, and after giving effect to, the proposed Restricted Payment: (A)
a Default or Event of Default shall have occurred and be continuing, (B)
the Company could not Incur at least $1.00 of Indebtedness under paragraph
(a) of Section 4.03 hereof or (C) 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 Income is a
loss, minus 100% of the amount of such loss) (determined by excluding
income resulting from transfers of assets by the Company or a Restricted
<PAGE>
49
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 filed with the Commission or
provided to the Trustee pursuant to Section 4.18 hereof 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
Company after the Closing Date from the issuance and sale permitted by
this Indenture of its Capital Stock (other than Disqualified Stock) to a
Person who is not a Subsidiary of the Company, including an issuance or
sale permitted by this Indenture of Indebtedness of the Company for cash
subsequent to the Closing Date upon the conversion of such Indebtedness
into Capital Stock (other than Disqualified Stock) of the Company, or from
the issuance to a Person who is not a Subsidiary of the Company of any
options, warrants or other rights to acquire Capital Stock of the Company
(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 Stated Maturity of the
Notes), and the Net Cash Proceeds from any capital contributions to the
Company after the Closing Date from Persons other than Subsidiaries of the
Company, in each case excluding such Net Cash Proceeds to the extent used
to Incur Indebtedness pursuant to clause (x) of paragraph (b) under
Section 4.03 hereof 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
Company 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 Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary.
(b) 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 (a);
(ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the Notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under clause (i) or (v) of paragraph (b) of Section 4.03 hereof;
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50
(iii) the repurchase, redemption or other acquisition of Capital
Stock of the Company or an Unrestricted Subsidiary (or options, warrants
or other rights to acquire such Capital Stock) in exchange for, or out of
the proceeds of a substantially concurrent offering of, shares of Capital
Stock (other than Disqualified Stock) of the Company (or options, warrants
or other rights to acquire such Capital Stock);
(iv) the making of any principal payment or the repurchase,
redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment to
the Notes in exchange for, or out of the proceeds of, a substantially
concurrent offering of, shares of the Capital Stock (other than
Disqualified Stock) of the Company (or options, warrants or other rights
to acquire such Capital Stock);
(v) 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 the provisions of this Indenture
applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Company;
(vi) the declaration or payment of dividends on the Common Stock of
the Company following a Public Equity Offering of Common Stock, of up to
6% per annum of the Net Cash Proceeds received by the Company in such
Public Equity Offering;
(vii) the repurchase, retirement or other acquisition or retirement
for value of Capital Stock (or options, warrants or other rights to
acquire such Capital Stock) of the Company that is not registered under
the Exchange Act and is held by any current or former employee, director
or consultant (or their estates or the beneficiaries of such estates) of
the Company or any Subsidiary, not to exceed (A) in any calendar year $2.0
million or (B) $5.0 million in the aggregate;
(viii) repurchases of Capital Stock deemed to occur upon exercise of
stock options if such Capital Stock represents a portion of the exercise
price of such options;
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51
(ix) repurchases of fractional shares of Capital Stock in connection
with the exercise of warrants to acquire Common Stock of the Company,
PROVIDED that such repurchase is in compliance with Section 4.08 hereof;
and
(x) other Restricted Payments in an aggregate amount not to exceed
$2.0 million;
PROVIDED that, except in the case of clauses (i), (ii), (iii) and (iv), no
Default or Event of Default shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein.
(c) Each Restricted Payment permitted pursuant to the preceding
paragraph (b) (other than the Restricted Payment referred to in clause (ii) or
(viii) thereof, an exchange of Capital Stock for Capital Stock or Indebtedness
referred to in clause (iii) or (iv) thereof and an Investment referred to in
clause (vi) thereof), and the Net Cash Proceeds from any issuance of Capital
Stock referred to in clauses (iii) and (iv), shall be included in calculating
whether the conditions of clause (iv)(C) of paragraph (a) of this Section 4.04
have been met with respect to any subsequent Restricted Payments. In the event
the proceeds of an issuance of Capital Stock of the Company are used for the
redemption, repurchase or other acquisition of the Notes, or Indebtedness that
is PARI PASSU with the Notes, then the Net Cash Proceeds of such issuance shall
be included in clause (iv)(C) of paragraph (a) of this Section 4.04 only to the
extent such proceeds are not used for such redemption, repurchase or other
acquisition of Indebtedness.
(d) 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 Company 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).
SECTION 4.05. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES. (a) The Company will not, and will 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 Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
(b) The foregoing provisions shall not restrict any encumbrances or
restrictions:
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52
(i) existing on the Closing Date in the Senior Secured Credit
Facility, the Lucent Facility, this Indenture, the indenture for the
Senior Discount Notes 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 Company 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 paragraph (a) of this Section
4.05, (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 Company or any Restricted
Subsidiary not otherwise prohibited by this Indenture, (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 Company or any Restricted
Subsidiary in any manner material to the Company 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 Company 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 Company;
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53
(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 Senior Secured Credit 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 Notes than is
customary in comparable financings (as determined by the Company) and (C)
the Company determines that any such encumbrance or restriction will not
materially affect the Company's ability to make principal or interest
payments on the Notes;
(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 paragraph (a) of this Section 4.05 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
Company, 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.
(c) Nothing contained in this Section 4.05 shall prevent the Company
or any Restricted Subsidiary from (1) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted in Section 4.09 hereof or
(2) restricting the sale or other disposition of property or assets of the
Company or any of its Restricted Subsidiaries that secure Indebtedness of
the Company or any of its Restricted Subsidiaries.
SECTION 4.06. LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK
OF RESTRICTED SUBSIDIARIES. The Company will not sell, and will 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 Company 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,
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54
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 under Section 4.04 hereof if made on the date of such
issuance or sale; or (iv) issuances or sales of Common Stock (including options,
warrants or other rights to purchase shares of Common Stock) of a Restricted
Subsidiary, PROVIDED that the Company or any Restricted Subsidiary applies an
amount equal to the Net Cash Proceeds thereof in accordance with Section 4.11
hereof.
SECTION 4.07. LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED
SUBSIDIARIES. (a) The Company will not permit any Restricted Subsidiary,
directly or indirectly, to Guarantee any Indebtedness of the Company which is
PARI PASSU with or subordinate in right of payment to the Notes ("GUARANTEED
INDEBTEDNESS"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to this Indenture providing for a
Guarantee (a "SUBSIDIARY GUARANTEE") of payment of the Notes and the other
obligations of the Company under this Indenture by such Restricted Subsidiary
and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of any rights of reimbursement, indemnity
or subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee; provided that this paragraph (a) shall not be applicable
to any Guarantee of any Restricted Subsidiary (x) that existed at the time such
Person became a Restricted Subsidiary and was not Incurred in connection with,
or in contemplation of, such Person becoming a Restricted Subsidiary or (y) of
the Indebtedness Incurred under the Senior Secured Credit Facility.
(b) If the Guaranteed Indebtedness is (A) PARI PASSU in right of
payment with the Notes, then the Guarantee of such Guaranteed Indebtedness shall
be PARI PASSU in right of payment with, or subordinated to, the Subsidiary
Guarantee or (B) subordinated in right of payment to the Notes, then the
Guarantee of such Guaranteed Indebtedness shall be subordinated in right of
payment to the Subsidiary Guarantee at least to the extent that the Guaranteed
Indebtedness is subordinated to the Notes.
(c) Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary may provide by its terms that it shall be automatically
and unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the Company's
and each Restricted Subsidiary's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by this Indenture) or (ii) the release or discharge of the
Guarantee which resulted in the creation of such Subsidiary Guarantee, except a
discharge or release by or as a result of payment under such Guarantee.
<PAGE>
55
SECTION 4.08. LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND
AFFILIATES. (a) The Company will not, and will 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 Company or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Company 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 such a holder or an Affiliate.
(b) 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 Company or a
Restricted Subsidiary delivers to the Trustee 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 Company or such
Restricted Subsidiary from a financial point of view;
(ii) any transaction solely between the Company 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 Company or its Restricted Subsidiaries;
(iv) any payments or other transactions pursuant to any tax-sharing
agreement between the Company and any other Person with which the Company
files a consolidated tax return or with which the Company 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 Company 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);
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56
(vii) any Permitted Investments and Restricted Payments not
prohibited by Section 4.04 hereof; or
(viii) the issuance of any Capital Stock (other than Disqualified
Stock) of the Company.
Notwithstanding the foregoing, any transaction or series of related transactions
covered by paragraph (a) of this Section 4.08 and not covered by clauses (ii)
through (vii) of this paragraph (b) 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) of this Section 4.08.
SECTION 4.09. LIMITATION ON LIENS. (a) The Company will not, and
will not permit any Restricted Subsidiary to, create, incur, assume or suffer to
exist any Lien on any of its assets or properties of any character (including,
without limitation, licenses), or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision for all of the
Notes and all other amounts due under this Indenture to be directly secured
equally and ratably with (or, if the obligation or liability to be secured by
such Lien is subordinated in right of payment to the Notes, prior to) the
obligation or liability secured by such Lien.
(b) The foregoing limitation does not apply to:
(i) Liens existing on the Closing Date or required on the
Closing Date to be provided in the future;
(ii) Liens securing obligations under the Senior Secured Credit
Facility (including Liens pursuant to after-acquired clauses);
(iii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of
the Holders;
(iv) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Restricted
Subsidiary to secure Indebtedness owing to the Company or such other
Restricted Subsidiary;
(v) Liens securing Indebtedness which is Incurred to refinance
secured Indebtedness which is permitted to be Incurred under clause (v) of
paragraph (b) of Section 4.03 hereof; PROVIDED that such Liens do not
extend to or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets securing the Indebtedness
being refinanced;
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(vi) Liens on any property or assets of a Restricted Subsidiary
securing Indebtedness of such Restricted Subsidiary permitted under
Section 4.03 hereof; or
(vii) Permitted Liens.
SECTION 4.10. LIMITATION ON SALE-LEASEBACK TRANSACTIONS. The Company
will not, and will not permit any Restricted Subsidiary to, enter into any
sale-leaseback transaction involving any of its assets or properties whether now
owned or hereafter acquired, whereby the Company or a Restricted Subsidiary
sells or transfers such assets or properties and then or thereafter leases such
assets or properties or any part thereof or any other assets or properties which
the Company or such Restricted Subsidiary, as the case may be, intends to use
for substantially the same purpose or purposes as the assets or properties sold
or transferred.
The foregoing restriction does not apply to any sale-leaseback
transaction if:
(i) the lease is for a period, including renewal rights, of not
in excess of three years;
(ii) the lease secures or relates to industrial revenue or pollution
control bonds;
(iii) the transaction is solely between the Company and any
Wholly-Owned Restricted Subsidiary or solely between Wholly-Owned
Restricted Subsidiaries; or
(iv) the Company or such Restricted Subsidiary, within twelve months
after the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from such sale
in accordance with clause (A) or (B) of paragraph (b) of Section 4.11
hereof.
SECTION 4.11. LIMITATION ON ASSET SALES. (a) The Company will not,
and will not permit any Restricted Subsidiary to, consummate any Asset Sale,
unless (i) the consideration received by the Company 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 Section 4.11, the following
are deemed to be cash: (x) the principal amount or accreted value (whichever is
larger) of Indebtedness of the Company or any Restricted Subsidiary with respect
to which the Company 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 Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash.
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(b) In the event and to the extent that the Net Cash Proceeds
received by the Company 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 Company and its Subsidiaries has
been filed with the Commission or provided to the Trustee pursuant to Section
4.18 hereof), then the Company 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 unsubordinated
Indebtedness of the Company, or any Restricted Subsidiary providing a Subsidiary
Guarantee pursuant to Section 4.07 hereof or Indebtedness of any other
Restricted Subsidiary, in each case owing to a Person other than the Company 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
Company 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 (c) of this Section 4.11. 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."
(c) 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 4.11 totals at least $5 million, the Company 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 Indebtedness with similar provisions requiring
the Company to make an offer to purchase such Indebtedness, in an aggregate
principal amount of the Notes and such PARI PASSU Indebtedness equal to (A) with
respect to the Notes, the product of such Excess Proceeds multiplied by a
fraction, the numerator of which is the outstanding principal amount of the
Notes and the denominator of which is the sum of the outstanding principal
amount of the Notes and such PARI PASSU Indebtedness (the product hereinafter
referred to as the "NOTE AMOUNT"), and (B) with respect to the PARI PASSU
Indebtedness, the excess of the Excess Proceeds over the Note Amount, at a
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purchase price equal to 100% of the principal amount or accreted value of such
PARI PASSU Indebtedness, as the case may be, on the relevant Payment Date or
such other date set forth in the documentation governing the PARI PASSU
Indebtedness, plus, in each case, accrued interest (if any) to the Payment Date
or such other date set forth in the documentation governing the PARI PASSU
Indebtedness. If the aggregate purchase price of the Notes tendered pursuant to
the Offer to Purchase is less than the Excess Proceeds, the amount remaining
will be available for use by the Company for general corporate purposes. Upon
the consummation of any Offer to Purchase in accordance with the terms of this
Indenture, the amount of Net Cash Proceeds from Asset Sales subject to any
future Offer to Purchase shall be deemed to be zero.
SECTION 4.12. REPURCHASE OF NOTES UPON A CHANGE OF CONTROL. The
Company must commence, within 30 days of the occurrence of a Change of Control,
and consummate an Offer to Purchase for all Notes then outstanding, at a
purchase price equal to 101% of the principal amount of the Notes on the
relevant Payment Date, PLUS accrued interest (if any) to the Payment Date;
PROVIDED, HOWEVER, that notwithstanding the occurrence of a Change of Control,
the Company shall not be obligated to purchase the Notes pursuant to this
Section 4.12 in the event that it has irrevocably committed to, within 90 days
of such Change of Control, redeem all the Notes in accordance with the terms
hereof.
SECTION 4.13. EXISTENCE. Subject to Articles Four and Five of this
Indenture, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of the Company and each such Subsidiary and the rights
(whether pursuant to charter, partnership certificate, agreement, statute or
otherwise), material licenses and franchises of the Company and each such
Subsidiary; PROVIDED that the Company shall not be required to preserve any such
right, license or franchise, or the existence of any Restricted Subsidiary, if
the maintenance or preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries taken as a whole.
SECTION 4.14. PAYMENT OF TAXES AND OTHER CLAIMS. The Company will
pay or discharge and shall cause each of its Subsidiaries to pay or discharge,
or cause to be paid or discharged, before the same shall become delinquent (i)
all material taxes, assessments and governmental charges levied or imposed upon
(a) the Company or any such Subsidiary, (b) the income or profits of any such
Subsidiary which is a corporation or (c) the property of the Company or any such
Subsidiary and (ii) all material lawful claims for labor, materials and supplies
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that, if unpaid, might by law become a Lien upon the property of the Company or
any such Subsidiary; PROVIDED that the Company shall not be required to pay or
discharge, or cause to be paid or discharged, any such tax, assessment, charge
or claim the amount, applicability or validity of which is being contested in
good faith by appropriate proceedings, for which adequate reserves have been
established, and where the failure to effect such payment is not adverse in any
material respect to the Holders.
SECTION 4.15. MAINTENANCE OF PROPERTIES AND INSURANCE. The Company
will cause all properties used or useful in the conduct of its business or the
business of any of its Restricted Subsidiaries, to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; PROVIDED
that nothing in this Section 4.15 shall prevent the Company or any such
Subsidiary from discontinuing the use, operation or maintenance of any of such
properties or disposing of any of them, if such discontinuance or disposal is,
in the judgment of the Company, desirable in the conduct of the business of the
Company or such Subsidiary.
The Company will provide or cause to be provided, for itself and its
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, with reputable insurers or with
the government of the United States of America, or an agency or instrumentality
thereof, in such amounts, with such deductibles and by such methods as shall be
customary for corporations similarly situated in the industry in which the
Company or such Restricted Subsidiary, as the case may be, is then conducting
business.
SECTION 4.16. NOTICE OF DEFAULTS. In the event that the Company
becomes aware of any Default or Event of Default, the Company, promptly after it
becomes aware thereof, will give written notice thereof to the Trustee.
SECTION 4.17. COMPLIANCE CERTIFICATES. Both of the two principal
accounting officers of the Company and the Guarantor shall certify, on or before
a date not more than 90 days after the end of each fiscal year of the Company,
that a review has been conducted of the activities of the Company and its
Restricted Subsidiaries or the Guarantor, as the case may be, and the Company's
and its Restricted Subsidiaries' or the Guarantor's, as the case may be,
performance under this Indenture and that the Company and the Guarantor have
fulfilled all obligations thereunder, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default and the nature
and status thereof. The Company shall also notify the Trustee of any default or
defaults in the performance of any covenants or agreements under this Indenture.
The Company and the Guarantor shall also comply with the other provisions of
Section 314(a) of the TIA.
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SECTION 4.18. COMMISSION REPORTS AND REPORTS TO HOLDERS. At all
times from and after the earlier of (i) the date of the commencement of an
Exchange Offer or the effectiveness of a Shelf Registration Statement (the
"Registration") and (ii) the date that is six months after the Closing Date, in
either case, whether or not the Company is then required to file reports with
the Commission, the Company 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. The Company shall supply the Trustee, within
15 days of filing with the Commission, and each Holder or shall supply to the
Trustee for forwarding to each such Holder, without cost to such Holder, copies
of such reports and other information. In addition, at all times prior to the
earlier of the date of the Registration and the date that is six months after
the Closing Date, the Company shall, at its cost, deliver to each Holder of the
Notes quarterly and annual reports substantially equivalent to those which would
be required by the Exchange Act (or, in lieu thereof, the Registration Statement
on Form S-1, S-3 or S-4 filed or to be filed with the Commission in connection
with the Exchange Offer or the Shelf Registration Statement, if such Form and
any amendments thereof contains comparable information). In addition, at all
times prior to the Registration, upon the request of any Holder or any
prospective purchaser of the Notes 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 4.19. WAIVER OF STAY, EXTENSION OR USURY LAWS. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or that may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 4.20. LIMITATION ON INCURRENCE OF LIABILITIES BY THE
GUARANTOR. The Guarantor has been formed for the limited purpose of pledging the
Pledged Securities to secure the Notes pursuant to the Pledge Agreement and to
Guarantee the Notes and the Senior Discount Notes. Other than as may be
necessary in connection with the purposes described in the preceding sentence,
until such time as the Guarantee terminates pursuant to Section 11.01 hereof,
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the Guarantor shall not engage in any business activities and shall not Incur
any material obligations (other than obligations with respect to its Guarantees
of the Notes and the Senior Discount Notes) and 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 Guarantor.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. WHEN COMPANY MAY MERGE, ETC. The Company 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
Company unless:
<PAGE>
(i) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the
Company is merged or that acquired or leased such property and assets of
the Company shall be a corporation organized and validly existing under
the laws of the United States of America or any jurisdiction thereof and
shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, all of the obligations of the Company on all of
the Notes and under this Indenture;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction on a PRO
FORMA basis,
(A) the Company or any Person becoming the successor obligor
of the Notes, as the case may be, shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the
Company immediately prior to such transaction; or
(B) the Company or any Person becoming the successor obligor
of the Notes, 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 Company immediately prior to such transaction;
PROVIDED that this clause (iii) shall not apply to a consolidation
or merger with or into a Wholly-Owned Restricted Subsidiary with a
positive net worth;
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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 Company) shall be issued or distributed to the
stockholders of the Company; and
(iv) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
clause (iii) of this Section 5.01) and an Opinion of Counsel, in each case
stating that such consolidation, merger or transfer and such supplemental
indenture complies with this provision and that all conditions precedent
provided for herein relating to such transaction have been complied with;
PROVIDED, HOWEVER, that clause (iii) of this Section 5.01 does not apply if, in
the good faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is part of a plan to change the state of incorporation of the
Company; and PROVIDED FURTHER that any such transaction shall not have as one of
its purposes the evasion of the foregoing limitations.
SECTION 5.02. SUCCESSOR SUBSTITUTED. Upon any consolidation or
merger, or any sale, conveyance, transfer or other disposition of all or
substantially all of the property and assets of the Company in accordance with
Section 5.01 of this Indenture, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
conveyance, transfer or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall
occur with respect to the Notes if:
(a) a default occurs in the payment of the principal of (or premium,
if any, on) any Note when the same becomes due and payable at maturity,
upon acceleration, redemption or otherwise;
(b) a default occurs in the payment of interest on any Note when the
same becomes due and payable, and such default continues for a period of
30 days;
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(c) the Company or the Guarantor defaults in the performance of or
breaches any other covenant or agreement of the Company or the Guarantor
in this Indenture or under the Notes (other than a default specified in
clause (a) or (b) of this Section 6.01) and such default or breach
continues for a period of 30 consecutive days after written notice to the
Company by the Trustee or to the Company and the Trustee by the Holders of
25% or more in aggregate principal amount of the Notes;
(d) the Company shall have failed to make or consummate an Offer to
Purchase in accordance with Section 4.11 hereof;
(e) the Company shall have failed to make or consummate an Offer to
Purchase in accordance with the provisions of Section 4.12 hereof;
(f) there occurs with respect to any issue or issues of Indebtedness
of the Company or any Significant Subsidiary having an outstanding
principal amount at maturity of $5 million or more in the aggregate for
all such issues of all such Persons, whether such Indebtedness now exists
or shall hereafter be created, (I) an event of default that has caused the
holder thereof to declare such Indebtedness to be due and payable prior to
its Stated Maturity and such Indebtedness has not been discharged in full
or such acceleration has not been rescinded or annulled within 30 days of
such acceleration and/or (II) the failure to make a principal payment at
the final (but not any interim) fixed maturity and such defaulted payment
shall not have been made, waived or extended within 30 days of such
payment default;
(g) any final judgment or order (not covered by insurance) for the
payment of money in excess of $5 million in the aggregate (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company or any Significant Subsidiary and shall not
be paid or discharged, and there shall be any period of 30 consecutive
days following entry of the final judgment or order that causes the
aggregate amount for all such final judgments or orders outstanding and
not paid or discharged against the Company or any of its Significant
Subsidiaries to exceed $5 million during which a stay of enforcement of
such final judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect;
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(h) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company, the Guarantor or any
Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect,
(B) appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company, the Guarantor or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company, the Guarantor or any Significant Subsidiary or (C)
the winding up or liquidation of the affairs of the Company, the Guarantor
or any Significant Subsidiary and, in each case, such decree or order
shall remain unstayed and in effect for a period of 30 consecutive days;
(i) the Company, the Guarantor or any Significant Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of
an order for relief in an involuntary case under any such law, (B)
consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official
of the Company, the Guarantor or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company, the Guarantor
or any Significant Subsidiary or (C) effects any general assignment for
the benefit of creditors; or
(j) prior to the payment in full of the first six interest payments
on the Notes, the Note Guarantee ceases to be in full force and effect or
is declared null and void, or the Guarantor denies that it has any further
liability under the Note Guarantee, or gives notice to such effect (other
than by reason of the termination of this Indenture).
<PAGE>
SECTION 6.02. ACCELERATION. If an Event of Default (other than an
Event of Default specified in clause (h) or (i) of Section 6.01 that occurs with
respect to the Company or the Guarantor) occurs and is continuing under this
Indenture, the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding, by written notice to the Company (and to
the Trustee if such notice is given by the Holders), may, and the Trustee at the
request of such Holders shall, declare the principal of, premium, if any, and
accrued interest on the Notes to be immediately due and payable. Upon a
declaration of acceleration, such principal of, premium, if any, and accrued
interest shall be immediately due and payable. In the event of a declaration of
acceleration because an Event of Default set forth in clause (f) of Section 6.01
has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (f) shall be remedied or cured by the
Company or the relevant Significant Subsidiary or waived by the holders of the
relevant Indebtedness within 60 days after the declaration of acceleration with
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respect thereto. If an Event of Default specified in clause (h) or (i) of
Section 6.01 occurs with respect to the Company, the Guarantor or any
Significant Subsidiary, the principal of, premium, if any, and accrued interest
on the Notes then outstanding shall IPSO FACTO become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder.
SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of, premium, if any, or interest
on the Notes or to enforce the performance of any provision of the Notes, the
Note Guarantee, the Pledge Agreement or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding.
SECTION 6.04. WAIVER OF PAST DEFAULTS. Subject to Section 9.02, at
any time after such a declaration of acceleration, but before a judgment or
decree for the payment of the money due has been obtained by the Trustee, the
Holders of at least a majority in aggregate principal amount of the outstanding
Notes by written notice to the Company and to the Trustee may waive all past
Defaults and rescind and annul a declaration of acceleration and its
consequences (except a Default in the payment of, premium, if any, or interest
on any Note as specified in clause (a) or (b) of Section 6.01 (but not as a
result of such acceleration) or in respect of a covenant or provision of this
Indenture which cannot be modified or amended without the consent of the Holder
of each outstanding Note affected) if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and interest on the
Notes that have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction. Upon any such waiver, such Default
shall cease to exist, and any Event of Default arising therefrom shall be deemed
to have been cured, for every purpose of this Indenture; but no such waiver
shall extend to any subsequent or other Default or Event of Default or impair
any right consequent thereto.
SECTION 6.05. CONTROL BY MAJORITY. The Holders of at least a
majority in aggregate principal amount of the outstanding Notes may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee. However,
the Trustee may refuse to follow any direction that conflicts with law or this
Indenture, that may involve the Trustee in personal liability, or that the
Trustee determines in good faith may be unduly prejudicial to the rights of
Holders of Notes not joining in the giving of such direction and may take any
other action it deems proper that is not inconsistent with any such direction
received from Holders of Notes.
SECTION 6.06. LIMITATION ON SUITS. A Holder may not pursue any
remedy with respect to this Indenture or the Notes unless:
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(i) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(iii) such Holder or Holders offer the Trustee indemnity
satisfactory to the Trustee against any costs, liability or expense to be
incurred in compliance with such request;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
(v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the
Trustee a direction that is inconsistent with the request.
For purposes of Section 6.05 of this Indenture and this Section
6.06, the Trustee shall comply with TIA Section 316(a) in making any
determination of whether the Holders of the required aggregate principal amount
of outstanding Notes have concurred in any request or direction of the Trustee
to pursue any remedy available to the Trustee or the Holders with respect to
this Indenture or the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding
any other provision of this Indenture, the right of any Holder of a Note to
receive payment of principal of, premium, if any, or interest on such Holder's
Note on or after the respective due dates expressed on such Note, or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default in
payment of principal, premium or interest specified in clause (a) or (b) of
Section 6.01 occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company or any other
obligor of the Notes for the whole amount of principal, premium, if any, and
accrued interest remaining unpaid, together with interest on overdue principal,
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premium, if any, and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate specified
in the Notes, and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07 hereof.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07) and the Holders allowed in any judicial proceedings relative to
the Company (or any other obligor of the Notes), its creditors or its property
and shall be entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon conversion or exchange
of the Notes or upon any such claims and to distribute the same, and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to empower the Trustee to authorize or consent to, or accept or adopt on
behalf of any Holder, any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. PRIORITIES. If the Trustee collects any money
pursuant to this Article Six, it shall pay out the money in the following
order:
FIRST: to the Trustee for all amounts due under Section 7.07;
SECOND: to Holders for amounts then due and unpaid for principal of,
premium, if any, and interest on the Notes in respect of which or for the
benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on such Notes for principal, premium, if any, and interest,
respectively; and
THIRD: to the Company or any other obligors of the Notes, as
their interests may appear, or as a court of competent jurisdiction may
direct.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Holders pursuant to this Section
6.10.
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SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court may require any party
litigant in such suit to file an undertaking to pay the costs of the suit, and
the court may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section
6.07 of this Indenture, or a suit by Holders of more than 10% in principal
amount of the outstanding Notes.
SECTION 6.12. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then,
and in every such case, subject to any determination in such proceeding, the
Company, the Guarantor, the Trustee and the Holders shall be restored severally
and respectively to their former positions hereunder and thereafter all rights
and remedies of the Company, the Trustee and the Holders shall continue as
though no such proceeding had been instituted.
SECTION 6.13. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes in Section 2.09, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 6.14. DELAY OR OMISSION NOT WAIVER. No delay or omission of
the Trustee or of any Holder to exercise any right or remedy accruing upon any
Event of Default shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein. Every right and remedy
given by this Article Six or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.
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ARTICLE SEVEN
TRUSTEE
SECTION 7.01. GENERAL. The duties and responsibilities of the
Trustee shall be as provided by the TIA and as set forth herein. Notwithstanding
the foregoing, no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it. Whether or not therein expressly so provided,
every provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to the
provisions of this Article Seven.
SECTION 7.02. CERTAIN RIGHTS OF TRUSTEE. Subject to TIA
Sections 315(a) through (d):
(i) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper person. The Trustee need not investigate any fact or matter
stated in the document and may in good faith conclusively rely as to the
truth of the statements and the correctness of the opinions therein;
(ii) before the Trustee acts or refrains from acting, it may require
an Officers' Certificate of the Company or the Guarantor, as the case may
be, or an Opinion of Counsel, which shall conform to the requirements set
forth in Section 12.04 hereof. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate, opinion and/or an accountants' certificate if required under
the TIA;
(iii) the Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed
with due care;
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(iv) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders, unless such Holders shall have offered to
the Trustee security or indemnity reasonably satisfactory to it against
the costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction;
(v) the Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within its
rights or powers or for any action it takes or omits to take in accordance
with the direction of the Holders of a majority in principal amount of the
Outstanding Notes relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this Indenture; PROVIDED
that the Trustee's conduct does not constitute gross negligence or bad
faith;
(vi) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a making be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officer's Certificate;
(vii) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company personally or by agent or attorney;
(viii) The Trustee shall not be charged with knowledge of any
Default or Event of Default, of the identity of any Restricted Subsidiary
or of the existence of any Change of Control or Asset Sale unless either
(i) a Responsible Officer shall have actual knowledge thereof, or (ii) the
Trustee shall have received written notice thereof from the Company or any
Holder of the Notes; and
(ix) The Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
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SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company, the Guarantor or their respective
Affiliates with the same rights it would have if it were not the Trustee. Any
Agent may do the same with like rights. However, the Trustee is subject to TIA
Sections 310(b) and 311.
SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee (i) makes no
representation as to the validity or adequacy of this Indenture, the Pledge
Agreement, the Note Guarantee or the Notes, (ii) shall not be accountable for
the Company's use or application of the proceeds from the Notes and (iii) shall
not be responsible for any statement in the Notes other than its certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULT. If any Default or any Event of
Default occurs and is continuing and if such Default or Event of Default is
known to a Responsible Officer of the Trustee, the Trustee shall mail to each
Holder in the manner and to the extent provided in TIA Section 313(c) notice of
the Default or Event of Default within 90 days after it occurs, unless such
Default or Event of Default has been cured; PROVIDED, HOWEVER, that, except in
the case of a default in the payment of the principal of, premium, if any, or
interest on any Note, the Trustee shall be protected in withholding such notice
if and so long as the board of directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the Trustee in good faith
determine that the withholding of such notice is in the interest of the Holders.
If an Event of Default has occurred and is continuing, the Trustee shall use the
same degree of care and skill in its exercise of the rights and powers invested
in it under this Indenture as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after
each May 15, beginning with May 15, 2000, the Trustee shall mail to each Holder
as provided in TIA Section 313(c) a brief report that complies with TIA Section
313(a) dated as of such May 15, if required by TIA Section 313(a).
SECTION 7.07. COMPENSATION AND INDEMNITY. The Company and the
Guarantor jointly and severally covenant and agree to pay to the Trustee such
compensation as shall be agreed upon in writing for its services. The
compensation of the Trustee shall not be limited by any law on compensation of a
trustee of an express trust. The Company and the Guarantor jointly and severally
covenant and agree to reimburse the Trustee upon request for all reasonable
out-of-pocket expenses and advances incurred or made by the Trustee. Such
expenses shall include the reasonable compensation and expenses of the Trustee's
agents and counsel.
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The Company and the Guarantor jointly and severally covenant and
agree to indemnify the Trustee for, and hold it harmless against, any loss or
liability or expense incurred by it without negligence or bad faith on its part
in connection with the acceptance or administration of this Indenture and its
duties under this Indenture and the Notes, including the costs and expenses of
defending itself against any claim or liability and of complying with any
process served upon it or any of its officers in connection with the exercise or
performance of any of its powers or duties under this Indenture and the Notes.
To secure the Company's and the Guarantor's payment obligations in
this Section 7.07, the Trustee shall have a lien prior to the Notes on all money
or property held or collected by the Trustee, in its capacity as Trustee, except
money or property held in trust to pay principal of, premium, if any, and
interest on particular Notes.
If the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in clause (h) or (i) of Section
6.01, the expenses and the compensation for the services will be intended to
constitute expenses of administration under Title 11 of the United States
Bankruptcy Code or any applicable federal or state law for the relief of
debtors.
The provisions of this Section 7.07 shall survive the resignation or
removal of the Trustee and the defeasance or other termination of this
Indenture.
SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of
the Trustee and appointment of a successor Trustee shall become effective only
upon the successor Trustee's acceptance of appointment as provided in this
Section 7.08.
The Trustee may resign at any time by so notifying the Company in
writing at least 30 days prior to the date of the proposed resignation. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee by so notifying the Trustee in writing and may appoint a successor
Trustee with the consent of the Company. The Company may at any time remove the
Trustee, by Company Order given at least 30 days prior to the date of the
proposed removal; PROVIDED, that at such date no Event of Default shall have
occurred and be continuing.
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If the Trustee resigns or is removed, or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company. If
the successor Trustee does not deliver its written acceptance required by the
next succeeding paragraph of this Section 7.08 within 30 days after the retiring
Trustee resigns or is removed, the retiring Trustee, the Company or the Holders
of a majority in principal amount of the outstanding Notes may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
7.07, (i) the retiring Trustee shall transfer all property held by it as Trustee
to the successor Trustee, (ii) the resignation or removal of the retiring
Trustee shall become effective and (iii) the successor Trustee shall have all
the rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each Holder.
If the Trustee is no longer eligible under Section 7.10, any Holder
who satisfies the requirements of TIA Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
The Company shall give notice of any resignation and any removal of
the Trustee and each appointment of a successor Trustee to all Holders. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligation under Section 7.07 shall continue for the benefit
of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein.
SECTION 7.10. ELIGIBILITY. This Indenture shall always have a
Trustee who satisfies the requirements of TIA Sections 310(a)(1) and 310(a)(5).
The Trustee shall have a combined capital and surplus of at least $100,000,000
as set forth in its most recent published annual report of condition.
SECTION 7.11. MONEY HELD IN TRUST. The Trustee shall not be liable
for interest on any money received by it except as the Trustee may agree with
the Company in writing. Money held in trust by the Trustee need not be
segregated from other funds except to the extent required by law and except for
money held in trust under Article Eight of this Indenture.
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SECTION 7.12. WITHHOLDING TAXES. The Trustee, as agent for the
Company, shall exclude and withhold from each payment of principal and interest
and other amounts due hereunder or under the Notes any and all withholding taxes
applicable thereto as required by law. The Trustee agrees to act as such
withholding agent and, in connection therewith, whenever any present or future
taxes or similar charges are required to be withheld with respect to any amounts
payable in respect of the Notes, to withhold such amounts and timely pay the
same to the appropriate authority in the name of and on behalf of the Holders of
the Notes, that it will file any necessary withholding tax returns or statements
when due, and that, as promptly as possible after the payment thereof, it will
deliver to each Holder of a Note appropriate documentation showing the payment
thereof, together with such additional documentary evidence as such Holders may
reasonably request from time to time.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. TERMINATION OF THE COMPANY'S OBLIGATIONS. Except as
otherwise provided in this Section 8.01, the Company may terminate its
obligations under the Notes and this Indenture if:
(i) all Notes previously authenticated and delivered (other than
destroyed, lost or stolen Notes that have been replaced or Notes that are
paid pursuant to Section 4.01 or Notes for whose payment money or
securities have theretofore been held in trust and thereafter repaid to
the Company, as provided in Section 8.05) have been delivered to the
Trustee for cancellation and the Company has paid all sums payable by it
hereunder; or
(ii) (A) all the Notes mature within one year or all of them are to
be called for redemption within one year under arrangements satisfactory
to the Trustee for giving the notice of redemption, (B) the Company
deposits in trust with the Trustee during such one-year period, under the
terms of an irrevocable trust agreement in form and substance satisfactory
to the Trustee, as trust funds solely for the benefit of the Holders for
that purpose, money or U.S. Government Obligations sufficient to pay
principal, premium, if, any, and interest on the Notes to maturity or
redemption, as the case may be, and to pay all other sums payable by it
hereunder, (C) no Default or Event of Default with respect to the Notes
shall have occurred and be continuing on the date of such deposit, (D)
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such deposit will not result in a breach or violation of, or constitute a
default under, this Indenture or any other agreement or instrument to
which the Company is a party or by which it is bound, (E) if at such time
the Notes are listed on a national securities exchange, the Notes will not
be delisted as a result of such deposit, defeasance or discharge and (F)
the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, in each case stating that all conditions precedent
provided for herein relating to the satisfaction and discharge of this
Indenture have been complied with.
With respect to the foregoing clause (i), the Company's obligations
under Section 7.07 shall survive. With respect to the foregoing clause (ii), the
Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the
Notes are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.07, 8.05 and 8.06 shall survive. After any such irrevocable deposit,
the Trustee upon request shall acknowledge in writing the discharge of the
Company's obligations, as the case may be, under the Notes and this Indenture
except for those surviving obligations specified above.
SECTION 8.02. DEFEASANCE AND DISCHARGE OF INDENTURE. The Company
will be deemed to have paid and will be discharged from any and all obligations
in respect of the Notes on the 123rd day after the deposit referred to below,
and the provisions of this Indenture will no longer be in effect with respect to
the Notes if,
(A) the Company has deposited or caused to be deposited with the
Trustee, in trust, money and/or U.S. Government Obligations that through
the payment of interest and principal in respect thereof in accordance
with their terms will, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, provide money in an amount sufficient to
pay the principal of, premium, if any, and accrued interest on the Notes
on the Stated Maturity of such payments in accordance with the terms of
this Indenture and the Notes;
(B) the Company shall have delivered to the Trustee (i) either (x)
an Opinion of Counsel to the effect that the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of the
Company's exercise of its option under this Section 8.02 and will be
subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, which Opinion of Counsel must
be based upon (and accompanied by a copy of) a ruling of the Internal
Revenue Service to the same effect, unless there has been a change in the
applicable federal income tax law after the Closing Date such that a
ruling is no longer required or (y) a ruling directed to the Trustee
received from the Internal Revenue Service to the same effect as the
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Opinion of Counsel described in clause (x) above and (ii) an Opinion of
Counsel to the effect that the creation of the defeasance trust does not
violate the Investment Company Act of 1940 and after the passage of 123
days following the deposit, the trust fund will not be subject to the
effect of Section 547 of the United States Bankruptcy Code or Section 15
of the New York Debtor and Creditor Law;
(C) immediately after giving effect to such deposit on a PRO FORMA
basis, no Event of Default, or event that after the giving of notice or
lapse of time or both could become an Event of Default, shall have
occurred and be continuing on the date of such deposit or during the
period ending on the 123rd day after the date of such deposit, and such
deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(D) if at such time the Notes are listed on a national securities
exchange, the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Notes will not be delisted as a result of
such deposit, defeasance and discharge; and
(E) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to defeasance
contemplated by this Section 8.02 have been complied with;
PROVIDED that if simultaneously with the deposit of the money and/or
U.S. Government Obligations referred to in (A) above, the Company has caused an
irrevocable, transferable, standby letter of credit to be issued by a bank with
capital and surplus exceeding the principal amount of the Notes then
outstanding, expiring not earlier than 180 days from its issuance, in favor of
the Trustee which permits the Trustee to draw an amount equal to the principal,
premium, if any, and accrued interest on the Notes through the expiry date of
the letter of credit, then the Company will be deemed to have paid and
discharged any and all obligations in respect of the Notes on the date of the
deposit and issuance of the letter of credit.
Notwithstanding the foregoing, prior to the end of the 123-day
period referred to in clause (B)(ii) of this Section 8.02, none of the Company's
obligations under this Indenture shall be discharged. Subsequent to the end of
such 123-day period with respect to this Section 8.02, the Company's obligations
in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 2.14, 4.01, 4.02,
4.17, 7.07, 7.08, 8.05 and 8.06 shall survive until the Notes are no longer
outstanding. Thereafter, only the Company's obligations in Sections 7.07, 8.05
and 8.06 shall survive. If and when a ruling from the Internal Revenue Service
or an Opinion of Counsel referred to in clause (B)(i) of this Section 8.02 may
be provided specifically without regard to, and not in reliance upon, the
continuance of the Company's obligations under Section 4.01, then the Company's
obligations under such Section 4.01 shall cease upon delivery to the Trustee of
such ruling or Opinion of Counsel and compliance with the other conditions
precedent provided for herein relating to the defeasance contemplated by this
Section 8.02.
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After the 123 day period referred to in clause (B)(ii) of this
Section 8.02, the Trustee upon Company Order shall acknowledge in writing the
discharge of the Company's obligations under the Notes and this Indenture except
for those surviving obligations in the immediately preceding paragraph.
SECTION 8.03. DEFEASANCE OF CERTAIN OBLIGATIONS. The Company may
omit to comply with any term, provision or condition set forth in clause (iii)
of Section 5.01 and Sections 4.03 through 4.18, and clause (c) of Section 6.01
with respect to clause (iii) of Section 5.01 and Sections 4.03 through 4.16,
Section 4.18, and clauses (c), (d), (e), (f) and (g) of Section 6.01 shall be
deemed not to be Events of Default, upon:
(a) the deposit, in trust, with the Trustee (or another trustee
satisfying the requirements of Section 7.10 hereof) of money and/or U.S.
Government Obligations that, through the payment of interest and principal
in respect thereof in accordance with their terms, will in the opinion of
a nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, provide money
in an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the Notes on the Stated Maturity of such payments in
accordance with the terms of this Indenture and the Notes;
(b) the satisfaction of the provisions described in clauses B(ii),
(C) and
(D) of Section 8.02 hereof;
(c) delivery by the Company to the Trustee of an Opinion of Counsel
to the effect that, the Holders will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit and defeasance
and will be subject to federal income tax on the same amount and in the
same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred; and
(d) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.03 have been complied with.
SECTION 8.04. APPLICATION OF TRUST MONEY. Subject to Section 8.06,
the Trustee or Paying Agent shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the
case may be, and shall apply the deposited money and the money from U.S.
Government Obligations in accordance with the Notes and this Indenture to the
payment of principal of, premium, if any, and interest on the Notes; but such
money need not be segregated from other funds except to the extent required by
law.
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SECTION 8.05. REPAYMENT TO COMPANY. Subject to Sections 7.07, 8.01,
8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the
Company upon request set forth in an Officers' Certificate any excess money, as
determined by a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, and held
by them at any time and thereupon shall be relieved from all liability with
respect to such money. The Trustee and the Paying Agent shall pay to the Company
upon request any money held by them for the payment of principal, premium, if
any, or interest that remains unclaimed for two years; PROVIDED that the Trustee
or such Paying Agent before being required to make any payment may cause to be
published at the expense of the Company once in a newspaper of general
circulation in the City of New York or mail to each Holder entitled to such
money at such Holder's address (as set forth in the Note Register) notice that
such money remains unclaimed and that after a date specified therein (which
shall be at least 30 days from the date of such publication or mailing) any
unclaimed balance of such money then remaining will be repaid to the Company.
After payment to the Company, Holders entitled to such money must look to the
Company for payment as general creditors unless an applicable law designates
another Person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
SECTION 8.06. REINSTATEMENT. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with
Section 8.01, 8.02 or 8.03, as the case may be, by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Notes and the Guarantor's
obligations under the Note Guarantee shall be revived and reinstated as though
no deposit had occurred pursuant to Section 8.01, 8.02 or 8.03, as the case may
be, until such time as the Trustee or Paying Agent is permitted to apply all
such money or U.S. Government Obligations in accordance with Section 8.01, 8.02
or 8.03, as the case may be; PROVIDED that, if the Company has made any payment
of principal of, premium, if any, or interest on any Notes because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.
SECTION 8.07. DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT. In the
event the Company exercises its option to omit compliance with certain covenants
and provisions of this Indenture with respect to the Notes pursuant to Section
8.03 and such Notes are declared due and payable because of the occurrence of an
Event of Default that remains applicable, the amount of money and/or U.S.
Government Obligations on deposit with the Trustee will be sufficient to pay
amounts due on such Notes at the time of their Stated Maturity. If, in the event
the Company exercises its option to omit compliance with certain covenants and
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provisions of this Indenture with respect to the Notes pursuant to Section 8.03
and such Notes are declared due and payable because of the occurrence of an
Event of Default that remains applicable, the amount of money and/or U.S.
Government Obligations on deposit with the Trustee is insufficient to pay
amounts due on the Notes at the time of the acceleration resulting from such
Event of Default pursuant to Section 6.02, the Company will remain liable for
such payments.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS. Each of the Company and
the Guarantor (so long as it has any obligations hereunder), when authorized by
resolutions of their respective Board of Directors (as evidenced by a Board
Resolution), and the Trustee may amend or supplement this Indenture (including
the Note Guarantee) or the Notes without notice to, or the consent of, any
Holder:
(i) to cure any ambiguity, defect or inconsistency in this Indenture
or the Notes; PROVIDED that, in the good faith opinion of the Board of
Directors of the Company evidenced by a Board Resolution, such amendments
or supplements do not adversely affect the interests of the Holders in any
material respect;
(ii) to comply with Section 4.07 or Article Five;
(iii) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the TIA;
(iv) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee; or
(v) to make any change that, in the good faith opinion of the Board
of Directors of the Company evidenced by a Board Resolution, does not
materially and adversely affect the rights of any Holder.
SECTION 9.02. WITH CONSENT OF HOLDERS. Subject to Sections 6.04 and
6.07 and without prior notice to the Holders, each of the Company and the
Guarantor (so long as it has any obligations hereunder), when authorized by
their respective Board of Directors (as evidenced by a Board Resolution), and
the Trustee may amend this Indenture (including the Note Guarantee) and the
Notes with the written consent of the Holders of not less than a majority in
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aggregate principal amount of the Notes then outstanding, and the Holders of a
majority in principal amount of the Notes then outstanding by written notice to
the Trustee may waive future compliance by the Company with any provision of
this Indenture or the Notes.
Notwithstanding the provisions of this Section 9.02, without the
consent of each Holder affected thereby, an amendment or waiver, including a
waiver pursuant to Section 6.04, may not:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note;
(ii) reduce the principal amount of, or premium, if any, or interest
on, any Note;
(iii) change the place or currency of payment of principal of, or
premium, if any, or interest on, any Note;
(iv) impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a redemption,
on or after the Redemption Date) of any Note;
(v) reduce the above-stated percentage of outstanding Notes the
consent of whose Holders is necessary to modify or amend this Indenture;
(vi) waive a default in the payment of principal of, premium, if
any, or interest on the Notes;
(vii) reduce the percentage or aggregate principal amount of
outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of this Indenture or for waiver of
certain defaults; or
(viii) release the Guarantor from any of its obligations under the
Note Guarantee or this Indenture otherwise than strictly in accordance
with the terms of this Indenture.
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It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Company will
mail supplemental indentures to Holders upon request. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture or waiver.
SECTION 9.03. REVOCATION AND EFFECT OF CONSENT. Until an amendment
or waiver becomes effective, a consent to it by a Holder is a continuing consent
by the Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the Note of the consenting Holder, even if notation
of the consent is not made on any Note. However, any such Holder or subsequent
Holder may revoke the consent as to its Note or portion of its Note. Such
revocation shall be effective only if the Trustee receives the notice of
revocation before the date the amendment, supplement or waiver becomes
effective. An amendment, supplement or waiver shall become effective on receipt
by the Trustee of written consents from the Holders of the requisite percentage
in principal amount of the outstanding Notes.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the last
two sentences of the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies) and only those
Persons shall be entitled to consent to such amendment, supplement or waiver or
to revoke any consent previously given, whether or not such Persons continue to
be Holders after such record date. No such consent shall be valid or effective
for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it is of the type described in any of clauses (i)
through (vii) of Section 9.02. In case of an amendment or waiver of the type
described in clauses (i) through (vii) of Section 9.02, the amendment or waiver
shall bind each Holder who has consented to it and every subsequent Holder of a
Note that evidences the same indebtedness as the Note of the consenting Holder.
SECTION 9.04. NOTATION ON OR EXCHANGE OF NOTES. If an amendment,
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Note about the changed terms and return it to the Holder and the
Trustee may place an appropriate notation on any Note thereafter authenticated.
Alternatively, if the Company or the Trustee so determines, the Company in
exchange for the Note shall issue and the Trustee shall authenticate a new Note
that reflects the changed terms.
<PAGE>
84
SECTION 9.05. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, in addition
to the documents required by Section 12.03, an Opinion of Counsel stating that
the execution of any amendment, supplement or waiver authorized pursuant to this
Article Nine is authorized or permitted by this Indenture. Subject to the
preceding sentence, the Trustee shall sign such amendment, supplement or waiver
if the same does not adversely affect the rights of the Trustee. The Trustee
may, but shall not be obligated to, execute any such amendment, supplement or
waiver that affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise.
SECTION 9.06. CONFORMITY WITH TRUST INDENTURE ACT. Every
supplemental indenture executed pursuant to this Article Nine shall conform to
the requirements of the TIA as then in effect.
ARTICLE TEN
SECURITY
SECTION 10.01. SECURITY. (a) The Company agrees to cause the
Guarantor and the Guarantor agrees to (i) enter into the Pledge Agreement on the
Closing Date and comply with the terms and provisions thereof and (ii) purchase
the Pledged Securities to be pledged to the Trustee for the benefit of the
Company and for the ratable benefit of the Holders in such amount as will be
sufficient upon receipt of scheduled interest and/or principal payments of such
Pledged Securities to provide for payment in full of the first six scheduled
interest payments due on the Notes (including any additional interest that may
be payable if the Exchange Offer (as defined in the Registration Rights
Agreement) is not consummated and the Shelf Registration Statement (as defined
in the Registration Rights Agreement) is not declared effective in a timely
manner) and to secure repayment of the principal, premium, if any, and interest
on the Notes in the event that the Notes become due and payable prior to such
time as the first six scheduled interest payments thereon shall have been paid
in full. The Pledged Securities shall be pledged by the Guarantor to the Trustee
for the benefit of the Company and for the ratable benefit of the Holders, and
shall be held by the Trustee in the Pledge Account pending disposition pursuant
to the Pledge Agreement.
(b) Each Holder, by its acceptance of a Note, consents and agrees to
the terms of the Pledge Agreement (including, without limitation, the provisions
providing for foreclosure and release of the Pledged Securities) as the same may
be in effect or may be amended from time to time in accordance with its terms,
and authorizes and directs the Trustee to enter into the Pledge Agreement and to
perform its respective obligations and exercise its respective rights thereunder
in accordance therewith. The Company and the Guarantor will do or cause to be
done all such acts and things as may be necessary or reasonably requested by the
Trustee, or as may be required by the provisions of the Pledge Agreement, to
<PAGE>
85
assure and confirm to the Trustee the security interest in the Pledged
Securities contemplated hereby, by the Pledge Agreement or any part thereof, as
from time to time constituted, so as to render the same available for the
security and benefit of this Indenture and of the Notes secured hereby,
according to the intent and purposes herein and therein expressed. The Company
and the Guarantor shall take, or shall cause to be taken, upon request of the
Trustee, any and all actions reasonably required to cause the Pledge Agreement
to create and maintain, as security for the obligations of the Company under
this Indenture and the Notes, valid and enforceable first priority liens in and
on all the Pledged Securities, in favor of the Trustee, superior to and prior to
the rights of third Persons and subject to no other Liens.
(c) The release of any Pledged Securities pursuant to the Pledge
Agreement will not be deemed to impair the security under this Indenture in
contravention of the provisions hereof if and to the extent the Pledged
Securities are released pursuant to this Indenture and the Pledge Agreement. To
the extent applicable, the Company and the Guarantor shall cause TIA Section
314(d) relating to the release of property or securities from the Lien and
security interest created under the Pledge Agreement and relating to the
substitution therefor of any property or securities to be subjected to the Lien
and security interest created under the Pledge Agreement to be complied with.
Any certificate or opinion required by TIA Section 314(d) may be made by an
Officer of the Company or the Guarantor, except in cases where TIA Section
314(d) requires that such certificate or opinion be made by an independent
Person, which Person shall be an independent engineer, appraiser or other expert
selected by the Company or the Guarantor.
(d) The Company or the Guarantor shall cause TIA Section 314(b),
relating to opinions of counsel regarding the Lien under the Pledge Agreement,
to be complied with. The Trustee may accept, to the extent permitted by Sections
7.01 and 7.02 as conclusive evidence of compliance with the foregoing
provisions, the appropriate statements contained in such instruments.
(e) The Trustee may, in its sole discretion and without the consent
of the Holders, on behalf of the Holders, take all reasonable actions in
accordance with the Pledge Agreement necessary or appropriate in order to (i)
enforce any of the terms of the Pledge Agreement and (ii) collect and receive
any and all amounts payable in respect of the obligations of the Guarantor
thereunder. The Trustee shall have power to institute and to maintain such suits
and proceedings as the Trustee may reasonably deem expedient to preserve or
<PAGE>
86
protect its interests and the interests of the Holders in the Pledged Securities
(including power to institute and maintain suits or proceedings to restrain the
enforcement of or compliance with any legislative or other governmental
enactment, rule or order that may be unconstitutional or otherwise invalid if
the enforcement of, or compliance with, such enactment, rule or order would
impair the security interest under the Pledge Agreement or be prejudicial to the
interests of the Holders or of the Trustee).
ARTICLE ELEVEN
GUARANTEE OF SECURITIES
SECTION 11.01. GUARANTEE. Subject to the provisions of this Article
Eleven, the Guarantor hereby fully, unconditionally and irrevocably guarantees
to each Holder and to the Trustee on behalf of itself and the Holders: (i) the
due and punctual payment of the principal of, premium, if any, on and interest
on each Note, 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 the 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
Note and this Indenture and (ii) in the case of any extension of time of payment
or renewal of any Notes 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. 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 Note or the debt
evidenced thereby and all demands whatsoever, and covenants that this Guarantee
will not be discharged as to any such Note except by payment in full of the
principal thereof and interest thereon and as provided in Section 8.01 and
Section 8.02 (subject to Section 8.06). The maturity of the obligations
guaranteed hereby may be accelerated as provided in Article Six for the purposes
of this Article Eleven. In the event of any declaration of acceleration of such
obligations as provided in Article Six, such obligations (whether or not due and
payable) shall forthwith become due and payable by the Guarantor for the purpose
of this Article Eleven. In addition, without limiting the foregoing provisions,
upon the effectiveness of an acceleration under Article Six, the Trustee shall
promptly make a demand for payment on the Notes under the Guarantee provided for
<PAGE>
87
in this Article Eleven. Notwithstanding the foregoing but subject to the first
sentence of the next paragraph, this Guarantee by the Guarantor and any and all
other obligations of the Guarantor under this Indenture and the Pledge Agreement
of any nature whatsoever, shall automatically terminate, and the Guarantor shall
be released from any and all liability under such documents upon the earlier of
(i) the payment in full of the first six scheduled interest payments on the
Notes or (ii) the payment in full of the principal of, premium, if any, and
interest on all outstanding Notes.
If the Trustee or the Holder of any Note 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 Note, this 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
hereof for the purposes of this Guarantee, notwithstanding any stay, injunction
or other prohibition extant under any applicable bankruptcy law preventing such
acceleration in respect of the obligations guaranteed hereby.
Until such time as the Notes 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 Guarantee and
this 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 principal of, premium,
if any, and accrued interest on the Notes 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 shall forthwith be paid
to the Trustee for the benefit of the Holders to be credited and applied upon
the principal of, premium, if any, and accrued interest on the Notes. The
Guarantor acknowledges that it will receive direct and indirect benefits from
the issuance of the Notes pursuant to this Indenture and that the waivers set
forth in this Section 11.01 are knowingly made in contemplation of such
benefits.
The Guarantee set forth in this Section 11.01 shall not be valid or
become obligatory for any purpose with respect to a Note until the certificate
of authentication on such Note shall have been signed by or on behalf of the
Trustee.
SECTION 11.02. OBLIGATIONS UNCONDITIONAL. Subject to Section 11.05,
nothing contained in this Article Eleven or elsewhere in this Indenture or in
the Notes is intended to or shall impair, as among the Guarantor and the Holders
of the Notes, the obligation of the Guarantor, which is absolute and
unconditional, upon failure by the Company, to pay to the Holders of the Notes
the principal of, premium, if any, and interest on the Notes as and when the
same shall become due and payable in accordance with their terms, or is intended
<PAGE>
88
to or shall affect the relative rights of the Holders of the Notes and creditors
of the Guarantor, nor shall anything herein or therein prevent the Holder of any
Notes or the Trustee on their behalf from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture.
Without limiting the foregoing, nothing contained in this Article
Eleven will restrict the right of the Trustee or the Holders of the Notes to
take any action to declare the Guarantee to be due and payable prior to the
Stated Maturity of the Notes pursuant to Section 6.02 or to pursue any rights or
remedies hereunder.
SECTION 11.03. 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 the
Guarantee pursuant to the provisions of this Article Eleven.
SECTION 11.04. THIS ARTICLE NOT TO PREVENT EVENTS OF DEFAULT. The
failure to make a payment on account of principal of, premium, if any, or
interest on the Notes by reason of any provision of this Article Eleven will not
be construed as preventing the occurrence of an Event of Default.
SECTION 11.05. NET WORTH LIMITATION. Notwithstanding any other
provision of this Indenture or the Notes, this Guarantee 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 this Guarantee. 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 TWELVE
MISCELLANEOUS
SECTION 12.01. TRUST INDENTURE ACT OF 1939. Prior to the
effectiveness of the Registration Statement, this Indenture shall incorporate
and be governed by the provisions of the TIA that are required to be part of and
to govern indentures qualified under the TIA. After the effectiveness of the
Registration Statement, this Indenture shall be subject to the provisions of the
TIA that are required to be a part of this Indenture and shall, to the extent
applicable, be governed by such provisions.
<PAGE>
89
SECTION 12.02. 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:
KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, New Jersey 07921
Telecopier Number: (908) 719-8775
Attention: Chief Financial Officer
With, in the case of any notice given pursuant to
Article Six, a copy to:
Kelley Drye & Warren LLP
101 Park Avenue
New York, NY 10178
Attention: Alan M. Epstein, Esq.
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
<PAGE>
90
With a copy to:
Pryor Cashman Sherman & Flynn, LLP
410 Park Avenue
New York, NY 10022
Attention: Eric Hellige, Esq.
The Company, the Guarantor, the Trustee, or the Depository by notice
to the others may designate additional or different addresses for subsequent
notices or communications.
Any notice or communication mailed to a Holder shall be mailed to
him at his address as it appears on the Note Register by first class mail and
shall be sufficiently given to him if so mailed within the time prescribed.
Copies of any such communication or notice to a Holder shall also be mailed to
the Trustee and each Agent at the same time.
Failure to mail a notice or communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. Except for
a notice to the Trustee, which is deemed given only when received, and except as
otherwise provided in this Indenture, if a notice or communication is mailed in
the manner provided in this Section 12.02, it is duly given, whether or not the
addressee receives it.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
<PAGE>
91
SECTION 12.03. CERTIFICATE AND OPINION AS TO CONDITIONS Precedent.
Upon any request or application by the Company or the Guarantor to the Trustee
to take any action under this Indenture, the Company or the Guarantor, as the
case may be, shall furnish to the Trustee:
(i) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion of such
Counsel, all such conditions precedent have been complied with.
SECTION 12.04. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(i) a statement that each person signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statement or opinion contained in such
certificate or opinion is based;
(iii) a statement that, in the opinion of each such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of each such
person, such condition or covenant has been complied with; PROVIDED,
HOWEVER, that, with respect to matters of fact, an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
SECTION 12.05. RULES BY TRUSTEE, PAYING AGENT OR REGISTRAR. The
Trustee may make reasonable rules for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 12.06. PAYMENT DATE OTHER THAN A BUSINESS DAY. If an
Interest Payment Date, Redemption Date, Payment Date, Stated Maturity or date of
maturity of any Note shall not be a Business Day, then payment of principal of,
premium, if any, or interest on such Note, as the case may be, need not be made
on such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on the Interest Payment Date, Payment Date, or
<PAGE>
92
Redemption Date, or at the Stated Maturity or date of maturity of such Note;
PROVIDED that no interest shall accrue with respect to such payment for the
period from and after such Interest Payment Date, Payment Date, Redemption Date,
Stated Maturity or date of maturity, as the case may be.
SECTION 12.07. GOVERNING LAW; SUBMISSION TO JURISDICTION; AGENT FOR
SERVICE. This Indenture (including the Note Guarantee) and the Notes shall be
governed by the laws of the State of New York. Each of the Company and the
Guarantor hereby appoints CT Corporation System as its agent for service of
process in any suit, action or proceeding with respect to this Indenture or the
Notes and for actions brought under the U.S. federal or state securities laws
brought in any federal or state court located in The City of New York and each
of the Company and the Guarantor agrees to submit to the jurisdiction of any
such court.
SECTION 12.08. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or any Subsidiary of the Company. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 12.09. NO RECOURSE AGAINST OTHERS. No recourse for the
payment of the principal of, premium, if any, or interest on any of the Notes,
or for any claim based thereon or otherwise in respect thereof, and no recourse
under or upon any obligation, covenant or agreement of the Company or the
Guarantor contained in this Indenture, or in any of the Notes, or because of the
creation of any Indebtedness represented thereby, shall be had against any
incorporator or against any past, present or future stockholder or other
equityholder, officer, director, employee or controlling person of the Company
or the Guarantor or of any successor Person thereof, either directly or through
the Company or the Guarantor or any successor Person, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly understood, each Holder, by accepting
the Notes, expressly waives and releases all such liability as a condition of,
and as a consideration for, the execution of this Indenture and the issue of the
Notes.
SECTION 12.10. SUCCESSORS. All agreements of the Company and
the Guarantor in this Indenture and the Notes shall bind its successors. All
agreements of the Trustee in this Indenture shall bind their respective
successors.
SECTION 12.11. DUPLICATE ORIGINALS. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original,
but all of them together represent the same agreement.
<PAGE>
93
SECTION 12.12. SEPARABILITY. In case any provision in this Indenture
or in the Notes 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.
SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of
Contents, Cross-Reference Table and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not to
be considered a part hereof and shall in no way modify or restrict any of the
terms and provisions hereof.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this 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:
Title:
<PAGE>
EXHIBIT A
[FACE OF NOTE]
KMC TELECOM HOLDINGS, INC.
13 1/2% Senior Note Due 2009
[CUSIP] [CINS] ______
[insert Private Placement Legend, if applicable]
UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO KMC TELECOM HOLDINGS, INC. OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND
ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.08 OF
THE INDENTURE.
<PAGE>
A-2
[THIS NOTE IS HELD BY THE DEPOSITORY (AS DEFINED IN THE INDENTURE GOVERNING THIS
NOTE) IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT
TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE
MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF
THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART
PURSUANT TO SECTION 2.07(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE
DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.12 OF THE
INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR BOOK-ENTRY
DEPOSITORY WITH THE PRIOR WRITTEN CONSENT OF KMC TELECOM HOLDINGS, INC.]*
<PAGE>
A-3
KMC TELECOM HOLDINGS, INC.
13 1/2% Senior Note Due 2009
[CUSIP][CINS] ______
No. ______ $______
KMC TELECOM HOLDINGS, INC., a Delaware corporation (the "Company",
which term includes any successor under the Indenture hereinafter referred to),
for value received, promises to pay to ____________, or its registered assigns,
the principal sum of ______ ($______) on May 15, 2009.
Interest Payment Dates: May 15 and November 15, commencing
November 15, 1999.
Regular Record Dates: May 1 and November 1.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth hereon.
Terms used but not otherwise defined herein shall have their meanings
as defined in the Indenture. The provisions of this Note do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
the provisions of the Indenture.
<PAGE>
A-4
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: KMC TELECOM HOLDINGS, INC.
By: ________________________
Name:
Title:
By: ________________________
Name:
Title:
This is one of the 13 1/2% Senior Notes due 2009 described in the
within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
as Trustee
By: _________________________
Authorized Officer
<PAGE>
A-5
[REVERSE SIDE OF NOTE]
KMC TELECOM HOLDINGS, INC.
13 1/2% Senior Note Due 2009
1. PRINCIPAL AND INTEREST.
The Company will pay the principal of this Note on May 15, 2009.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
Interest will be payable semiannually in cash (to the holders of
record of the Notes at the close of business on the May 1 or November 1
immediately preceding the Interest Payment Date) on each Interest Payment Date,
commencing November 15, 1999. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
If an exchange offer registered under the Securities Act is not
consummated, and a shelf registration statement under the Securities Act with
respect to resales of the Notes is not declared effective by the Commission, on
or before the date that is six months after the Closing Date in accordance with
the terms of the Registration Rights Agreement dated May 19, 1999 between the
Company and Morgan Stanley & Co. Incorporated, for itself and as representative
of the several Initial Purchasers named on Schedule I to the Purchase Agreement,
dated May 19, 1999, interest (in addition to the interest otherwise due on the
Notes) will accrue, at an annual rate of 0.5% per annum of the principal amount,
payable in cash semiannually, in arrears on May 15 and November 15 of each year,
commencing May 15, 2000 until the consummation of a registered exchange offer or
the effectiveness of a shelf-registration statement with respect to resale of
this Note. The Holder of this Note is entitled to the benefits of such
Registration Rights Agreement.
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum that is 13 1/2% per annum.
2. METHOD OF PAYMENT.
The Company will pay principal as provided above and interest
(except defaulted interest) on the principal amount of the Notes as provided
above on each May 15 and November 15 to the Persons who are Holders (as
reflected in the Note Register at the close of business on such May 1 and
November 1, immediately preceding the Interest Payment Date), in each case, even
if the Note is cancelled on registration of transfer or registration of exchange
after such record date; PROVIDED that, with respect to the payment of principal,
the Company will not make payment to the Holder unless this Note is surrendered
to a Paying Agent.
<PAGE>
A-6
The Company will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, the Company may
pay principal, premium, if any, and interest by its check payable in such money.
It may mail an interest check to a Holder's registered address (as reflected in
the Note Register). If a payment date is a date other than a Business Day at a
place of payment, payment may be made at that place on the next succeeding day
that is a Business Day and no interest shall accrue for the intervening period.
3. PAYING AGENT AND REGISTRAR.
Initially, the Trustee will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar without notice. The Company,
any Subsidiary or any Affiliate of any of them may act as Paying Agent,
Registrar or co-Registrar.
4. INDENTURE; ISSUANCE OF ADDITIONAL NOTES.
This Note is one of a duly authorized issue of Notes of the Company
designated its 13 1/2% Senior Notes due 2009, issued and to be issued under an
Indenture dated as of May 24, 1999 (the "Indenture"), between the Company, KMC
Telecom Financing, Inc., as Guarantor, and The Chase Manhattan Bank, as trustee
(the "Trustee"). Capitalized terms herein are used as defined in the Indenture
unless otherwise indicated. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act. The Notes are subject to all such terms, and Holders are referred
to the Indenture and the Trust Indenture Act for a statement of all such terms.
To the extent permitted by applicable law, in the event of any inconsistency
between the terms of this Note and the terms of the Indenture, the terms of the
Indenture shall control. The Company may, subject to Article IV of the
Indenture, issue additional Notes under the Indenture. The 13 1/2% Senior Notes
due 2009 issued on May 24, 1999 (including this Note) and any additional Notes
subsequently issued under the Indenture shall be treated as a single class for
all purposes under the Indenture.
5. REDEMPTION.
The Notes will be redeemable, at the Company's option, in whole or
in part, at any time and from time to time on or after May 15, 2004 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first-class mail to each Holders' last address as it appears in the Note
Register, at the following Redemption Prices (expressed as percentages of
principal amount), plus accrued and unpaid interest, if any, to the Redemption
<PAGE>
A-7
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date), if redeemed
during the 12-month period commencing on May 15, of the years set forth below:
REDEMPTION
YEAR PRICE
---- -----
2004 106.750%
2005 104.500%
2006 102.250%
2007 and thereafter 100.000%
In addition, at any time or from time to time, on or prior to May
15, 2002, the Company may, at its option, redeem up to 35% of the aggregate
principal amount of the Notes with the net proceeds of one or more public or
private Equity Offerings, at a Redemption Price (expressed as a percentage of
principal amount) of 113.500%, plus accrued and unpaid interest to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date); PROVIDED that at least 65% of the aggregate principal amount of the Notes
issued on May 24, 1999 remains outstanding after each such redemption and notice
of any such redemption is mailed within 60 days after the applicable Equity
Offering and in accordance with the requirements of Section 3.04.
6. NOTICE OF REDEMPTION.
Notice of any optional redemption will be mailed at least 30 days
but not more than 60 days before the Redemption Date to each Holder of Notes to
be redeemed at his last address as it appears in the Note Register. Notes in
original denominations larger than $1,000 of principal amount may be redeemed in
part. On and after the Redemption Date, interest ceases to accrue on Notes or
portions of Notes called for redemption, unless the Company defaults in the
payment of the Redemption Price.
7. REPURCHASE UPON CHANGE IN CONTROL.
Upon the occurrence of any Change of Control, each Holder shall have
the right to require the repurchase of its Notes by the Company in cash pursuant
to the offer to purchase described in the Indenture at a purchase price equal to
101% of the principal amount of the Notes on the relevant Payment Date, plus
accrued and unpaid interest, if any, to the date of purchase (the "Change of
Control Payment").
<PAGE>
A-8
A notice of such Change of Control will be mailed within 30 days
after any Change of Control occurs to each Holder at his last address as it
appears in the Note Register. Notes in original denominations larger than $1,000
of principal amount may be sold to the Company in part. On and after the date of
the Change of Control Payment, interest ceases to accrue on Notes or portions of
Notes surrendered for purchase by the Company, unless the Company defaults in
the payment of the Change of Control Payment.
8. REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, the Company will be
obligated, within six months after the issue date of this Note, to consummate an
exchange offer pursuant to which the Holder of this Note shall have the right to
exchange this Note for the Company's Exchange Notes (as defined in the
Registration Rights Agreement) which have been registered under the Securities
Act, in like principal amount and having terms identical in all material
respects as the Initial Notes. The Holders of the Initial Notes shall be
entitled to receive certain additional interest payments in the event such
exchange offer is not consummated and upon certain other conditions, all
pursuant and in accordance with the terms of the Registration Rights Agreement.
9. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder
may register the transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange of any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before a selection of
Notes to be redeemed is made.
10. PERSONS DEEMED OWNERS.
A Holder shall be treated as the owner of a Note for all purposes.
<PAGE>
A-9
11. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its request. After that, Holders entitled to the
money must look to the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
12. DISCHARGE PRIOR TO REDEMPTION OR MATURITY.
If the Company deposits with the Trustee money and/or U.S.
Government Obligations sufficient to pay the then outstanding principal of,
premium, if any, and accrued interest on the Notes to redemption (a) or
maturity, the Company will be discharged from the Indenture and the Notes,
except in certain circumstances for certain sections thereof, and (b) or to
Stated Maturity, the Company will be discharged from certain covenants set forth
in the Indenture.
13. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not materially
and adversely affect the rights of any Holder.
14. RESTRICTIVE COVENANTS.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries, among other things, to Incur
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
engage in transactions with Affiliates or, with respect to the Company, merge,
consolidate or transfer substantially all of its assets. Within 90 days after
the end of the last fiscal quarter of each year, the Company must report to the
Trustee on compliance with the terms of the Indenture.
<PAGE>
A-10
15. SUCCESSOR PERSONS.
When a successor Person or other entity assumes all the obligations
of its predecessor under the Notes and the Indenture, the predecessor Person
will be released from those obligations.
16. DEFAULTS AND REMEDIES.
The following events constitute "Events of Default" under the
Indenture: (a) a default occurs in the payment of principal of (or premium, if
any, on) any Note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise; (b) a default occurs in the payment of
interest on any Note when the same becomes due and payable, and such default
continues for a period of 30 days; (c) the Company or the Guarantor defaults in
the performance of or breaches any other covenant or agreement of the Company or
the Guarantor in the Indenture or under the Notes (other than a default
specified in clause (a) or (b) above) and such default or breach continues for a
period of 30 consecutive days after written notice to the Company by the Trustee
or to the Company and the Trustee by the Holders of 25% or more in aggregate
principal amount of the Notes; (d) the Company shall have failed to make or
consummate an Offer to Purchase in accordance with Section 4.11 of the
Indenture; (e) the Company shall have failed to make or consummate an Offer to
Purchase in accordance with the provisions of Section 4.12 of the Indenture; (f)
there occurs with respect to any issue or issues of Indebtedness of the Company
or any Significant Subsidiary having an outstanding principal amount at maturity
of $5 million or more in the aggregate for all such issues of all such Persons,
whether such Indebtedness now exists or shall hereafter be created, (I) an event
of default that has caused the holder thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration and/or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days of such
payment default; (g) any final judgment or order (not covered by insurance) for
the payment of money in excess of $5 million in the aggregate (treating any
deductibles, self-insurance or retention as not so covered) shall be rendered
against the Company or any Significant Subsidiary and shall not be paid or
discharged, and there shall be any period of 30 consecutive days following entry
of the final judgment or order that causes the aggregate amount for all such
final judgments or orders outstanding and not paid or discharged against the
Company or any of its Significant Subsidiaries to exceed $5 million during which
a stay of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; (h) a court having jurisdiction in
the premises enters a decree or order for (A) relief in respect of the Company,
the Guarantor or any Significant Subsidiary in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company, the Guarantor or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company, the Guarantor or any Significant Subsidiary or (C) the
winding up or liquidation of the affairs of the Company, the Guarantor or any
<PAGE>
A-11
Significant Subsidiary and, in each case, such decree or order shall remain
unstayed and in effect for a period of 30 consecutive days; (i) the Company, the
Guarantor or any Significant Subsidiary (A) commences a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary case
under any such law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company, the Guarantor or any Significant Subsidiary or for all
or substantially all of the property and assets of the Company, the Guarantor or
any Significant Subsidiary or (C) effects any general assignment for the benefit
of creditors; or (j) prior to the payment in full of the first six interest
payments on the Notes, the Note Guarantee ceases to be in full force and effect
or is declared null and void, or the Guarantor denies that it has any further
liability under the Note Guarantee, or gives notice to such effect (other than
by reason of the termination of the Indenture).
If an Event of Default (other than an Event of Default specified in
clause (h) or (i) above that occurs with respect to the Company or the
Guarantor) occurs and is continuing under the Indenture, the Trustee or the
Holders of at least 25% in aggregate principal amount of the Notes, then
outstanding, by written notice to the Company (and to the Trustee if such notice
is given by the Holders), may, and the Trustee at the request of such Holders
shall, declare the principal of, premium, if any, and accrued interest on the
Notes to be immediately due and payable.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding may declare all the Notes to be due and
payable. If a bankruptcy or insolvency default with respect to the Company, the
Guarantor or any Significant Subsidiary occurs and is continuing, the principal
of, premium, if any, and accrued interest on the Notes automatically become due
and payable. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Notes. Subject to certain limitations,
Holders of at least a majority in principal amount of the Notes then outstanding
may direct the Trustee in its exercise of any trust or power.
17. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
<PAGE>
A-11
18. NO RECOURSE AGAINST OTHERS.
No incorporator or any past, present or future partner, stockholder,
other equity holder, officer, director, employee or controlling person as such,
of the Company or the Guarantor or of any successor Person shall have any
liability for any obligations of the Company or the Guarantor under the Notes or
the Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
19. AUTHENTICATION.
This Note shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this Note.
20. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
21. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Issuer has caused CUSIP numbers to be
printed on the Notes and the Trustee may use CUSIP numbers in notices of
redemption as a convenience to Holders. No representation is made as to the
accuracy of such numbers either as printed on the Notes or as contained in any
notice of redemption.
<PAGE>
A-13
22. GUARANTEE.
This Note is guaranteed (the "Note Guarantee") by KMC Telecom
Financing, Inc. (the "Guarantor"), as set forth in the Indenture.
Notwithstanding the foregoing, the Note Guarantee by the Guarantor shall
automatically terminate upon the earlier of (i) the payment in full of the first
six scheduled interest payments on the Notes or (ii) the payment in full of the
principal of, premium, if any, and interest on all outstanding Notes.
23. SECURITY.
The Holder of this Note is entitled to the benefits of a Pledge
Agreement, dated as of May 24, 1999, between the Guarantor, a wholly-owned
Restricted Subsidiary of the Company, and the Trustee, pursuant to which the
Guarantor has placed in the Pledged Account cash or Pledged Securities
sufficient to provide for the payment of the first six scheduled interest
payments due on the Notes (including any additional interest that may be payable
if the Exchange Offer is not consummated and the Shelf Registration Statement is
not declared effective in a timely manner) and to secure repayment of the
principal, premium (if any) and interest on the Notes in the event that the
Notes become due and payable prior to such time as the first six scheduled
interest payments thereon shall have been paid in full.
THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to KMC Telecom
Holdings, Inc., 1545 Route 206, Suite 300, Bedminster, New Jersey, 07921,
Attention: Chief Financial Officer.
<PAGE>
A-14
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
INSERT TAXPAYER IDENTIFICATION NO.
Please print or typewrite name and address including zip code of assignee
the within Note and all rights thereunder, hereby irrevocably constituting
and appointing
attorney
to transfer said Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES,
UNLEGENDED OFFSHORE GLOBAL NOTES AND
UNLEGENDED OFFSHORE CERTIFICATED NOTES]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date of an effective Registration or (ii) the
end of the period referred to in Rule 144(k) under the Securities Act, the
undersigned confirms that without utilizing any general solicitation or general
advertising that:
[CHECK ONE]
[ ] (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as
amended, provided by Rule 144A thereunder.
OR
[ ] (b) this Note is 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 Note and the
Indenture.
<PAGE>
A-16
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note 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 Section 2.08 of the Indenture shall have
been satisfied.
Date: _________________ __________________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the
face of the within-mentioned instrument in
every particular, without alteration or any
change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note
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 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 the
Company 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:
NOTICE: To be executed by an executive
officer.
A-17
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant
to Section 4.11 or Section 4.12 of the Indenture, check the Box: |_|
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.11 or Section 4.12 of the Indenture, state the amount (in
principal amount): $___________________.
Date: ____________________
Your Signature:_________________________________________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: ______________________________
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE
The Chase Manhattan Bank __________ __, 19__
450 West 33rd Street, 15th Floor
New York, NY 10001-2697
Attention: Capital Markets Fiduciary Services
Re: KMC Telecom Holdings, Inc. (the "Company")
13 1/2% Senior Notes Due 2009 (The "Notes")
-------------------------------------------
Ladies and Gentlemen:
This letter relates to U.S. $_____________ principal amount of Notes
represented by a Note (the "Legended Note") which bears a legend outlining
restrictions upon transfer of such Legended Note. Pursuant to Section 2.02 of
the Indenture (the "Indenture") dated as of May 24, 1999 relating to the Notes,
we hereby certify that we are (or we will hold such Notes on behalf of) a person
outside the United States to whom the Notes could be transferred in accordance
with Rule 904 of Regulation S promulgated under the U.S. Securities Act of 1933,
as amended. Accordingly, you are hereby requested to exchange the legended
certificate for an unlegended certificate representing an identical principal
amount of Notes, all in the manner provided for in the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:_________________________________________
Authorized Signature
<PAGE>
EXHIBIT C
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
------------------------
The Chase Manhattan Bank. __________ __, 19__
450 West 33rd Street, 15th Floor
New York, NY 10001-2697
Attention: Capital Markets Fiduciary Services
Re: KMC Telecom Holdings, Inc. (the "Company")
13 1/2% Senior Notes Due 2009 (The "Notes")
-------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of U.S.$ aggregate principal
amount of the Notes, we confirm that such sale has been effected pursuant to and
in accordance with Regulation S under the U.S. Securities Act of 1933, as
amended, and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the
United States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b)
of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
<PAGE>
C-3
You and the Company 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. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:________________________________
Authorized Signature
<PAGE>
EXHIBIT D
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
The Chase Manhattan Bank. __________ __, 19__
450 West 33rd Street, 15th Floor
New York, NY 10001-2697
Attention: Capital Markets Fiduciary Services
Re: KMC Telecom Holdings, Inc. (the "Company")
13 1/2% Senior Notes Due 2009 (The "Notes")
-------------------------------------------
Dear Sirs:
In connection with our proposed purchase of $___________ aggregate
principal amount of the Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes is subject
to certain restrictions and conditions set forth in the Indenture dated as
of May 24, 1999 relating to the Notes (the "Indenture") and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the
Notes except in compliance with, such restrictions and conditions and the
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered
or sold except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Notes, we will do so only (A) to the
Company or any subsidiary thereof, (B) in accordance with Rule 144A under
the Securities Act to a "qualified institutional buyer" (as defined
therein), (C) to an institutional "accredited investor" (as defined below)
that, prior to such transfer, furnishes (or has furnished on its behalf by
a U.S. broker-dealer) to you and to the Company a signed letter
substantially in the form of this letter, (D) outside the United States in
accordance with Rule 904 of Regulation S under the Securities Act, (E)
pursuant to the provisions of Rule 144 under the Securities Act, or (F)
pursuant to an effective registration statement under the Securities Act,
and we further agree to provide to any person purchasing any of the Notes
from us a notice advising such purchaser that resales of the Notes are
restricted as stated herein.
3. We understand that, on any proposed resale of any Notes, 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 Notes 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
Notes, and we and any accounts for which we are acting are each able to
bear the economic risk of our or its investment.
5. We are acquiring the Notes 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.
You and the Company 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
- --------
Note: The Table of Contents shall not for any purposes be deemed to be a part
of the Indenture.
* For Global Notes only
KMC TELECOM HOLDINGS, INC.
$275,000,000 OF 13 1/2% SENIOR NOTES DUE 2009
PURCHASE AGREEMENT
May 19, 1999
KMC TELECOM HOLDINGS, INC.
PURCHASE AGREEMENT
May 19, 1999
Morgan Stanley & Co. Incorporated
Credit Suisse First Boston Corporation
First Union Capital Markets Corp.
CIBC World Markets Corp.
BancBoston Robertson Stephens Inc.
Wasserstein Perella Securities, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036-8293
Dear Sirs and Mesdames:
KMC Telecom Holdings, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the initial purchasers named in Schedule I hereto
(the "Initial Purchasers") an aggregate of $275,000,000 of 13 1/2% Senior Notes
Due 2009 of the Company (the "Notes") to be issued pursuant to the provisions of
an indenture (the "Indenture") between the Company and The Chase Manhattan Bank,
as trustee (in such capacity, the "Trustee"), to be dated as of the Closing Date
(as defined below).
The Indenture will provide that on the Closing Date the Company will
cause its wholly-owned restricted subsidiary, KMC Telecom Financing, Inc. (the
"Guarantor"), to purchase and pledge to the Trustee for the benefit of the
registered holders of the Notes (collectively, the "Note Holders"), pursuant to
the terms of a Collateral Pledge and Security Agreement (the "Pledge
Agreement"), a portfolio of United States Treasury securities and/or security
entitlements relating thereto in an amount sufficient, upon receipt of scheduled
interest and principal payments on such securities, to provide for the payment
in full of the first six scheduled interest payments on the Notes (the "Pledged
Securities").
The Notes will be offered without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), to qualified
institutional buyers in compliance with the exemption from registration provided
by Rule 144A under the Securities Act and in offshore transactions in reliance
on Regulation S under the Securities Act ("Regulation S").
<PAGE>
2
The Initial Purchasers and their direct and indirect transferees will
be entitled to the benefits of a Registration Rights Agreement relating to the
Notes, to be dated the date hereof, and to be substantially in the form attached
hereto as Exhibit A (the "Registration Rights Agreement").
In connection with the sale of the Notes, the Company has prepared a
preliminary private placement memorandum dated May 6, 1999 (the "Preliminary
Memorandum") and will prepare a final private placement memorandum (including
any supplements thereto, the "Final Memorandum" and, with the Preliminary
Memorandum, each a "Memorandum") setting forth or including a description of the
terms of the Notes, the terms of the offering and a description of the Company
and its business.
1. Representations and Warranties. The Company represents and warrants
to, and agrees with, you that as of the date hereof:
(a) The Preliminary Memorandum as of the date hereof does not
contain and the Final Memorandum, in the form used by the Initial
Purchasers to confirm sales and on the Closing Date, will not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this paragraph do not
apply to statements or omissions in either Memorandum based upon
information relating to the Initial Purchasers furnished to the Company
in writing by the Initial Purchasers expressly for use therein.
(b) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State
of Delaware, has the corporate power and authority to own its property
and to conduct its business as described in each Memorandum and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(c) Each subsidiary of the Company is listed on Exhibit B
hereto (each a "Subsidiary" and, collectively, the "Subsidiaries") and
has been duly incorporated or otherwise organized, is validly existing
as a corporation or limited liability company, as the case may be, in
good standing under the laws of the jurisdiction of its incorporation
or organization, has the corporate and/or limited liability company
power and authority, as appropriate, to own its property and to conduct
its business as described in each Memorandum and is duly qualified to
transact business and is in good standing in each jurisdiction in which
<PAGE>
3
the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on the Company and the Subsidiaries, taken as a whole;
all of the issued shares of capital stock or membership interests of
each Subsidiary of the Company have been duly and validly authorized
and issued, are fully paid and non-assessable and are owned, directly
or indirectly, by the Company, free and clear of all liens,
encumbrances, equities or claims, other than those indicated in either
Memorandum.
(d) This Purchase Agreement has been duly authorized,
executed and delivered by the Company.
(e) The Notes have been duly authorized by the Company and,
when executed and authenticated in accordance with the Indenture, and
delivered to and paid for by the Initial Purchasers in accordance with
the terms of this Purchase Agreement, will (x) be valid and binding
obligations of the Company enforceable in accordance with their terms,
except as (A) the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium or similar laws affecting creditors' rights
generally and (B) rights of acceleration, if applicable, and the
availability of equitable remedies may be limited by equitable
principles of general applicability and (y) be entitled to the benefits
of the Indenture pursuant to which such Notes are to be issued, the
Registration Rights Agreement and the Pledge Agreement.
(f) Each of the Indenture and the Registration Rights
Agreement has been duly authorized by the Company and, when executed
and delivered by the Company, will be a valid and binding agreement of,
the Company, enforceable in accordance with its terms except that (w)
the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium or similar laws affecting creditors' rights generally, (x)
rights of acceleration, if applicable, and the availability of
equitable remedies may be limited by equitable principles of general
applicability, (y) rights to indemnification and contribution may be
limited by public policy and (z) provisions of the Indenture, if any,
requiring any waiver of stay or extension laws, diligent performance or
other acts on the part of the Trustee may be unenforceable under
principles of public policy.
(g) The Pledge Agreement has been duly authorized by the
Guarantor and, when executed and delivered by the Guarantor, will be a
valid and binding agreement of the Guarantor enforceable in accordance
with its terms, except as (x) the enforceability thereof may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally and subject to general equitable principles whether
considered in a proceeding in equity or at law.
<PAGE>
4
(h) Upon the delivery to the Trustee of the certificates or
instruments, if any, representing the Pledged Securities, the pledge of
and grant of a security interest in the Pledged Securities for the
benefit of the Trustee and the Note Holders, as the case may be, will
constitute a first priority security interest in the Pledged
Securities, enforceable against all creditors of the Guarantor (and any
persons purporting to purchase any of the Pledged Securities from the
Guarantor).
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Purchase
Agreement, the Indenture, the Registration Rights Agreement and the
Notes (collectively, the "Transaction Documents") and the issuance,
sale and delivery of the Notes by the Company in accordance with the
terms of the Notes and the Indenture will not contravene (i) any
provision of applicable law, (ii) the certificate of incorporation or
bylaws of the Company, (iii) any agreement or other instrument binding
upon the Company or any of its Subsidiaries, or (iv) any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over the Company or any Subsidiary, except with respect to
clauses (i) and (iii) to the extent that any contravention would not
have a material adverse effect on the Company and its Subsidiaries,
taken as a whole, and no consent, approval, authorization or order of,
or qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under the Transaction
Documents, except (x) such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale of
the Notes, (y) such as may be required by Federal and state securities
laws with respect to the Company's obligations under the Registration
Rights Agreement and (z) for any consents, approvals, authorizations,
orders or qualifications, the failure to obtain which would not have a
material adverse effect on the ability of the Company to perform its
obligations under the Transaction Documents.
(j) The execution and delivery by the Guarantor of, and the
performance by the Guarantor of its obligations under, the Indenture,
the First Supplemental Indenture, the Pledge Agreement and the Control
Agreement (collectively, the "Guarantor Transaction Documents") will
not contravene (i) any provision of applicable law, (ii) the
certificate of incorporation or bylaws of the Guarantor, (iii) any
agreement or other instrument binding upon the Guarantor, or (iv) any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Guarantor, except with respect to clauses
(i) and (iii) to the extent that any contravention would not have a
material adverse effect on the Guarantor, and no consent, approval,
authorization or order of, or qualification with, any governmental body
or agency is required for the performance by the Guarantor of its
obligations under the Guarantor Transaction Documents, except (x) such
as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Notes and (y) for
<PAGE>
5
any consents, approvals, authorizations, orders or qualifications, the
failure to obtain which would not have a material adverse effect on the
ability of the Guarantor to perform its obligations under the Guarantor
Transaction Documents.
(k) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its Subsidiaries, taken as a whole, from
that set forth in the Preliminary Memorandum. Furthermore, (1) the
Company and its Subsidiaries have not incurred any material liability
or obligation, direct or contingent, nor entered into any material
transaction not in the ordinary course of business; (2) the Company has
not purchased (except for the repurchase of shares of its common stock
from employees, officers, directors, consultants or other persons
providing services to the Company or any of its Subsidiaries pursuant
to agreements under which the Company has the option to repurchase such
shares of its common stock at cost upon the occurrence of certain
events such as the termination of employment or other service-providing
relationship) any of its outstanding capital stock, nor declared, paid
or otherwise made any dividend or distribution of any kind on its
capital stock other than ordinary and customary dividends; and (3)
there has not been any material change in the capital stock, short-term
debt or long-term debt of the Company and its consolidated Subsidiaries
taken as a whole, except in each case as described in the Final
Memorandum.
(l) There are no legal or governmental proceedings pending or,
to the knowledge of the Company, threatened to which the Company or any
of its Subsidiaries is a party or to which any of the properties of the
Company or any of its Subsidiaries is subject other than proceedings
accurately described in all material respects in each Memorandum and
proceedings that are not reasonably likely to have a material adverse
effect on the Company and its Subsidiaries, taken as a whole, or on the
power or ability of the Company to perform its obligations under any of
the Transaction Documents or to consummate the transactions
contemplated by the Final Memorandum.
(m) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D under the Securities Act, an "Affiliate") of the
Company has directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any
security (as defined in the Securities Act) which is or will be
integrated with the sale of the Notes in a manner that would require
the registration under the Securities Act of the Notes or (ii) engaged
in any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) in connection
with the offering of the Notes or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act.
<PAGE>
6
(n) The Company is not, and after giving effect to the
offering and sale of the Notes and the application of the proceeds
thereof as described in the Final Memorandum, will not be an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended.
(o) It is not necessary in connection with the offer, sale and
delivery of the Notes to the Initial Purchasers in the manner
contemplated by this Purchase Agreement to register the Notes under the
Securities Act or to qualify the Indenture under the Trust Indenture
Act of 1939, as amended.
(p) The Company and its Subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its Subsidiaries, taken as a
whole.
(q) There are no costs and liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the Company and its Subsidiaries,
taken as a whole.
(r) The Notes satisfy the requirements set forth in Rule
144A(d)(3) under the Securities Act.
(s) None of the Company, its Affiliates or any person acting
on its or their behalf (other than the Initial Purchasers) has engaged
in any directed selling efforts (as that term is defined in Regulation
S under the Securities Act) with respect to the Notes, and the Company
and its Affiliates and any person acting on its or their behalf (other
than the Initial Purchasers) have complied with the offering
restrictions requirement of Regulation S.
(t) Except as described in each Memorandum, the Company and
its Subsidiaries (i) have all necessary consents, authorizations,
approvals, orders, certificates and permits of and from, and have made
all declarations and filings with, all federal, state, local and other
governmental, administrative or regulatory authorities, all
self-regulatory organizations and all courts and other tribunals, to
own, lease, license and use their properties and assets and to conduct
<PAGE>
7
their business in the manner described in each Memorandum, except to
the extent that the failure to obtain such consents, authorizations,
approvals, orders, certificates or permits or make such declarations or
filings would not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole; and (ii) has not received any notice of
proceedings relating to the violation, revocation or modification of
any such license, consent, authorization, approval, order, certificate
or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected
to result in a material adverse change in the condition, financial or
otherwise, in the earnings, business or operations of the Company and
its Subsidiaries, taken as a whole.
(u) The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, taken as a whole, in each
case free and clear of all liens, encumbrances and defects except (i)
such as are described in each Memorandum, (ii) such as do not
materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company
and its Subsidiaries; or (iii) such as do not have a material adverse
effect on the Company and its Subsidiaries taken as a whole; and any
real property and buildings held under lease by the Company and its
Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not materially
interfere with the use made and proposed to be made of such property
and buildings by the Company and its Subsidiaries, in each case except
as described in or contemplated by each Memorandum.
(v) The Company and its Subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and
trade names currently employed by them in connection with the business
now operated by them, and, except as set forth in each Memorandum,
neither the Company nor any of its Subsidiaries has received any notice
of infringement of or conflict with asserted rights of others with
respect to any of the foregoing which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would be
reasonably likely to result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its Subsidiaries, taken as a whole.
(w) No material labor dispute with the employees of the
Company or any of its Subsidiaries exists, except as described in or
contemplated by each Memorandum, or, to the knowledge of the Company,
is imminent; and the Company is not aware of any existing, threatened
or imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors that might reasonably be
expected to result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business or operations of
the Company and its Subsidiaries, taken as a whole.
<PAGE>
8
(x) The Company and its Subsidiaries are insured against such
losses and risks and in such amounts as the Company reasonably believes
are prudent and customary in the businesses in which they are engaged;
neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor
any such Subsidiary has any reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially
and adversely affect the condition, financial or otherwise, or the
earnings, business or operations of the Company and its Subsidiaries,
taken as a whole, except as described in or contemplated by each
Memorandum.
(y) The Company and its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences.
(z) The terms of the Notes and the Indenture conform in all
material respects to the description thereof contained in the Final
Memorandum under the headings "Description of the Notes."
(aa) The Company has reviewed its operations and that of its
Subsidiaries to evaluate the extent to which the business or operations
of the Company or any of its Subsidiaries will be affected by the Year
2000 Problem (that is, any significant risk that computer hardware or
software applications used by the Company and its Subsidiaries will
not, in the case of dates or time periods occurring after December 31,
1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000); as a result of such
review, (i) the Company has no reason to believe, and does not believe,
that (A) there are any issues related to the Company's preparedness to
address the Year 2000 Problem that are of a character required to be
<PAGE>
9
described or referred to in each Memorandum which have not been
accurately described in each Memorandum and (B) with respect to the
systems of the Company and its Subsidiaries, the Year 2000 Problem will
have a material adverse effect on the condition, financial or
otherwise, or on the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole, or result in any material loss
or interference with the business or operations of the Company and its
Subsidiaries, taken as a whole; and (ii) the Company reasonably
believes, after due inquiry, that the suppliers, vendors, customers or
other material third parties used or served by the Company and such
Subsidiaries are addressing or will address the Year 2000 Problem in a
timely manner, except to the extent that a failure to address the Year
2000 Problem by any supplier, vendor, customer or material third party
would not have a material adverse effect on the condition, financial or
otherwise, or on the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole.
2. Agreements to Sell and Purchase. The Company hereby agrees
to sell to the several Initial Purchasers and each Initial Purchaser, upon the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees to purchase from the Company the
respective principal amount of Notes set forth in Schedule I hereto opposite its
name, at a purchase price of 96.5% of the principal amount thereof (the
"Purchase Price") plus accrued interest, if any, on the Notes from May 24, 1999
to the Closing Date.
The Company hereby agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Initial
Purchasers, it will not, during the period beginning on the date hereof and
continuing to and including the Closing Date, offer, sell, contract to sell or
otherwise dispose of any debt of the Company or warrants to purchase debt of the
Company substantially similar to the Notes (other than the sale of the Notes
under this Purchase Agreement).
3. Terms of Offering. You have advised the Company that the
Initial Purchasers will make an offering of the Notes purchased by the Initial
Purchasers hereunder on the terms set forth in the Final Memorandum, as soon as
practicable after this Purchase Agreement is entered into as in your judgment is
advisable.
4. Payment and Delivery. Payment for the Notes shall be made
to the Company in Federal or other funds immediately available in New York City
against delivery of the Notes at a closing (the "Closing") to be held at the
office of Shearman & Sterling, 599 Lexington Avenue, New York, New York, at
10:00 A.M., local time, on May 24, 1999, or at such other time on the same or
<PAGE>
10
such other date, not later than June 7, 1999, as shall be designated in writing
by you. The time and date of such payment are herein referred to as the "Closing
Date."
Certificates for the Notes shall be in definitive form or
global form, as specified by you, and registered in such names and in such
denominations as you shall request in writing not later than one full business
day prior to the Closing Date. The certificates evidencing the Notes shall be
delivered to you on the Closing Date for the respective accounts of the several
Initial Purchasers, with any transfer taxes payable in connection with the
transfer of the Notes to the Initial Purchasers duly paid, against payment of
the purchase price therefor.
5. Conditions to the Initial Purchasers' Obligations . The
several obligations of the Initial Purchasers to purchase and pay for the Notes
on the Closing Date is subject to the following conditions:
(a) Subsequent to the execution and delivery of this
Purchase Agreement and prior to the Closing Date,
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded any of the Company's securities by any
nationally recognized statistical rating organization," as
such term is defined for purposes of Rule 436(g)(2) under the
Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations, of the Company and its subsidiaries, taken as a
whole, from that set forth in the Final Memorandum (exclusive
of any amendments or supplements thereto subsequent to the
date of this Purchase Agreement) that, in the judgment of
Morgan Stanley & Co. Incorporated, as representative of the
Initial Purchasers, is material and adverse and that makes it,
in the judgment of Morgan Stanley & Co. Incorporated, as
representative of the Initial Purchasers, impracticable to
market the Notes on the terms and in the manner contemplated
in the Final Memorandum.
(b) The Initial Purchasers shall have received on the Closing
Date a certificate, dated the Closing Date and signed by an executive
officer of the Company, to the effect set forth in Section 5(a)(i) of
this Purchase Agreement and to the effect that the representations and
warranties of the Company contained in this Purchase Agreement are true
and correct as of the Closing Date and that the Company has complied
with all of the agreements and satisfied all of the conditions
contained herein on its part to be performed or satisfied hereunder on
or before the Closing Date.
The officer signing and delivering such certificate may rely
upon the best of his or her knowledge as to proceedings threatened.
<PAGE>
11
(c) The Initial Purchasers shall have received on the Closing
Date an opinion of Kelley Drye & Warren LLP, outside counsel to the
Company, dated the Closing Date, to the effect set forth in Exhibit C.
Such opinion shall be rendered to the Initial Purchasers at the request
of the Company and shall so state therein.
(d) The Initial Purchasers shall have received on the Closing
Date an opinion of Swidler Berlin Shereff Friedman, LLP, regulatory
counsel to the Company, dated the Closing Date, to the effect set forth
in Exhibit D. Such opinion shall be rendered to the Initial Purchasers
at the request of the Company and shall so state therein.
(e) The Initial Purchasers shall have received on the Closing
Date an opinion of Shearman & Sterling, counsel to the Initial
Purchasers, dated the Closing Date, in form and substance satisfactory
to you.
(f) The Initial Purchasers shall have received on each of the
date hereof and the Closing Date a letter, dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Initial Purchasers, from Ernst & Young LLP, independent public
accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Final Memorandum; provided that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier
than the date hereof.
(g) The Transaction Documents shall have been executed and
shall be in full force and effect.
(h) The Initial Purchasers shall have received payment in
full, no later than the Closing Date, of all fees and expenses due in
connection with the offering by the Company of the Notes pursuant to
the Final Memorandum.
(i) You shall have received such other documents and
certificates as are reasonably requested by you or your counsel.
6. Covenants of the Company. In further consideration of the
agreements of the Initial Purchasers contained in this Purchase Agreement, the
Company covenants with the Initial Purchasers as follows:
(a) To use its reasonable best efforts to furnish to you in
New York City, without charge, prior to 10:00 a.m. New York City time
on the business day next succeeding the date of this Purchase Agreement
and during the period mentioned in Section 6(c), as many copies of the
Final Memorandum and any supplements and amendments thereto as you may
reasonably request.
(b) Before amending or supplementing either Memorandum, to
furnish to you a copy of each such proposed amendment or supplement and
not to use any such proposed amendment or supplement to which Morgan
Stanley & Co. Incorporated objects without unreasonable delay.
<PAGE>
12
(c) If, during such period after the date hereof and prior to
the date on which all of the Notes shall have been sold by the Initial
Purchasers, any event shall occur or condition exist as a result of
which it is necessary to amend or supplement the Final Memorandum in
order to make the statements therein, in the light of the circumstances
when the Final Memorandum is delivered to a purchaser, not misleading,
or if, in the opinion of counsel to the Initial Purchasers it is
necessary to amend or supplement the Final Memorandum to comply with
applicable law, forthwith to prepare and furnish, at its own expense,
to the Initial Purchasers, either amendments or supplements to the
Final Memorandum so that the statements in the Final Memorandum as so
amended or supplemented will not, in the light of the circumstances
when the Final Memorandum is delivered to a purchaser, be misleading or
so that the Final Memorandum, as so amended or supplemented, will
comply in all material respects with applicable law.
(d) To endeavor to qualify the Notes for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not
now so qualified or to take any action which would subject it to
taxation in any jurisdiction where it is not now so subject or to
service or process in suits, other than those arising out of the
offering or sale of the Notes in any jurisdiction where it is not now
so subject.
(e) Whether or not the transactions contemplated in this
Purchase Agreement are consummated or this Purchase Agreement is
terminated, to pay or cause to be paid all expenses incident to the
performance of its obligations under this Purchase Agreement,
including: (i) the preparation of each Memorandum and all amendments
and supplements thereto, (ii) the preparation, issuance and delivery of
the Notes, (iii) the fees and disbursements of the Company's counsel
and accountants and the Trustee and its counsel, (iv) the qualification
of such Notes under securities or Blue Sky laws in accordance with the
provisions of Section 6(d), including filing fees and the fees and
disbursements of one counsel for the Initial Purchasers in connection
therewith and in connection with the preparation of any Blue Sky or
legal investment memoranda, (v) the printing and delivery to the
Initial Purchasers in quantities as hereinabove stated of copies of the
Memorandum and any amendments or supplements thereto, (vi) any fees
charged by rating agencies, (vii) all document production charges and
expenses of one counsel to the Initial Purchasers (but not including
their fees for professional services) in connection with the
preparation of this Purchase Agreement, (viii) the fees and expenses,
if any, incurred in connection with the admission of such Notes for
trading in PORTAL or any other appropriate market system, (ix) the
fees, expenses and losses, if any, incurred in connection with the
purchase of the Pledged Securities, (x) the costs and expenses of the
Company relating to investor presentations on any "road show"
undertaken in connection with the marketing of the offering of the
Notes, including, without limitation, expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with
the prior approval of the Company, travel and lodging expense of the
representatives and officers of the Company and any such consultants,
and the cost of any aircraft chartered in connection with the road show
with the prior approval of the Company, and (xi) all other costs and
expenses incident to the performance of the obligations of the Company
hereunder for which provision is not otherwise made in this Section. It
is understood, however, that except as provided in this Section,
Section 8 and Section 11, the Initial Purchasers will pay all of their
costs and expenses, including fees and disbursements of their counsel,
transfer taxes payable on resale of any of the Notes by them and any
advertising expenses connected with any offers they may make.
(f) Neither the Company nor any Affiliate will sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in the Securities Act) which could be integrated
with the sale of the Notes in a manner which would require the
registration under the Securities Act of such Notes.
<PAGE>
13
(g) Neither the Company nor any Affiliate will solicit any
offer to buy or offer or sell the Notes by means of any form of general
solicitation or general advertising (as those terms are used in
Regulation D under the Securities Act) or in any manner involving a
public offering within the meaning of Section 4(2) of the Securities
Act, except as may be contemplated by the Registration Rights
Agreement.
(h) While any of the Notes remain "restricted securities"
within the meaning of the Securities Act, to make available, upon
request, to any seller of such Notes the information specified in Rule
144A(d)(4) under the Securities Act, unless the Company is then subject
to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act").
(i) Except as may be contemplated by the Registration Rights
Agreement, none of the Company, its Affiliates or any person acting on
its or their behalf (other than the Initial Purchasers) will engage in
any directed selling efforts (as that term is defined in Regulation S)
with respect to the Notes, and the Company and its Affiliates and each
person acting on its or their behalf (other than the Initial
Purchasers) will comply with the offering restrictions of Regulation S.
(j) To refuse, and to cause the Trustee to refuse, to register
any transfer of the Notes sold pursuant to Regulation S if such
transfer is not made in accordance with the provisions of Regulation S
and the Indenture.
(k) To use its reasonable best efforts to permit the Notes to
be designated PORTAL securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers,
Inc. relating to trading in the PORTAL Market.
(l) The Company shall not, and shall use its best efforts to
cause its Affiliates not to, purchase and then resell or otherwise
transfer any Notes.
7. Offering of Notes; Restrictions on Transfer. (a) Each
Initial Purchaser, severally and not jointly, represents and warrants that such
Initial Purchaser is a qualified institutional buyer as defined in Rule 144A
under the Securities Act (a "QIB"). Each Initial Purchaser agrees with the
Company that (i) it will not solicit offers for, or offer or sell the Notes by
any form of general solicitation or general advertising (as those terms are used
in Regulation D under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act and (ii) it
<PAGE>
14
will solicit offers for the Notes only from, and will offer such Notes only to,
persons that it reasonably believes to be (A) in the case of offers inside the
United States, QIBs and (B) in the case of offers outside the United States, to
persons other than U.S. persons ("foreign purchasers", which term shall include
dealers or other professional fiduciaries in the United States acting on a
discretionary basis for foreign beneficial owners (other than an estate or
trust)) in reliance upon Regulation S under the Securities Act that, in each
case, in purchasing such Notes are deemed to have represented and agreed as
provided in the Final Memorandum under the caption "Transfer Restrictions."
(b) Each Initial Purchaser, severally and not jointly,
represents, warrants, and agrees with respect to offers and sales
outside the United States that:
(i) it understands that no action has been or will be
taken in any jurisdiction by the Company that would permit a
public offering of the Notes, or possession or distribution of
either Memorandum or any other offering or publicity material
relating to the Notes, in any country or jurisdiction where
action for that purpose is required;
(ii) such Initial Purchaser will comply with all
applicable laws and regulations in each jurisdiction in which
it acquires, offers, sells or delivers Notes or has in its
possession or distributes either Memorandum or any such other
material, in all cases at its own expense;
(iii) the Notes have not been and will not be
registered under the Securities Act and may not be offered or
sold within the United States or to, or for the account or
benefit of, U.S. persons except in accordance with Rule 144A
or Regulation S under the Securities Act or pursuant to
another exemption from the registration requirements of the
Securities Act;
(iv) such Initial Purchaser has offered the Notes and
will offer and sell the Notes (A) as part of their
distribution at any time and (B) otherwise until 40 days after
the Closing Date only in accordance with Rule 903 of
Regulation S or as otherwise permitted in Section 7(a);
accordingly, neither such Initial Purchaser, its Affiliates
nor any persons acting on its or their behalf have engaged or
will engage in any directed selling efforts (within the
meaning of Regulation S) with respect to the Notes, and any
such Initial Purchaser, its Affiliates and any such persons
have complied and will comply with the offering restrictions
requirement of Regulation S;
(v) such Initial Purchaser has (A) not offered or
sold and, prior to the date six months after the Closing Date,
will not offer or sell any Notes to persons in the United
Kingdom except to persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (B) complied and will comply with
all applicable provisions of the Financial Services Act 1986
with respect to anything done by it in relation to the Notes
in, from or otherwise involving the United Kingdom; and (C)
only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with
the issue of the Notes to a person who is of a kind described
in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a
person to whom such document may otherwise lawfully be issued
or passed on;
(vi) such Initial Purchaser understands that the
Notes have not been and will not be registered under the
Securities and Exchange Law of Japan, and represents that it
has not offered or sold, and agrees that it will not offer or
sell, any Notes, directly or indirectly in Japan or for the
<PAGE>
15
account of any resident thereof except pursuant to any
exemption from the registration requirements of the Securities
and Exchange Law of Japan and otherwise in compliance with
applicable provisions of Japanese law; and
(vii) such Initial Purchaser agrees that, at or prior
to confirmation of sales of the Notes, it will have sent to
each distributor, dealer or person receiving a selling
concession, fee or other remuneration that purchases Notes
from it during the restricted period a confirmation or notice
to substantially the following effect:
"The Notes covered hereby have not been registered under the
U.S. Securities Act of 1933 (the "Securities Act") and may
not be offered and sold within the United States or to, or
for the account or benefit of, U.S. persons (i) as part of
their distribution at any time or (ii) otherwise until 40
days after the closing date, except in either case in
accordance with Regulation S (or Rule 144A if available)
under the Securities Act. Terms used above have the meaning
given to them by Regulation S."
Terms used in this Section 7(b) have the meanings given to them by
Regulation S.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Initial Purchaser, and each person, if any, who
controls any Initial Purchaser within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in either Memorandum (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact necessary to make the statements therein in the light of
the circumstances under which they were made not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Initial Purchaser furnished to the Company in
writing by such Initial Purchaser expressly for use therein.
(b) Each Initial Purchaser agrees, severally and not jointly,
to indemnify and hold harmless the Company, its directors, its 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 to the same extent as the foregoing indemnity from the Company to
such Initial Purchaser, but only with reference to information relating
to such Initial Purchaser furnished to the Company in writing by such
Initial Purchaser expressly for use in either Memorandum or any
amendments or supplements thereto.
<PAGE>
16
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to either Section 8(a) or 8(b),
such person (the "indemnified party") shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In
any such proceeding, any indemnified party shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local
counsel) for all such indemnified parties and that all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated in the case
of parties indemnified pursuant to Section 8(a) and by the Company in
the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with
such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by
the second and third sentences of this paragraph, the indemnifying
party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement
is entered into more than 60 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall
not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party,
effect any settlement of any pending or threatened proceeding in
respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject
matter of such proceeding.
(d) To the extent the indemnification provided for in Section
8(a) or 8(b) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to
therein, then each indemnifying party under such section, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company,
on the one hand, and the Initial Purchasers, on the other hand, from
the offering of such Notes or (ii) if the allocation provided by clause
8(d)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in
<PAGE>
17
clause 8(d)(i) above but also the relative fault of the Company on the
one hand and the Initial Purchasers on the other hand in connection
with the statements or omissions that resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the
one hand and the Initial Purchasers on the other hand in connection
with the offering of such Notes shall be deemed to be in the same
respective proportions as the net proceeds from the offering of such
Notes (before deducting expenses) received by the Company and the total
discounts and commissions received by the Initial Purchasers in respect
thereof bear to the aggregate offering price of such Notes. The
relative fault of the Company on the one hand and of the Initial
Purchasers on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company or by the Initial
Purchasers and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
(e) The Company and the Initial Purchasers agree that it would
not be just or equitable if contribution pursuant to this Section 8
were determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations
referred to in Section 8(d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and
liabilities referred to in Section 8(d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, the Initial
Purchasers shall not be required to contribute any amount in excess of
the amount by which the total price at which the Notes resold by them
in the initial placement of such Notes were offered to investors
exceeds the amount of any damages that such Initial Purchaser has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Section 8 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in
this Section 8 and the representations, warranties and other statements
of the Company contained in this Purchase Agreement shall remain
operative and in full force and effect regardless of (i) any
termination of this Purchase Agreement, (ii) any investigation made by
or on behalf of any Initial Purchaser or any person controlling any
Initial Purchaser or by or on behalf of the Company, its officers or
directors or any person controlling the Company and (iii) acceptance of
and payment for any of the Notes.
9. Termination. This Purchase Agreement shall be subject to
termination by notice given by Morgan Stanley & Co. Incorporated, as
representative of the Initial Purchasers, to the Company, if (a) after the
execution and delivery of this Purchase Agreement and prior to the Closing Date
(i) trading generally shall have been suspended or materially limited on or by,
as the case may be, any of the New York Stock Exchange, the American Stock
Exchange, the National Association of Securities Dealers, Inc., the Chicago
Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board
of Trade, (ii) trading of any securities of the Company shall have been
<PAGE>
18
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities in New York shall have been declared
by either Federal or New York State authorities or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in the judgment of Morgan Stanley & Co.
Incorporated, as representative of the Initial Purchasers, is material and
adverse and (b) in the case of any of the events specified in clauses 9(a)(i)
through 9(a)(iv), such event singly or together with any other such event makes
it, in the judgment of Morgan Stanley & Co. Incorporated, as representative of
the Initial Purchasers, impracticable to market the Notes on the terms and in
the manner contemplated in the Final Memorandum.
10. Effectiveness. This Purchase Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
11. Miscellaneous. If, on the Closing Date any one or more of
the Initial Purchasers shall fail or refuse to purchase Notes that it or they
have agreed to purchase hereunder on such date, and the amount of Notes which
such defaulting Initial Purchaser or Initial Purchasers agreed but failed or
refused to purchase is not more than one-tenth of the aggregate amount of Notes
to be purchased on such date, the other Initial Purchasers shall be obligated
severally in the proportions that the amount of Notes set forth opposite their
respective names in Schedule I bears to the aggregate amount of Notes set forth
opposite the names of all such non-defaulting Initial Purchasers, or in such
other proportions as you may specify, to purchase the Notes which such
defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused
to purchase on such date; provided that in no event shall the amount of Notes
that any Initial Purchaser has agreed to purchase pursuant to Section 2 be
increased pursuant to Section 11 by an amount in excess of one-ninth of such
amount of Notes without the written consent of such Initial Purchaser. If, on
the Closing Date, any Initial Purchaser or Initial Purchasers shall fail or
refuse to purchase Notes which it or they have agreed to purchase hereunder on
such date and the aggregate amount of Notes with respect to which such default
occurs is more than one-tenth of the aggregate amount of Notes to be purchased
on such date and arrangements satisfactory to you and the Company for the
purchase of such Notes are not made within 36 hours after such default, this
Purchase Agreement shall terminate without liability on the part of any
non-defaulting Initial Purchaser or the Company. In any such case either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Final Memorandum or in any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting Initial
Purchaser from liability in respect of any default of such Initial Purchaser
under this Purchase Agreement.
If this Purchase Agreement shall be terminated by the Initial
Purchasers, or any of them, because of any failure or refusal on the part of the
Company to comply with the terms or to fulfill any of the conditions of this
Purchase Agreement, or if for any reason the Company shall be unable to perform
its obligations under this Purchase Agreement (other than by reason of a breach
of this Purchase Agreement by the Initial Purchasers, or any of them), the
Company will reimburse the Initial Purchasers or such Initial Purchasers who
have so terminated this Purchase Agreement for all out-of-pocket expenses
(including the fees and disbursements of its counsel) reasonably incurred by
such Initial Purchaser in connection with this Purchase Agreement or the
offering contemplated hereunder.
<PAGE>
19
12. Notices. All notices and other communications required or
permitted to be given under this Purchase Agreement shall be in writing and
shall be deemed to have been duly given if delivered personally to the parties
hereto as follows:
(a) If to the Initial Purchasers:
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Attention: Gregory Attori
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: James S. Scott, Sr.
(b) If to the Company:
KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, NJ 07921
Attention: James D. Grenfell
with a copy to:
Kelley Drye & Warren LLP
101 Park Ave.
New York, NY 10178
Attention: Brian J. Calvey
13. Counterparts. This Purchase Agreement may be signed 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.
14. Applicable Law. This Purchase Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York.
15. Headings. The headings of the sections of this Purchase
Agreement have been inserted for convenience of reference only and shall not be
deemed a part of this Purchase Agreement.
Please confirm your agreement to the foregoing by signing in
the space provided below for that purpose and returning to us a copy hereof,
whereupon this Purchase Agreement shall constitute a binding agreement between
us.
Very truly yours,
KMC TELECOM HOLDINGS, INC.
By:___________________________
Name:
Title:
Agreed, May 19, 1999
MORGAN STANLEY & CO. INCORPORATED
CREDIT SUISSE FIRST BOSTON CORPORATION
FIRST UNION CAPITAL MARKETS CORP.
CIBC WORLD MARKETS CORP.
BANCBOSTON ROBERTSON STEPHENS INC.
WASSERSTEIN PERELLA SECURITIES, INC.
By: MORGAN STANLEY & CO. INCORPORATED
In its individual capacity and as representative
of the other Initial Purchasers
By: ______________________________
Name:
Title:
<PAGE>
SCHEDULE I
Principal Amount of
13 1/2% Senior Notes
Initial Purchasers To Be Purchased
Morgan Stanley & Co. Incorporated...................... $196,250,000
Credit Suisse First Boston Corporation................. $33,750,000
First Union Capital Markets Corp....................... $27,000,000
CIBC World Markets Corp................................ $9,000,000
BancBoston Robertson Stephens Inc...................... $4,500,000
Wasserstein Perella Securities, Inc. .................. $4,500,000
------------
Total................................................ $275,000,000
-----------
<PAGE>
EXHIBIT A
---------
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT B
---------
SUBSIDIARIES OF KMC TELECOM HOLDINGS, INC.
Name of Subsidiary Jurisdiction of Incorporation or Organization
- ------------------ ---------------------------------------------
KMC Telecom Inc. Delaware
KMC Telecom II, Inc. Delaware
KMC Telecom Leasing I LLC Delaware
KMC Telecom Leasing II LLC Delaware
KMC Telecom of Virginia, Inc. Virginia
KMC Telecom III, Inc. Delaware
KMC Telecom III Holdings, Inc. Delaware
KMC Telecom Leasing III LLC Delaware
KMC Telecom Financing, Inc. Delaware
<PAGE>
EXHIBIT C
FORM OF OPINION OF
KELLEY DRYE & WARREN LLP
Pursuant to Section 5(c) of the Purchase Agreement, Kelley
Drye & Warren shall deliver an opinion to the effect that:
(A) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State
of Delaware, has the corporate power and authority to own its property
and to conduct its business as described in the Final Memorandum
(references herein to the Final Memorandum being taken to mean the
same, as amended or supplemented), and is duly qualified to transact
business and is in good standing in New Jersey;
(B) each subsidiary of the Company listed in Exhibit B to the
Purchase Agreement has been duly organized, is validly existing as a
corporation or limited liability company, as the case may be, in good
standing under the laws of the jurisdiction of its organization, has
the corporate and/or limited liability company power and authority, as
appropriate, to own its property and to conduct its business as
described in the Final Memorandum, except as otherwise noted therein,
and is duly qualified to transact business and is in good standing in
each jurisdiction listed opposite its name on Annex I hereto;
(C) the Purchase Agreement has been duly authorized,
executed and delivered by the Company;
(D) the Notes have been duly authorized and, when executed,
authenticated and delivered to and paid for in accordance with the
terms of the Purchase Agreement, will (x) be valid and binding
obligations of the Company enforceable in accordance with their terms,
except as (A) the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium or similar laws affecting creditors' rights
generally, and (B) rights of acceleration, if applicable, and the
availability of equitable remedies may be limited by equitable
principles of general applicability and (y) be entitled to the benefits
of the Indenture, the Registration Rights Agreement, the Pledge
Agreement and the Control Agreement;
<PAGE>
(E) each of the Indenture, the First Supplemental Indenture
and the Registration Rights Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms except as (w) the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium or similar laws affecting creditors' rights generally, (x)
rights of acceleration, if applicable, and the availability of
equitable remedies may be limited by equitable principles of general
applicability, (y) rights to indemnification and contribution may be
limited by public policy and (z) provisions of the Indenture, if any,
requiring any waiver of stay or extension laws, diligent performance or
other acts on the part of the Trustee may be unenforceable under
principles of public policy;
(F) each of the Pledge Agreement and Control Agreement has
been duly authorized, executed and delivered by the Guarantor, and
assuming due authorization, execution and delivery by the Trustee, each
of the Pledge Agreement and Control Agreement will constitute a valid
and legally binding obligation of the Company, enforceable against the
Guarantor in accordance with its terms, except as the enforceability
thereof may be limited by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws affecting
creditors' rights generally and equitable principles (whether
considered in a proceeding in equity or at law);
(G) upon (i) the execution and delivery of the Pledge
Agreement and the Control Agreement, (ii) the execution and delivery of
the Control Agreement by The Chase Manhattan Bank in its capacity as a
securities intermediary, (iii) the identification by book-entry by The
Chase Manhattan Bank as a securities intermediary of the Pledged
Securities as belonging to, or otherwise subject to a security interest
in favor of, the Trustee, and (iv) the filing of financing statements
with the Secretary of State of the State of New York and the City
Register of New York City; the Trustee will have in the case of each
Pledged Security and the Pledged Account (as defined in the Pledge
Agreement), a valid and perfected, first-priority security interest
therein for the benefit of the holders of the Notes as security for the
Secured Obligations (as defined in the Pledge Agreement) with respect
to the Notes;
(H) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Purchase
Agreement, the Indenture, the First Supplemental Indenture, the
Registration Rights Agreement and the Notes (collectively, the
"Transaction Documents") and the issuance, sale and delivery of the
Notes by the Company will not contravene (i) any provision of
<PAGE>
applicable law, (ii) the certificate of incorporation or by-laws of the
Company, (iii) to such counsel's knowledge, any agreement or other
instrument binding upon the Company or any of its Subsidiaries that is
material to the Company and its Subsidiaries, taken as a whole, or (iv)
to such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company
or any Subsidiary, except, in the case of clauses (i), (iii) and (iv),
for such contraventions which would not have a material adverse on the
Company and its Subsidiaries, taken as a whole and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company or its subsidiaries of their obligations under the Transaction
Documents, except such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the
Notes;
(I) after inquiry of the executive officers of the Company, to
such counsel's knowledge, there is not now pending or threatened any
legal or governmental proceedings to which the Company or any of its
subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject other than proceedings
fairly summarized in all material respects in the Final Memorandum and
proceedings which such counsel believes are not reasonably likely to
have a material adverse effect on the Company and its Subsidiaries,
taken as a whole, or on the power or ability of the Company to perform
its obligations under the Transaction Documents or to consummate the
transactions contemplated by the Final Memorandum;
(J) the Company is not, and after giving effect to the
offering and sale of the Notes and the application of the proceeds
thereof as described in the Final Memorandum, will not be an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended;
(K) the statements in the Final Memorandum under the captions
"Business - Legal and Administrative Proceedings", "Description of
Certain Indebtedness", "Private Placement" and "Transfer Restrictions",
in each case insofar as such statements constitute summaries of the
legal matters, documents or proceedings referred to therein, fairly
summarize the matters referred to therein in all material respects;
(L) the statements in the Final Memorandum, under the caption
"Certain United States Federal Income Tax Considerations" are accurate
in all material respects and fairly summarize the matters referred to
therein; and
(M) based upon the representations, warranties, and agreements
of the Company in the Purchase Agreement and of the Initial Purchasers
in Section 7 of the Purchase Agreement, it is not necessary in
connection with the offer, sale and delivery of the Notes to the
Initial Purchasers under the Purchase Agreement or in connection with
the initial resale of such Notes by the Initial Purchasers in
accordance with Section 7 of the Purchase Agreement to register the
Notes under the Securities Act of 1933, it being understood that no
opinion is expressed as to any subsequent resale of any Note.
<PAGE>
ATTACHMENT A
TO
FORM OF KELLEY DRYE & WARREN LLP OPINION
In the course of the preparation by the Company of the Final
Memorandum, we have participated in conferences with officers, directors and
representatives of the Company, its independent auditors, your representatives
and representatives of your counsel at which conferences the contents of the
Final Memorandum and related matters were discussed. Although we have not
independently verified the accuracy or completeness of, or otherwise verified
the statements made in the Final Memorandum (other than as expressly provided
above), nothing has come to our attention that has led us to believe that the
Final Memorandum, as of its date or the date hereof, contained an untrue
statement of a material fact or omitted to state a material fact necessary in
order the make the statements therein in the light of the circumstances under
which they were made, not misleading. Notwithstanding the foregoing, we are not
expressing any opinion or belief as to the financial statements and supporting
notes and schedules and other financial data contained in the Final Memorandum
nor with respect to any FCC data contained therein. Nor are we expressing any
opinion or belief as to any statements in the Final Memorandum under the
captions "Risk Factors - Government Regulation" and "Business Regulation"
insofar as such statements constitute a summary of the legal matters, documents,
or proceedings of the FCC and any state authority overseeing telecommunication
matters with respect to telecommunications regulation referred to therein.
<PAGE>
ANNEX I
TO
KELLEY DRYE & WARREN OPINION
KMC TELECOM INC. Delaware
Alabama
Florida
Georgia
Indiana
Illinois
Kansas
Louisiana
Maryland
Michigan
Minnesota
Mississippi
New Hampshire
New Jersey
North Carolina
Puerto Rico
South Carolina
Texas
Wisconsin
KMC TELECOM II, INC. Delaware
Florida
Georgia
Indiana
Illinois
Kansas
Maryland
Michigan
Minnesota
Mississippi
Nevada
New Hampshire
New Jersey
North Carolina
Ohio
Tennessee
Texas
<PAGE>
KMC TELECOM LEASING I LLC Delaware
Alabama
Florida
Georgia
Louisiana
New Jersey
Texas
Wisconsin
KMC TELECOM LEASING II LLC Delaware
Florida
Georgia
Indiana
Kansas
Maryland
Michigan
Minnesota
New Jersey
North Carolina
Texas
KMC TELECOM OF VIRGINIA, INC. New Jersey
Virginia
KMC TELECOM III, INC. Alabama
Delaware
Florida
Indiana
Louisiana
Maryland
Michigan
Mississippi
New Jersey
North Carolina
Ohio
South Carolina
Tennessee
Texas
<PAGE>
KMC Telecom Leasing III LLC Delaware
Florida
Louisiana
Michigan
New Jersey
Ohio
South Carolina
KMC TELECOM III HOLDINGS, INC. Delaware
Georgia
New Jersey
KMC TELECOM FINANCING, INC. Delaware
New Jersey
<PAGE>
EXHIBIT D
FORM OF OPINION OF
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
Pursuant to Section 5(d) of the Purchase Agreement, Swidler &
Berlin, Chartered , regulatory counsel for the Company, shall furnish an opinion
to the effect that:
(A) (1) the execution and delivery of the Purchase Agreement
by KMC Telecom Holdings, Inc. and the consummation of the transactions
contemplated thereby do not violate (i) the federal Communications Act
of 1934, as amended, and the Telecommunications Act of 1996, any rules
or regulations of the Federal Communications Commission ("FCC")
applicable to the Company (collectively, the "Communications Act"),
(ii) any state telecommunications law, rules or regulations ("State
Law") applicable to the Company, and (iii) to the best of such
counsel's knowledge, any decree from any court, and (2) no consent,
approval, authorization or order of or filing with the FCC or any state
authority overseeing telecommunications matters ("State Authority"), is
necessary for the execution and delivery of the Purchase Agreement by
KMC Telecom Holdings, Inc. and except to the extent that the failure to
obtain such consents, approvals, authorizations or orders or to make
filings with, the FCC or any State Authority would not, individually or
in the aggregate, have a material adverse effect on the prospects,
condition (financial or otherwise) or in the earnings, business or
operations of KMC Telecom Holdings, Inc. and KMC Telecom Inc., KMC
Telecom II, Inc., KMC Telecom Leasing I LLC, KMC Telecom Leasing II LLC
and KMC Telecom of Virginia, Inc. (the "Subsidiaries") taken as a
whole;
(B) except as indicated in this paragraph B, to the best of
our knowledge, based on our understanding of operations of the Company
and its Subsidiaries from the Certificate [see Attachment A] (1) the
Company and its Subsidiaries have made all reports and filings, and
paid all fees, required by the FCC and the State Authorities, and have
all certificates, orders, permits, licenses, authorizations, consents
and approvals of and from, and have made all filings and registrations,
with the FCC and the State Authorities necessary to own, lease, license
and use its properties and assets and to conduct its respective
business in the manner described in the Preliminary and Final
Memorandum, except for those filings, fees, and approvals the failure
to obtain or file of which would not have material adverse effect on
the financial condition, or on the earnings, business, or operations of
the Company and its Subsidiaries, taken as a whole; (2) has not
received any notice of proceedings relating to the violation,
revocation or modification of any such certificates, orders, permits,
licenses, authorizations,consents or approvals, or the qualification or
rejection of any such filing or registration, the effect of which,
singly or in the aggregate, would have a material adverse effect on the
prospects, condition, financial or otherwise, or in the earnings,
business or operations of the Company, taken as a whole; and (3)
neither the Company nor its Subsidiaries is in violation of, or in
default under the Communications Act or State Law, the effect of which,
singly or in the aggregate, would have a material adverse effect on the
prospects, condition, financial or otherwise, or in the earnings,
business or operations of the Company and its Subsidiaries, taken as a
whole;
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D-2
(C) to the best of such counsel's knowledge after due inquiry
(i) no adverse judgment, decree or order of the FCC or any State
Authority has been issued against the Company or its Subsidiaries and
(ii) no litigation, proceeding, inquiry or investigation has been
commenced or threatened against the Company or its Subsidiaries before
or by the FCC or any State Authority which, if decided adversely to the
interests of the Company or its Subsidiaries would have a material
adverse effect on the Company and its Subsidiaries, taken as a whole;
and
(D) the statements in the Final Memorandum under the captions
"Risk Factors - Our Industry is Extremely Competitive and Many of our
Competitors Have Greater Resources Than We Do," "Risk Factors - We Are
Subject to Significant Government Regulation Which May Change in an
Adverse Manner," "Business - Industry Overview" and "Business -
Regulation," insofar as such statements constitute a summary of the
legal matters, documents or proceedings of the FCC and State
Authorities with respect to telecommunications regulation referred to
therein, fairly summarize the matters referred to therein.
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D-3
ATTACHMENT A
TO
FORM OF OPINION OF SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
CERTIFICATE OF OFFICER
Except as otherwise stated herein, all capitalized terms used
herein shall have the respective meanings ascribed to them in the Swidler &
Berlin Opinion Letter, dated May ___, 1999 or the documents referred to in the
Opinion Letter.
The undersigned is an officer of KMC Telecom Holdings, Inc.,
KMC Telecom III Holdings, Inc., KMC Telecom Inc., KMC Telecom II, Inc., KMC
Telecom III, Inc., KMC Telecom Leasing I LLC, KMC Telecom Leasing II LLC and KMC
Telecom of Virginia, Inc.
(collectively, "KMC").
The undersigned, in the capacity as an officer of KMC and not
in an individual capacity, does hereby certify to Swidler Berlin Shereff
Friedman, LLP, that:
1. KMC has all certificates, orders, permits, licenses,
authorizations, consents, and approvals of and from, and has made all
filings and registrations with, the FCC and the State Authorities
necessary to own, lease, license and use its properties and assets and
to provide the services authorized by the certifications listed in
Exhibit A hereto. As of the date of this Certificate, KMC Telecom Inc.,
KMC Telecom II, Inc. and KMC Telecom III, Inc. are not providing any
services other than those authorized by the terms and conditions of the
certificates issued to them by the State Authorities listed in Exhibit
A thereto. In addition, KMC Telecom Leasing I, LLC, and KMC Telecom
Leasing II, LLC do not hold out or provide telecommunications services
to the public. KMC Telecom Holdings, Inc. is a holding company and does
not hold out or provide telecommunications services to the public.
2. KMC has made all reports and periodic filings, and paid all
fees, required by the FCC and the State Authorities.
3. KMC has not received notice of any litigation, complaint,
inquiry or investigation, formal or informal, pending or threatened by
or before the FCC or any State Authority based on any alleged
violations by the Company or its Subsidiaries of a character which, if
adversely determined, is likely to impair materially the FCC or any of
the State Authority authorizations held by the Company or its
Subsidiaries. KMC has not received notice of any proceedings or
threatened proceedings relating to the revocation, restriction, or
modification of any of the licenses or certifications listed in Exhibit
A hereto.
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4. To the best of my knowledge, based on a review of the
Offering Memorandum, the description in the Offering Memorandum of the
manner in which the Company and its Subsidiaries conduct their
respective businesses and the factual representations made therein are
complete and accurate.
This Certificate is given with the express understanding that
it will be relied upon by the law firm of Swidler Berlin Shereff Friedman, LLP,
in rendering its opinion pursuant to Section 5(e) of the Purchase Agreement.
IN WITNESS WHEREOF, the undersigned has set his/her hand this
___ day of May, 1999.
By: __________________________
Name:
Title:
COLLATERAL PLEDGE AND SECURITY AGREEMENT
This COLLATERAL PLEDGE AND SECURITY AGREEMENT (this "Pledge
Agreement") is made and entered into as of May 24, 1999 by KMC Telecom
Financing, Inc., a Delaware corporation (the "Pledgor"), having its principal
office at 1545 Route 206, Suite 300, Bedminster, New Jersey 07921, in favor of
THE CHASE MANHATTAN BANK, a New York banking corporation, having an office at
450 West 33rd Street, 15th Floor, New York, New York 10001-2697, in its capacity
as trustee (the "Trustee") for the registered holders from time to time (the
"Holders") of the Notes (as defined herein), issued by KMC (as defined below)
under the Indenture referred to below. Capitalized terms used and not defined in
this Pledge Agreement have the meanings set forth or referred to in the
Indenture.
W I T N E S S E T H
WHEREAS, KMC TELECOM HOLDINGS, INC., a Delaware corporation ("KMC"),
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 KMC is issuing on the date hereof
$275,000,000 in aggregate principal amount of 13 1/2% Senior Notes due 2009 (the
"Notes");
WHEREAS, the Pledgor is a wholly owned subsidiary of KMC;
WHEREAS, KMC has agreed, pursuant to the Indenture, to cause the
Pledgor to (i) purchase or cause the purchase of the Pledged Security
Entitlements (as defined herein) in an amount that will be sufficient upon
receipt of scheduled interest and principal payments in respect thereof to
provide for the payment of the first six scheduled interest payments due on the
Notes (including any additional interest that may be payable if the Exchange
Offer is not consummated and the Shelf Registration Statement is not declared
effective in a timely manner as provided in the Indenture) and (ii) place such
Pledged Security Entitlements (or cause them to be placed) in the Pledged
Account (as defined herein), in each case held by the Trustee for the benefit of
Holders of the Notes; provided that the Pledged Security Entitlements may be
purchased by Morgan Stanley & Co. Incorporated ("Morgan Stanley") on behalf of
the Pledgor;
WHEREAS, the Pledgor is the beneficial owner of (i) the United States
Treasury securities and/or security entitlements identified by CUSIP number in
Schedule I hereto and (ii) $18,929,583.74 delivered to the Trustee on the date
hereof for deposit into the Pledged Account (as defined herein) and to be used
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2
by the Trustee on the date hereof for the purchase of the United States Treasury
securities and/or security entitlements identified by CUSIP number in Schedule
II hereto (collectively, the "Pledged Security Entitlements");
WHEREAS, the Pledgor has opened a trust account (the "Pledged
Account") with The Chase Manhattan Bank at its office at 450 West 33rd Street,
15th Floor, New York, New York 10001-2697, Account No. C 28947, in the name of
"The Chase Manhattan Bank, as Trustee for the benefit of the holders of the 13
1/2% Senior Notes Due 2009 of KMC Telecom Holdings, Inc. Collateral Pledge
Account";
WHEREAS, to secure the obligations of KMC under the Indenture
and the Notes to pay in full each of the first six scheduled interest payments
on the Notes and to secure repayment of the principal, premium (if any) and
interest on the Notes in the event that the Notes become due and payable prior
to such time as the first six scheduled interest payments thereon shall have
been paid in full (collectively, the "Obligations"), KMC has agreed to cause the
Pledgor (i) to pledge to the Trustee for its benefit and the ratable benefit of
the Holders of the Notes, a security interest in the Collateral (as defined
herein) and (ii) to execute and deliver this Pledge Agreement in order to secure
the payment and performance by KMC of all of the Obligations;
WHEREAS, it is a condition precedent to the initial purchase of the
Notes by the initial Holders thereof that the Pledgor shall have granted the
security interest and made the pledge contemplated by this Pledge Agreement;
WHEREAS, the Pledgor will derive substantial direct and indirect
benefits from the transactions contemplated by the Indenture; and
WHEREAS, unless otherwise defined herein or in the Indenture, terms
used in Articles 8 or 9 of the Uniform Commercial Code as in effect in the State
of New York ("UCC") are used herein as therein defined.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and in order to induce the initial Holders of the Notes to purchase
the Notes, the Pledgor hereby agrees with the Trustee, for the benefit of the
Trustee and for the ratable benefit of the Holders of the Notes, as follows:
SECTION 1. Pledge and Grant of Security Interest. The Pledgor hereby
pledges to the Trustee for its benefit and for the ratable benefit of the
Holders of the Notes, and hereby grants to the Trustee for its benefit and for
the ratable benefit of the Holders of the Notes, a continuing security interest
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3
in and to all of the following, whether now owned or hereafter acquired by the
Pledgor, wherever located and whether now or hereafter existing (hereinafter
collectively referred to as the "Collateral"), whether characterized as
investment property, general intangibles or otherwise:
(a) the Pledged Security Entitlements and all dividends,
interest, cash, instruments and other property from time to time
received, receivable or otherwise distributed or distributable in
respect of or in exchange for any or all of such Pledged Security
Entitlements;
(b) the Pledged Account, all securities, security entitlements
and other financial assets from time to time carried in the Pledged
Account, any and all securities accounts in which the Pledged Security
Entitlements are carried, and all dividends, interest, cash,
instruments and other property from time to time received, receivable
or otherwise distributed or distributable in respect of or in exchange
for any or all of such securities, security entitlements or other
financial assets;
(c) all securities, securities entitlements and other
financial assets acquired by the Pledgor pursuant to Article Ten of the
Indenture; and
(d) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds that constitute property of
the types described in clauses (a), (b) and (c) of this Section 1) and,
to the extent not otherwise included, all cash.
SECTION 2. Security for Obligations; Limitation of Liability. (a) This
Pledge Agreement and the grant of a security interest in the Collateral
hereunder secures the prompt and complete payment and performance when due
(whether at stated maturity, by acceleration or otherwise) of (i) all the
Obligations, whether for principal, interest, fees or otherwise, now or
hereafter existing, under the Notes or the Indenture and (ii) all of the
Pledgor's obligations under this Agreement (all such Obligations and all such
obligations of the Pledgor being collectively, the "Secured Obligations").
Without limiting the generality of the foregoing, this Agreement and the grant
of a security interest in the Collateral hereunder secures the payment of all
amounts that constitute part of the Secured Obligations and would be owed by KMC
to the Trustee or the Holders under the Notes or the Indenture but for the fact
that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving KMC.
(b) The Pledgor, and by its acceptance of this Agreement, the Trustee
and each Holder, hereby confirms that it is the intention of all such Persons
that this Pledge Agreement and the Secured Obligations hereunder not constitute
a fraudulent transfer or conveyance for purposes of Bankruptcy Law (as
hereinafter defined), the Uniform Fraudulent Conveyance Act, the Uniform
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4
Fraudulent Transfer Act or any similar foreign, federal or state law to the
extent applicable to this Agreement and the Secured Obligations of the Pledgor
hereunder. To effectuate the foregoing intention, the Trustee, the Holders and
the Pledgor hereby irrevocably agree that the Secured Obligations of the Pledgor
under this Pledge Agreement at any time shall be limited to the maximum amount
as will result in the Secured Obligations of the Pledgor under this Pledge
Agreement not constituting a fraudulent transfer or conveyance. For purposes
hereof, "Bankruptcy Law" means any proceeding instituted by or against KMC or
any of its subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property, or Title
11, U.S. Code, or any similar foreign, federal or state law for the relief of
debtors.
SECTION 3. Maintaining the Pledged Account. Until such time as this
Pledge Agreement shall terminate in accordance with the provisions of Section
15.9 hereof:
(a) The Pledgor will maintain separately the Pledged Account
with The Chase Manhattan Bank.
(b) It shall be a term and condition of the Pledged Account,
notwithstanding any term or condition to the contrary in any other
agreement relating to the Pledged Account, and except as otherwise
provided by the provisions of Section 5 and Section 15.9, that no
amount shall be paid or released to or for the account of, or
withdrawn by or for the account of, the Pledgor or any other Person
from the Pledged Account.
The Pledged Account shall be subject to such applicable laws, and such
applicable regulations of the Board of Governors of the Federal Reserve System
and of any other appropriate banking or governmental authority, as may now or
hereafter be in effect.
SECTION 4. Delivery of Collateral. (a) All cash, certificates or
instruments representing or evidencing the Pledged Security Entitlements or the
Pledged Account shall be delivered to and held by or on behalf of the Trustee
pursuant hereto and shall be in suitable form for transfer by delivery, or shall
be accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance satisfactory to the Trustee. The Trustee shall have
the right, at any time in its discretion and without notice to the Pledgor, to
transfer to or to register in the name of the Trustee or any of its nominees any
or all of the Collateral.
(b) With respect to any Collateral that constitutes a security and is
not represented or evidenced by a certificate or an instrument, the Pledgor
shall cause the issuer thereof either (i) to register the Trustee as the
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5
registered owner of such security or (ii) to agree in writing with the Pledgor
and the Trustee that such issuer will comply with instructions with respect to
such security originated by the Trustee without further consent of the Pledgor,
such agreement to be in form and substance satisfactory to the Trustee.
(c) With respect to any Collateral that constitutes a security
entitlement, the Pledgor shall cause the securities intermediary with respect to
such security entitlement either (i) to identify in its records the Trustee as
having such security entitlement against such securities intermediary or (ii) to
agree in writing with the Pledgor and the Trustee that such securities
intermediary will comply with entitlement orders (that is, notifications
communicated to such securities intermediary directing transfer or redemption of
the financial asset to which the Pledgor has a security entitlement) originated
by the Trustee without further consent of the Pledgor, such agreement to be in
form and substance satisfactory to the Trustee.
(d) With respect to any Collateral that constitutes a securities
account, the Pledgor will comply with subsection (c) of this Section 4 with
respect to all security entitlements carried in such securities account.
(e) Prior to or concurrently with the execution and delivery hereof
and prior to the transfer to the Trustee of the Pledged Security Entitlements,
as provided in subsections (a) through (c) of this Section 4, the Trustee shall
establish the Pledged Account on its books as a separate account segregated from
all other custodial or collateral accounts at its office at 450 West 33rd
Street, New York, New York 10001-2697, Attention: Capital Markets Fiduciary
Services or at such other offices in the City of New York as the Trustee shall
maintain as its principal corporate trust office. Upon transfer of the Pledged
Security Entitlements to the Trustee, as confirmed to the Trustee by the
Securities Intermediary, the Trustee shall make appropriate book entries
indicating that the Pledged Security Entitlements have been credited to and are
held in the Pledged Account. Subject to the other terms and conditions of this
Pledge Agreement, all funds or other property held by the Trustee pursuant to
this Pledge Agreement shall be held in the Pledged Account subject (except as
expressly provided in Sections 5(a), (b) and (c) hereof) to the exclusive
dominion and control of the Trustee and exclusively for the benefit of the
Trustee and for the ratable benefit of the Holders of the Notes and segregated
from all other funds or other property otherwise held by the Trustee.
(f) All Collateral shall be retained in the Pledged Account pending
disbursement pursuant to the terms hereof.
(g) Concurrently with the execution and delivery of this
Pledge Agreement, the Trustee is delivering to the Pledgor and Morgan Stanley &
Co. Incorporated, on behalf of itself and Credit Suisse First Boston
Corporation, First Union Capital Markets Corp., CIBC World Markets Corp.,
BancBoston Robertson Stephens Inc. and Wasserstein Perella Securities, Inc. (the
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6
"Initial Purchasers"), a duly executed Control Agreement ("Control Agreement"),
in the form of Annex A hereto, of an officer of the Trustee, confirming the
Trustee's establishment and separate maintenance of the Pledged Account, its
receipt and holding of the Pledged Security Entitlements and the crediting of
the Pledged Security Entitlements to the Pledged Account, all in accordance with
this Pledge Agreement.
(h) Within ten days of the execution and delivery of this Pledge
Agreement, the Pledgor shall deliver to the Trustee acknowledgment copies or
stamped receipt copies of proper financing statements, duly filed on or before
the Closing Date under the UCC, covering the Collateral described in this Pledge
Agreement.
(i) Promptly following the execution and delivery of this Pledge
Agreement, the Trustee shall apply the cash on deposit in the Pledged Account,
to the extent such cash is sufficient therefore, to the purchase of the United
States Treasury securities and/or security entitlements listed on Schedule II
hereto.
SECTION 5. Disbursements. (a) Three Business Days prior to the due
date of any of the first six scheduled interest payments on the Notes, the
Pledgor may, pursuant to written instructions given by the Pledgor to the
Trustee (an "Issuer Order"), direct the Trustee to release from the Pledged
Account and pay to the Holders of the Notes proceeds sufficient to provide for
payment in full of such interest then due on the Notes. Upon receipt of an
Issuer Order, the Trustee will release funds in an amount sufficient to provide
for the payment of the interest on the Notes in accordance with such Issuer
Order and the payment provisions of the Indenture to the Holders of the Notes
from (and to the extent of) proceeds of the Pledged Security Entitlements in the
Pledged Account. Nothing in this Section 5 shall affect the Trustee's rights to
apply the Collateral to the payments of amounts due on the Notes upon
acceleration thereof.
(b) If KMC makes any interest payment or portion of an interest
payment for which the Collateral is security from a source of funds other than
the Pledged Account ("Pledgor Funds"), the Pledgor may, after payment in full of
such interest payment, direct the Trustee pursuant to an Issuer Order to release
to the Pledgor or to another party at the direction of the Pledgor (the
"Pledgor's Designee") proceeds from the Pledged Account in an amount less than
or equal to the amount of Pledgor Funds applied to such interest payment. Upon
receipt by the Trustee of such Issuer Order and provided the Trustee has
received such interest payment, the Trustee shall pay over to the Pledgor or the
Pledgor's Designee, as the case may be, the requested amount from proceeds in
the Pledged Account as soon as practicable.
(c) At least three Business Days prior to the due date of each of the
first six scheduled interest payments on the Notes, the Pledgor shall give the
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7
Trustee notice (by Issuer Order) as to whether such interest payment will be
made pursuant to Section 5(a) or 5(b) above and the respective amounts of
interest that will be paid from the Pledged Account and from Pledgor Funds. Any
Pledgor Funds to be used to make any interest payment shall be delivered to the
Trustee, in immediately available funds, prior to 10:00 a.m. (New York City
time) on such interest payment date. If no such notice is given or such Pledgor
Funds have not been so delivered, the Trustee will act pursuant to Section 5(a)
above as if it had received an Issuer Order pursuant thereto for the payment in
full of the interest then due from the Pledged Account.
(d) The Trustee shall liquidate Collateral in the Pledged Account
(pursuant to written instructions from the Pledgor) in order to make any
scheduled payment of interest pursuant to the Notes, unless there are sufficient
funds in the Pledged Account on such interest payment date.
(e) Nothing contained in this Pledge Agreement shall (i) afford KMC or
the Pledgor any right to issue entitlement orders with respect to any of the
Pledged Security Entitlements or any securities account in which any such
security entitlement may be carried, or otherwise afford the Pledgor control of
any Pledged Security Entitlement or (ii) otherwise give rise to any rights of
KMC or the Pledgor with respect to the Pledged Security Entitlements or any
securities account in which any such security entitlement may be carried, other
than the Pledgor's rights under this Pledge Agreement as the beneficial owner of
Collateral pledged to and subject to the exclusive dominion and control (except
as expressly provided in Sections 5(a) and (b) hereof) of the Trustee in its
capacity as such (and not as a securities intermediary). The Pledgor
acknowledges, confirms and agrees, in such capacity, that the Trustee is an
entitlement holder of the Pledged Security Entitlements solely as Trustee for
the itself and Holders of the Notes and not as a securities intermediary.
SECTION 6. Representations and Warranties. The Pledgor hereby
represents and warrants that:
(a) The execution and delivery by the Pledgor of, and the
performance by the Pledgor of its obligations under, this Pledge
Agreement will not contravene any provision of applicable law or the
Certificate of Incorporation of the Pledgor or any material agreement
or other material instrument binding upon the Pledgor or any of its
subsidiaries or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Pledgor or any of
its subsidiaries, or result in the creation or imposition of any Lien
on any assets of the Pledgor, except for the security interests
granted under this Pledge Agreement.
(b) No consent of any other Person and no approval,
authorization, order of, action by or qualification with, any
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8
governmental authority, regulatory body, agency or other third party is
required (i) for the execution, delivery or performance by the Pledgor
of its obligations under this Pledge Agreement, (ii) for the grant by
the Pledgor of the security interest created hereby or (iii) for the
pledge by the Pledgor of the Collateral pursuant to this Pledge
Agreement, except for any such consents, approvals, authorizations or
orders required to be obtained by the Trustee (or the Holders) for
reasons other than the consummation of this transaction, for the
exercise by the Trustee of the rights provided for in this Pledge
Agreement.
(c) The Pledgor is the beneficial owner of the Collateral,
free and clear of any Lien or claims of any Person (except for the
security interests created by this Pledge Agreement). No financing
statement or instrument similar in effect covering all or any part of
the Pledgor's interest in the Collateral is on file in any public or
recording office, other than the financing statements filed pursuant to
this Pledge Agreement. The Pledgor has no trade names.
(d) This Pledge Agreement has been duly authorized, validly
executed and delivered by the Pledgor and constitutes a valid and
binding agreement of the Pledgor, enforceable against the Pledgor in
accordance with its terms, except as (i) the enforceability hereof may
be limited by bankruptcy, insolvency, fraudulent conveyance,
preference, reorganization, moratorium or similar laws now or hereafter
in effect relating to or affecting creditors' rights or remedies
generally, (ii) the availability of equitable remedies may be limited
by equitable principles of general applicability, (iii) the exculpation
provisions and rights to indemnification hereunder may be limited by
U.S. federal and state securities laws and public policy considerations
and (iv) the waiver of rights and defenses contained in Section 12(d),
Section 15.11 and Section 15.15 hereof may be limited by applicable
law.
(e) Upon the transfer to the Trustee of the Pledged Security
Entitlements, in accordance with Section 3 above, the pledge and grant
of a security interest in the Collateral pursuant to this Pledge
Agreement for the benefit of the Trustee and the Holders of the Notes
will constitute a valid and perfected first-priority security interest
in such Collateral, securing the payment of the Secured Obligations,
enforceable as such against all creditors of the Pledgor (and any
Persons purporting to purchase any of the Collateral from the Pledgor).
(f) There are no legal or governmental proceedings pending or,
to the best of the Pledgor's knowledge, threatened to which the Pledgor
or any of its subsidiaries is a party or to which any of the properties
of the Pledgor or any such subsidiary is subject that would materially
adversely affect the power or ability of the Pledgor to perform its
obligations under this Pledge Agreement or to consummate the
transactions contemplated hereby.
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9
(g) The pledge of the Collateral pursuant to this Pledge
Agreement is not prohibited by law or governmental regulation
(including, without limitation, Regulations G, T, U and X of the Board
of Governors of the Federal Reserve System) applicable to the Pledgor.
(h) No Event of Default (as defined below) exists.
SECTION 7. Further Assurances. (a) The Pledgor agrees that from time
to time, at the expense of the Pledgor, the Pledgor will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable or required by law, or that the Trustee may
reasonably request, in order to perfect and protect the first priority of any
pledge or security interest granted or purported to be granted hereby or to
enable the Trustee to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. Without limiting the generality of the
foregoing, the Pledgor will: (i) if any Collateral shall be evidenced by a
promissory note or other instrument, deliver and pledge to the Trustee hereunder
such note or instrument duly indorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
the Trustee; and (ii) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as may
be necessary or desirable, or as the Trustee may reasonably request, in order to
perfect and preserve the pledge, assignment and security interest granted or
purported to be granted hereby.
(b) The Pledgor hereby authorizes the Trustee to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of the Pledgor where permitted
by law. A photocopy or other reproduction of this Pledge Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Pledgor will furnish to the Trustee from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Trustee may
reasonably request, all in reasonable detail.
(d) The Pledgor will promptly pay all reasonable costs incurred in
connection with any of the foregoing within 45 days of receipt of an invoice
therefor.
SECTION 8. Covenants. (a) The Pledgor covenants and agrees with the
Trustee and the Holders of the Notes that from and after the date of this Pledge
Agreement until the earlier of payment in full in cash of (x) each of the first
six scheduled interest payments due on the Notes under the terms of the
Indenture or (y) all obligations due and owing under the Indenture and the Notes
in the event such obligations become due and payable prior to the payment of the
first six scheduled interest payments on the Notes:
<PAGE>
10
(i) that (A) it will not (and will not purport to) sell or
otherwise dispose of, or grant any option or warrant with respect to,
any of the Collateral or its beneficial interest therein, and (B) it
will not create or permit to exist any Lien or other adverse interest
in or with respect to its beneficial interest in any of the Collateral
(except for the security interests granted under this Pledge
Agreement); and
(ii) that it will not (A) enter into any agreement or
understanding that restricts or inhibits or purports to restrict or
inhibit the Trustee's rights or remedies hereunder, including, without
limitation, the Trustee's right to sell or otherwise dispose of the
Collateral or (B) fail to pay or discharge any tax, assessment or levy
of any nature with respect to its beneficial interest in the Collateral
not later than five days prior to the date of any proposed sale under
any judgment, writ or warrant of attachment with respect to such
beneficial interest.
SECTION 9. Power of Attorney. In addition to all of the powers granted
to the Trustee pursuant to the Indenture, the Pledgor hereby appoints and
constitutes the Trustee as the Pledgor's attorney-in-fact (with full power of
substitution), with full authority in the place and stead of the Pledgor and in
the name of the Pledgor or otherwise, from time to time in the Trustee's
discretion to take any action and to execute any instrument that the Trustee may
deem necessary or advisable to accomplish the purposes of this Pledge Agreement,
including, without limitation:
(a) to ask for, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral,
(b) to receive, indorse and collect any drafts or other
instruments, documents and chattel paper, in connection with clause (a)
above,
(c) to file any claims or take any action or institute any
proceedings that the Trustee may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights
of the Trustee with respect to any of the Collateral, and
(d) to pay or discharge taxes or Liens levied or placed upon
the Collateral that the Pledgor has failed to pay or discharge in
accordance herewith, the legality or validity thereof and the amounts
necessary to discharge the same to be determined by the Trustee in its
sole reasonable discretion, and such payments made by the Trustee to
become part of the Obligations of the Pledgor to the Trustee, due and
payable immediately upon demand;
<PAGE>
11
provided, however, that the Trustee shall have no obligation to perform any of
the foregoing actions. The Trustee's authority under this Section 9 shall
include, without limitation, the authority to endorse and negotiate any checks
or instruments representing proceeds of Collateral in the name of the Pledgor,
execute and give receipt for any certificate of ownership or any document
constituting Collateral, transfer title to any item of Collateral, sign the
Pledgor's name on all financing statements (to the extent permitted by
applicable law) or any other documents deemed necessary or appropriate by the
Trustee to preserve, protect or perfect the security interest in the Collateral
and to file the same, prepare, file and sign the Pledgor's name on any notice of
Lien, and to take any other actions arising from or incident to the powers
granted to the Trustee in this Pledge Agreement. This power of attorney is
coupled with an interest and is irrevocable by the Pledgor.
SECTION 10. No Assumption of Duties; Reasonable Care. The rights and
powers conferred on the Trustee hereunder are solely to preserve and protect the
security interest of the Trustee and the Holders of the Notes in and to the
Collateral granted hereby and shall not be interpreted to, and shall not impose
any duties on the Trustee in connection therewith other than those expressly
provided herein or imposed under applicable law. Except as provided by
applicable law or by the Indenture, the Trustee shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which the Trustee accords similar property held by the Trustee for its own
account, it being understood that the Trustee in its capacity as such shall not
have any responsibility for (a) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities or other matters relative to any
Collateral, whether or not the Trustee has or is deemed to have knowledge of
such matters, (b) taking any necessary steps to preserve rights against any
parties with respect to any Collateral or (c) investing or reinvesting any of
the Collateral or any loss on any investment. The Trustee shall be entitled to
all the rights, benefits, privileges and immunities accorded to it under the
Indenture.
SECTION 11. Indemnity. The Pledgor shall indemnify, hold harmless and
defend the Trustee and its directors, officers, agents and employees, from and
against any and all claims, actions, obligations, liabilities and expenses,
including reasonable defense costs, reasonable investigative fees and costs, and
reasonable legal fees and damages arising from the Trustee's performance as
Trustee under this Pledge Agreement, except to the extent that such claim,
action, obligation, liability or expense is directly attributable to the bad
faith, gross negligence or wilful misconduct of such indemnified person. This
indemnification shall survive the resignation or removal of the Trustee under
the Indenture and the termination of this Pledge Agreement.
<PAGE>
12
SECTION 12. Remedies Upon Event of Default. If any Event of Default
under the Indenture or default hereunder (any such Event of Default or default
being referred to in this Pledge Agreement as an "Event of Default") shall have
occurred and be continuing:
(a) The Trustee and the Holders of the Notes may exercise, in
addition to all other rights given by law or by this Pledge Agreement
or the Indenture, all of the rights and remedies with respect to the
Collateral of a secured party under the UCC (whether or not the UCC
applies to the affected Collateral) and also may (i) require the
Pledgor to, and the Pledgor hereby agrees that it will at its expense
and upon request of the Trustee forthwith, assemble all or part of the
Collateral as directed by the Trustee and make it available to the
Trustee at a place to be designated by the Trustee that is reasonably
convenient to both parties and (ii) without notice except as specified
below, sell the Collateral or any part thereof in one or more parcels
at any broker's board or at public or private sale, in one or more
sales or lots, at any of the Trustee's offices or elsewhere, for cash,
on credit or for future delivery, and upon such other terms as the
Trustee may deem commercially reasonable. The Pledgor agrees that, to
the extent notice of sale shall be required by law, at least ten days'
notice to the Pledgor of the time and place of any public sale or the
time after which any private sale is to be made shall constitute
reasonable notification. The Trustee shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. The
Trustee may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was
so adjourned. The purchaser of any or all Collateral so sold shall
thereafter hold the same absolutely, free from any claim, encumbrance
or right of any kind whatsoever created by or through the Pledgor. Any
sale of the Collateral conducted in conformity with reasonable
commercial practices of banks, insurance companies, commercial finance
companies, or other financial institutions disposing of property
similar to the Collateral shall be deemed to be commercially
reasonable. The Trustee or any Holder of Notes may, in its own name or
in the name of a designee or nominee, buy any of the Collateral at any
public sale and, if permitted by applicable law, at any private sale.
All expenses (including court costs and reasonable attorneys' fees,
expenses and disbursements) of, or incident to, the enforcement of any
of the provisions hereof shall be recoverable from the proceeds of the
sale or other disposition of the Collateral.
(b) All cash proceeds received by the Trustee in respect of
any sale of, collection from, or other realization upon all or any part
of the Collateral may, in the discretion of the Trustee, be held by the
Trustee as collateral for, and/or then or at any time thereafter
applied (after payment of any amounts payable to the Trustee pursuant
to Section 13) in whole or in part by the Trustee for the ratable
<PAGE>
13
benefit of the Holders of the Notes against, all or any part of the
Secured Obligations in such order as the Trustee shall elect. Any
surplus of such cash or cash proceeds held by the Trustee and remaining
after payment in full of all the Secured Obligations shall be paid over
to the Pledgor or to whomsoever may be lawfully entitled to receive
such surplus.
(c) The Trustee may, without notice to the Pledgor except as
required by law and at any time or from time to time, charge, set-off
and otherwise apply all or any part of the Secured Obligations against
the Pledged Account or any part thereof.
(d) The Pledgor further agrees to use its reasonable best
efforts to do or cause to be done all such other acts as may be
necessary to make such sale or sales of all or any portion of the
Collateral pursuant to this Section 12 valid and binding and in
compliance with any and all other applicable requirements of law. The
Pledgor further agrees that a breach of any of the covenants contained
in this Section 12 will cause irreparable injury to the Trustee and the
Holders of the Notes, that the Trustee and the Holders of the Notes
have no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section 12
shall be specifically enforceable against the Pledgor, and the Pledgor
hereby waives and agrees not to assert any defenses against an action
for specific performance of such covenants except for a defense that no
Event of Default has occurred and is continuing.
SECTION 13. Expenses. The Pledgor will, upon demand, pay to the
Trustee the amount of any and all reasonable expenses, including, without
limitation, the reasonable fees, expenses and disbursements of its counsel,
experts and agents retained by the Trustee, that the Trustee may incur in
connection with (a) the review, negotiation and administration of this Pledge
Agreement, (b) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (c) the exercise or
enforcement of any of the rights of the Trustee and the Holders of the Notes
hereunder or (d) the failure by the Pledgor to perform or observe any of the
provisions hereof.
SECTION 14. Security Interest Absolute. The obligations of the Pledgor
under this Pledge Agreement are independent of the Secured Obligations, and a
separate action or actions may be brought and prosecuted against the Pledgor to
enforce this Pledge Agreement, irrespective of whether any action is brought
against KMC or whether KMC is joined in any such action or actions. All rights
of the Trustee and the Holders of the Notes and the security interest hereunder,
and all obligations of the Pledgor hereunder, shall be irrevocable, absolute and
unconditional irrespective of, and the Pledgor hereby irrevocably waives (to the
maximum extent permitted by applicable law) any defenses it may now have or may
hereafter acquire in any way relating to, any or all of the following:
(a) any lack of validity or enforceability of the Indenture
or Notes or any other agreement or instrument relating thereto;
<PAGE>
14
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Secured Obligations or any
other amendment or waiver of or any consent to any departure from the
Indenture;
(c) any taking, exchange, release or non-perfection of any
liens on any Collateral or any other collateral for all or any of the
Secured Obligations;
(d) any manner of application of Collateral or any other
collateral, or proceeds thereof, to all or any of the Secured
Obligations, or any manner of sale or other disposition of any
Collateral or any other collateral for all or any of the Secured
Obligations or any other assets of the Pledgor;
(e) any change, restructuring or termination of the
corporate structure or existence of KMC or the Pledgor;
(h) to the extent permitted by applicable law, any other
circumstance (including, without limitation, any statute of
limitations) that might otherwise constitute a defense available to, or
a discharge of, the Pledgor in respect of the Secured Obligations or of
this Pledge Agreement.
This Pledge Agreement shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Secured Obligations is
rescinded or must otherwise be returned by the Trustee or any Holder of a Note
upon the insolvency, bankruptcy or reorganization of KMC or the Pledgor or
otherwise, all as though such payment had not been made.
SECTION 15. Miscellaneous Provisions.
Section 15.1. Notices. Any notice or communication given
hereunder 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 Pledgor:
KMC Telecom Financing, Inc.
1545 Route 206, Suite 300
Bedminster, New Jersey 07921
Attention: Chief Financial Officer
<PAGE>
15
with a copy to:
KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, NJ 07921
Attention: Chief Financial Officer
and a copy to:
Kelley Drye & Warren LLP
101 Park Ave.
New York, NY 10178
Attention: Brian J. Calvey
if to the Trustee:
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001-2697
Attention: Capital Markets Fiduciary Services
with a copy to:
Pryor Cashman Sherman & Flynn, LLP
410 Park Avenue
New York, New York 10022
Attention: Eric M. Hellige
All such notices and other communications shall, when mailed,
delivered or telecopied, respectively, be effective when deposited in the mails,
delivered or telecopied, respectively, addressed as aforesaid; provided,
however, that notices and other communications to the Trustee shall be effective
only upon receipt by the Trustee.
Section 15.2. No Adverse Interpretation of Other Agreements. This
Pledge Agreement may not be used to interpret another pledge, security or debt
agreement of the Pledgor or any subsidiary thereof. No such pledge, security or
debt agreement (other than the Indenture) may be used to interpret this Pledge
Agreement.
Section 15.3. Severability. The provisions of this Pledge Agreement
are severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
<PAGE>
16
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Pledge Agreement in any jurisdiction.
Section 15.4. Headings. The headings in this Pledge Agreement have
been inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
Section 15.5. Counterpart Originals. This Pledge Agreement may be
signed in two or more counterparts, each of which shall be deemed an original,
but all of which shall together constitute one and the same agreement.
Section 15.6. Benefits of Pledge Agreement. Nothing in this Pledge
Agreement, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Holders of the Notes, any benefit
or any legal or equitable right, remedy or claim under this Pledge Agreement.
Section 15.7. Amendments, Waivers and Consents. Any amendment or
waiver of any provision of this Pledge Agreement and any consent to any
departure by the Pledgor from any provision of this Pledge Agreement shall be
effective only if in writing, signed by the Trustee and made or duly given in
compliance with all of the terms and provisions of the Indenture, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. Neither the Trustee nor any Holder of Notes
shall be deemed, by any act, delay, indulgence, omission or otherwise, to have
waived any right or remedy hereunder or to have acquiesced in any Default or
Event of Default or in any breach of any of the terms and conditions hereof.
Failure of the Trustee or any Holder of Notes to exercise, or delay in
exercising, any right, power or privilege hereunder shall not preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Trustee or any Holder of Notes of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy that the Trustee or such Holder of Notes would otherwise have on any
future occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or remedies
provided by law.
Section 15.8. Interpretation of Agreement. To the extent a term or
provision of this Pledge Agreement conflicts with the Indenture, the Indenture
shall control with respect to the subject matter of such term or provision.
Acceptance of or acquiescence in a course of performance rendered under this
Pledge Agreement shall not be relevant to determine the meaning of this Pledge
Agreement even though the accepting or acquiescing party had knowledge of the
nature of the performance and opportunity for objection.
<PAGE>
17
Section 15.9. Continuing Security Interest; Termination. (a) This
Pledge Agreement shall create a continuing security interest in and to the
Collateral and shall, unless otherwise provided in this Pledge Agreement, remain
in full force and effect until the payment in full in cash of the Secured
Obligations. This Pledge Agreement shall be binding upon the Pledgor, its
transferees, successors and assigns, and shall inure, together with the rights
and remedies of the Trustee hereunder, to the benefit of the Trustee, the
Holders of the Notes and their respective successors, transferees and assigns.
(b) So long as no Event of Default shall have occurred and be
continuing, this Pledge Agreement (other than Pledgor's obligations under
Sections 11 and 13) shall terminate upon the earlier of (i) the payment in full
in cash of the Secured Obligations and (ii) the payment in full in cash of the
first six scheduled interest payments on all of the Notes. At such time, the
Trustee shall, pursuant to an Issuer Order, reassign and redeliver to the
Pledgor all of the Collateral hereunder that has not been sold, disposed of,
retained or applied by the Trustee in accordance with the terms of this Pledge
Agreement and the Indenture and take all actions that are necessary to release
the security interest created by this Pledge Agreement in and to the Collateral,
including the execution and delivery of all termination statements necessary to
terminate any financing or continuation statements filed with respect to the
Collateral. Such reassignment and redelivery shall be without warranty by or
recourse to the Trustee in its capacity as such, except as to the absence of any
Liens on the Collateral created by or arising through the Trustee, and shall be
at the expense of the Pledgor.
Section 15.10. Survival of Representations and Covenants. All
representations, warranties and covenants of the Pledgor contained herein shall
survive the execution and delivery of this Pledge Agreement, and shall terminate
only upon the termination of this Pledge Agreement.
Section 15.11. Waivers. The Pledgor waives presentment and demand for
payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices to which the
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
Section 15.12. Authority of the Trustee. (a) The Trustee shall have
and be entitled to exercise all powers hereunder that are specifically granted
to the Trustee by the terms hereof, together with such powers as are reasonably
incident thereto. The Trustee may perform any of its duties hereunder or in
connection with the Collateral by or through agents or employees and shall be
entitled to retain counsel and to act in reliance upon the advice of counsel
concerning all such matters. Except as otherwise expressly provided in this
Pledge Agreement or the Indenture, neither the Trustee nor any director,
officer, employee, attorney or agent of the Trustee shall be liable to the
Pledgor for any action taken or omitted to be taken by the Trustee, in its
<PAGE>
18
capacity as Trustee, hereunder, except for its own bad faith, gross negligence
or willful misconduct, and the Trustee shall not be responsible for the
validity, effectiveness or sufficiency hereof or of any document or security
furnished pursuant hereto. The Trustee and its directors, officers, employees,
attorneys and agents shall be entitled to rely on any communication, instrument
or document believed by it or them to be genuine and correct and to have been
signed or sent by the proper Person or Persons.
(b) The Pledgor acknowledges that the rights and responsibilities of
the Trustee under this Pledge Agreement with respect to any action taken by the
Trustee or the exercise or non-exercise by the Trustee of any option, right,
request, judgment or other right or remedy provided for herein or resulting or
arising out of this Pledge Agreement shall, as between the Trustee and the
Holders of the Notes, be governed by the Indenture and by such other agreements
with respect thereto as may exist from time to time among them, but, as between
the Trustee and the Pledgor, the Trustee shall be conclusively presumed to be
acting as agent for the Holders of the Notes with full and valid authority so to
act or refrain from acting, and the Pledgor shall not be obligated or entitled
to make any inquiry respecting such authority.
Section 15.13 Final Expression. This Pledge Agreement, together with
the Indenture and any other agreement executed in connection herewith, is
intended by the parties as a final expression of this Pledge Agreement and is
intended as a complete and exclusive statement of the terms and conditions
thereof.
Section 15.14. Rights of Holders of the Notes. No Holder of Notes
shall have any independent rights hereunder other than those rights granted to
individual Holders of the Notes pursuant to Section 6.06 of the Indenture;
provided that nothing in this subsection shall limit any rights granted to the
Trustee under the Notes or the Indenture.
Section 15.15. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
JURY TRIAL; WAIVER OF DAMAGES. (a) THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY
AND INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT
TO ANY CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE OTHER THAN GENERAL OBLIGATIONS
LAW ss. 5-1401), AND ANY DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE PLEDGOR, THE TRUSTEE AND
THE HOLDERS OF THE NOTES IN CONNECTION WITH THIS PLEDGE AGREEMENT, AND WHETHER
ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. NOTWITHSTANDING THE FOREGOING: THE
MATTERS IDENTIFIED IN 31 C.F.R. PART 357, 61 FED. REG. 43626 (AUG. 23, 1996),
SHALL BE GOVERNED SOLELY BY THE LAWS SPECIFIED THEREIN.
<PAGE>
19
(b) THE PLEDGOR HAS APPOINTED CT CORPORATION SYSTEM AS ITS AGENT FOR
SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS PLEDGE
AGREEMENT AND FOR ACTIONS BROUGHT UNDER U.S. FEDERAL OR STATE SECURITIES LAWS
BROUGHT IN ANY FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW YORK AND AGREES
TO SUBMIT TO THE JURISDICTION OF ANY SUCH COURT.
(c) THE PLEDGOR AGREES THAT THE TRUSTEE SHALL, IN ITS CAPACITY AS
TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF NOTES, HAVE THE RIGHT, TO
THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE PLEDGOR OR THE
COLLATERAL IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH (AND
HAVING PERSONAL OR IN REM JURISDICTION OVER THE PLEDGOR OR THE COLLATERAL, AS
THE CASE MAY BE) TO ENABLE THE TRUSTEE TO REALIZE ON SUCH COLLATERAL, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE TRUSTEE. THE
PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS
IN ANY PROCEEDING BROUGHT BY THE TRUSTEE TO REALIZE ON SUCH PROPERTY OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE TRUSTEE, EXCEPT FOR SUCH
COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS WHICH, IF NOT ASSERTED IN ANY SUCH
PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR ASSERTED. THE PLEDGOR WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN THE CITY OF NEW YORK
ONCE THE TRUSTEE HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS.
(d) THE PLEDGOR AGREES THAT NEITHER ANY HOLDER OF NOTES NOR (EXCEPT AS
OTHERWISE PROVIDED IN THIS PLEDGE AGREEMENT OR THE INDENTURE) THE TRUSTEE IN ITS
CAPACITY AS TRUSTEE SHALL HAVE ANY LIABILITY TO THE PLEDGOR (WHETHER ARISING IN
TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE PLEDGOR IN CONNECTION
WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED
AND THE RELATIONSHIP ESTABLISHED BY THIS PLEDGE AGREEMENT, OR ANY ACT, OMISSION
OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL
AND NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING ON THE TRUSTEE OR SUCH
HOLDER OF NOTES, AS THE CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF ACTS OR
OMISSIONS ON THE PART OF THE TRUSTEE OR SUCH HOLDERS OF NOTES, AS THE CASE MAY
BE, CONSTITUTING BAD FAITH, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
<PAGE>
20
(e) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR WAIVES THE
POSTING OF ANY BOND OTHERWISE REQUIRED OF THE TRUSTEE OR ANY HOLDER OF NOTES IN
CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO ENFORCE ANY JUDGMENT OR
OTHER COURT ORDER PERTAINING TO THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT
OR DOCUMENT ENTERED IN FAVOR OF THE TRUSTEE OR ANY HOLDER OF NOTES, OR TO
ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR
PERMANENT INJUNCTION, THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT
BETWEEN THE PLEDGOR ON THE ONE HAND AND THE TRUSTEE AND/OR THE HOLDERS OF THE
NOTES ON THE OTHER HAND.
[The remainder of this page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Trustee have each caused this
Pledge Agreement to be duly executed and delivered as of the date first above
written.
Pledgor:
KMC TELECOM FINANCING, INC.
By: /s/ James D. Grenfell
------------------------
Name: JAMES D. GRENFELL
Title: EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
Trustee:
THE CHASE MANHATTAN BANK,
as Trustee
By: /s/ P. Kelly
------------------------
Name:
Title:
The foregoing is agreed to this 24th day of May, 1999,
KMC TELECOM HOLDINGS, INC.
By: /s/ James D. Grenfell
------------------------
Name: JAMES D. GRENFELL
Title: EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
<PAGE>
SCHEDULE I
Pledged Securities
Security; Coupon; Maturity CUSIP No. Amount (U.S.$)
- -------------------------- --------- --------------
<PAGE>
SCHEDULE II
Pledged Securities
Security; Coupon; Maturity CUSIP No. Amount (U.S.$)
- -------------------------- --------- --------------
<PAGE>
ANNEX A
CONTROL AGREEMENT
REGISTRATION RIGHTS AGREEMENT
Dated May 19, 1999
between
KMC TELECOM HOLDINGS, INC.
and
MORGAN STANLEY & CO. INCORPORATED
CREDIT SUISSE FIRST BOSTON CORPORATION
FIRST UNION CAPITAL MARKETS CORP.
CIBC WORLD MARKETS CORP.
BANCBOSTON ROBERTSON STEPHENS INC.
WASSERSTEIN PERELLA SECURITIES, INC.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into May 19, 1999 between KMC Telecom Holdings, Inc., a Delaware
corporation (the "Company"), and MORGAN STANLEY & CO. INCORPORATED, CREDIT
SUISSE FIRST BOSTON CORPORATION, FIRST UNION CAPITAL MARKETS CORP., CIBC WORLD
MARKETS CORP., BANCBOSTON ROBERTSON STEPHENS INC. and WASSERSTEIN PERELLA
SECURITIES, INC. (the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated the
date hereof, between the Company and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial
Purchasers of an aggregate of $275,000,000 of 13 1/2% Senior Notes Due 2009 of
the Company (the "Notes"). In order to induce the Initial Purchasers to enter
into the Purchase Agreement, the Company has agreed to provide to the Initial
Purchasers and their direct and indirect transferees the registration rights set
forth in this Agreement. The execution of this Agreement is a condition to the
closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from time
to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Closing Date" shall mean the Closing Date as defined in the Purchase
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement and shall also include the Company's successors.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Notes for Registrable Notes pursuant to Section 2(a) hereof.
<PAGE>
"Exchange Offer Registration" shall mean a registration under the 1933
Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another appropriate
form) and all amendments and supplements to such registration statement, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Exchange Notes" shall mean notes issued in the Exchange Offer
pursuant to Section 2(a) hereof.
"Holder" shall mean any of the Initial Purchasers, for so long as it
owns any Registrable Notes, and each of their respective successors, assigns and
direct and indirect transferees who become registered owners of Registrable
Notes under the Indenture; provided that for purposes of Sections 4 and 5 of
this Agreement, the term "Holder" shall include Participating Broker-Dealers (as
defined in Section 4(a) hereof).
"Indenture" shall mean the Indenture relating to the Notes to be dated
as of the Closing Date between the Company and The Chase Manhattan Bank, as
trustee, and as the same may be amended from time to time in accordance with the
terms thereof.
"Initial Purchasers" shall have the meaning set forth in the preamble
to this Agreement.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Notes; provided that
whenever the consent or approval of Holders of a specified percentage of
Registrable Notes is required hereunder, Registrable Notes held by the Company
or any of its affiliates (as such term is defined in Rule 405 under the 1933
Act) (other than the Initial Purchasers or subsequent holders of Registrable
Notes if such subsequent holders are deemed to be such affiliates solely by
reason of their holding of such Registrable Notes) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage or amount.
"Notes" shall have the meaning set forth in the Preamble to this
Agreement.
"Person" shall mean an individual, partnership, corporation, limited
liability company, trust or unincorporated organization or other entity, or a
government or agency or political subdivision thereof.
<PAGE>
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Notes covered by a Shelf Registration Statement, and by all other
amendments and supplements to such prospectus, and in each case including all
material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the preamble
to this Agreement.
"Registrable Notes" shall mean the Notes; provided, however, that the
Notes shall cease to be Registrable Notes (i) when a Registration Statement with
respect to such Notes shall have been declared effective under the 1933 Act and
such Notes shall have been disposed of pursuant to such Registration Statement,
(ii) when such Notes have been sold to the public pursuant to Rule 144 (or any
similar rule then in force, but not Rule 144A) under the 1933 Act or (iii) when
such Notes shall have ceased to be outstanding.
<PAGE>
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or blue
sky laws (including reasonable fees and disbursements of counsel for any
underwriters or Holders in connection with blue sky qualification of any of the
Exchange Notes or Registrable Notes), (iii) all expenses of any Persons in
preparing or assisting in preparing, word processing, printing and distributing
any Registration Statement, any Prospectus, any amendments or supplements
thereto, any underwriting agreements, securities sales agreements and other
documents relating to the performance of and compliance with this Agreement,
(iv) all rating agency fees, (v) all fees and disbursements relating to the
qualification of the Indenture under applicable securities laws, (vi) the fees
and disbursements of the Trustee and its counsel, (vii) the fees and
disbursements of counsel for the Company and, in the case of a Shelf
Registration Statement, the reasonable fees and disbursements of one counsel for
the Holders (which counsel shall be selected by the Majority Holders and which
counsel may also be counsel for the Initial Purchasers ) and (viii) the fees and
disbursements of the independent public accountants of the Company, including
the expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, but excluding fees and expenses of
counsel to the underwriters (other than reasonable fees and expenses set forth
in clause (ii) above) or the Holders and underwriting discounts and commissions
and transfer taxes, if any, relating to the sale or disposition of Registrable
Notes by a Holder.
"Registration Statement" shall mean any registration statement of the
Company that covers any of the Exchange Notes or Registrable Notes pursuant to
the provisions of this Agreement and all amendments and supplements to any such
Registration Statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers all of the Registrable Notes (but no other securities
unless approved by the Holders whose Registrable Notes are covered by such Shelf
Registration Statement) on an appropriate form under Rule 415 under the 1933
Act, or any similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"Trustee" shall mean the trustee with respect to the Notes under the
Indenture.
"Underwritten Registration" or "Underwritten Offering" shall mean a
registration in which Registrable Notes are sold to an Underwriter (as
hereinafter defined) for reoffering to the public.
2. Registration Under the 1933 Act.
<PAGE>
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the staff of the SEC, the Company shall use its best efforts
to cause to be filed an Exchange Offer Registration Statement covering the offer
by the Company to the Holders to exchange all of the Registrable Notes for
Exchange Notes and to have such Registration Statement remain effective until
the closing of the Exchange Offer. The Company shall commence the Exchange Offer
promptly after the Exchange Offer Registration Statement has been declared
effective by the SEC and use its best efforts to have the Exchange Offer
consummated not later than 60 days after such effective date. The Company shall
commence the Exchange Offer by mailing the related exchange offer Prospectus and
accompanying documents to each Holder stating, in addition to such other
disclosures as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Notes validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a
period of at least 20 business days from the date such notice is
mailed) (the "Exchange Dates");
(iii) that any Registrable Note not tendered will remain
outstanding and continue to accrue interest, but will not retain any
rights under this Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Note exchanged
pursuant to the Exchange Offer will be required to surrender such
Registrable Note, together with the enclosed letters of transmittal,
to the institution and at the address (located in the Borough of
Manhattan, The City of New York) specified in the notice prior to the
close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their election, not
later than the close of business on the last Exchange Date, by sending
to the institution and at the address (located in the Borough of
Manhattan, The City of New York) specified in the notice a telegram,
telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Registrable Notes delivered for
exchange and a statement that such Holder is withdrawing his election
to have such Notes exchanged.
As soon as practicable after the last Exchange Date, the Company
shall:
(i) accept for exchange Registrable Notes or portions thereof
tendered and not validly withdrawn pursuant to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Notes or portions thereof so accepted for
exchange by the Company and issue, and cause the Trustee to promptly
authenticate and mail to each Holder, an Exchange Note equal in
principal amount to the principal amount of the Registrable Notes
surrendered by such Holder.
<PAGE>
The Company shall use its best efforts to complete the Exchange Offer
as provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other applicable laws and regulations in connection with
the Exchange Offer. The Exchange Offer shall not be subject to any conditions,
other than that the Exchange Offer does not violate applicable law or any
applicable interpretation of the staff of the SEC. The Company shall inform the
Initial Purchasers of the names and addresses of the Holders to whom the
Exchange Offer is made, and the Initial Purchasers shall have the right, subject
to applicable law, to contact such Holders and otherwise facilitate the tender
of Registrable Notes in the Exchange Offer.
(b) In the event that (i) the Company determines that the Exchange
Offer Registration provided for in Section 2(a) above is not available or may
not be consummated as soon as practicable after the last Exchange Date because
it would violate applicable law or the applicable interpretations of the staff
of the SEC, (ii) the Exchange Offer is not for any other reason consummated by
the date that is six months after the Closing Date or (iii) the Exchange Offer
has been completed and in the opinion of counsel for the Initial Purchasers a
Registration Statement must be filed and a Prospectus must be delivered by the
Initial Purchasers in connection with any offering or sale of Registrable Notes
by the Initial Purchasers, of Registrable Notes that were acquired by the
Initial Purchasers from the Company, the Company shall use its best efforts to
cause to be filed as soon as practicable after such determination, date or
notice of such opinion of counsel is given to the Company, as the case may be, a
Shelf Registration Statement providing for the sale by the Holders of all of the
Registrable Notes and to have such Shelf Registration Statement declared
effective by the SEC. The Company agrees to use its best efforts to keep the
Shelf Registration Statement continuously effective until the expiration of the
period referred to in Rule 144(k) under the 1933 Act with respect to all
Registrable Notes covered by the Shelf Registration Statement, or such shorter
period that will terminate when all of the Registrable Notes covered by the
Shelf Registration Statement have been sold pursuant to the Shelf Registration
Statement. The Company further agrees to supplement or amend the Shelf
Registration Statement if required by the rules, regulations or instructions
applicable to the registration form used by the Company for such Shelf
Registration Statement or by the 1933 Act or by any other rules and regulations
thereunder for shelf registration or if reasonably requested by a Holder with
respect to information relating to such Holder, and to use its best efforts to
cause any such amendment to become effective and such Shelf Registration
Statement to become usable as soon as thereafter practicable. The Company agrees
to furnish to the Holders of Registrable Notes copies of any such supplement or
amendment promptly after its being used or filed with the SEC.
(c) The Company shall pay all Registration Expenses in connection with
the registration pursuant to Section 2(a) or Section 2(b). Each Holder shall pay
all underwriting discounts and commissions and transfer taxes, if any, relating
to the sale or disposition of such Holder's Registrable Notes pursuant to the
Shelf Registration Statement.
<PAGE>
(d) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; provided, however, that, if, after it has been declared effective, the
offering of Registrable Notes pursuant to a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of such
interference until the offering of Registrable Notes pursuant to such
Registration Statement may legally resume. As provided for in the Indenture, in
the event that the Exchange Offer is not consummated and, if a Shelf
Registration Statement is required hereby, the Shelf Registration Statement is
not declared effective on or prior to the date that is six months after the
Closing Date, the interest rate on the Notes (and on the Exchange Notes) will
increase by 0.5% per annum until the date the Exchange Offer is consummated or a
Shelf Registration Statement is declared effective.
(e) Without limiting the remedies available to the Initial Purchasers
and the Holders, the Company acknowledges that any failure by the Company to
comply with its obligations under Section 2(a) and Section 2(b) hereof may
result in material irreparable injury to the Initial Purchasers or the Holders
for which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Initial Purchasers or any Holder may obtain such relief as may be
required to specifically enforce the Company's obligations under Section 2(a)
and Section 2(b) hereof.
3. Registration Procedures.
In connection with the obligations of the Company with respect to the
Registration Statements pursuant to Section 2(a) and Section 2(b) hereof, the
Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (x) shall be selected by the
Company and (y) shall, in the case of a Shelf Registration, be available for the
sale of the Registrable Notes by the selling Holders thereof and (z) shall
comply as to form in all material respects with the requirements of the
applicable form and include all financial statements required by the SEC to be
filed therewith, and use its best efforts to cause such Registration Statement
to become effective and remain effective in accordance with Section 2 hereof;
<PAGE>
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the applicable period and cause each
Prospectus to be supplemented by any required prospectus supplement and, as so
supplemented, to be filed pursuant to Rule 424 under the 1933 Act; to keep each
Prospectus current during the period described under Section 4(3) and Rule 174
under the 1933 Act that is applicable to transactions by brokers or dealers with
respect to the Registrable Notes or Exchange Notes;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, to counsel for the Initial Purchasers, to counsel for the
Holders and to each Underwriter of an Underwritten Offering of Registrable
Notes, if any, without charge, as many copies of each Prospectus, including each
preliminary Prospectus, and any amendment or supplement thereto and such other
documents as such Holder or Underwriter may reasonably request, in order to
facilitate the public sale or other disposition of the Registrable Notes; and
the Company consents to the use of such Prospectus and any amendment or
supplement thereto in accordance with applicable law by each of the selling
holders of Registrable Notes and any such Underwriters in connection with the
offering and sale of the Registrable Notes covered by and in the manner
described in such Prospectus or any amendment or supplement thereto in
accordance with applicable law;
(d) use its reasonable best efforts to register or qualify the
Registrable Notes under all applicable state securities or "blue sky" laws of
such jurisdictions as any Holder of Registrable Notes covered by a Registration
Statement shall reasonably request in writing by the time the applicable
Registration Statement is declared effective by the SEC, to cooperate with such
Holders in connection with any filings required to be made with the National
Association of Securities Dealers, Inc. and do any and all other acts and things
which may be reasonably necessary or advisable to enable such Holder to
consummate the disposition in each such jurisdiction of such Registrable Notes
owned by such Holder; provided, however, that the Company shall not be required
to (i) qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (ii) file any general consent to service of process or (iii)
subject itself to taxation in any such jurisdiction if it is not so subject;
<PAGE>
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes, counsel for the Holders and counsel for the Initial
Purchasers promptly and, if requested by any such Holder or counsel, confirm
such advice in writing (i) when a Registration Statement has become effective
and when any post-effective amendment thereto has been filed and becomes
effective, (ii) of any request by the SEC or any state securities authority for
amendments and supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become effective,
(iii) of the issuance by the SEC or any state securities authority of any stop
order suspending the effectiveness of a Registration Statement or the initiation
of any proceedings for that purpose, (iv) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Notes covered
thereby, the representations and warranties of the Company contained in any
underwriting agreement, securities sales agreement or other similar agreement,
if any, relating to the offering cease to be true and correct in all material
respects or if the Company receives any notification with respect to the
suspension of the qualification of the Registrable Notes for sale in any
jurisdiction or the initiation of any proceeding for such purpose, (v) of the
happening of any event during the period a Shelf Registration Statement is
effective which makes any statement made in such Registration Statement or the
related Prospectus untrue in any material respect or which requires the making
of any changes in such Registration Statement or Prospectus in order to make the
statements therein not misleading in any material respect and (vi) of any
determination by the Company that a post-effective amendment to a Registration
Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment and provide prompt notice to each Holder of the withdrawal of
any such order;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Notes to facilitate the timely preparation and delivery
of certificates representing Registrable Notes to be sold and not bearing any
restrictive legends and enable such Registrable Notes to be in such
denominations (consistent with the provisions of the Indenture) and registered
in such names as the selling Holders may reasonably request at least two
business days prior to the closing of any sale of Registrable Notes;
(i) in the case of a Shelf Registration, upon the occurrence of any
event contemplated by Section 3(e)(v) hereof, use its best efforts to prepare
and file with the SEC a supplement or post-effective amendment to a Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Notes, such Prospectus 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. The Company agrees to notify the Holders to suspend
use of the Prospectus as promptly as practicable after the occurrence of such an
event, and the Holders hereby agree to suspend use of the Prospectus until the
Company has amended or supplemented the Prospectus to correct such misstatement
or omission;
<PAGE>
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus after
initial filing of a Registration Statement, provide copies of such document to
the Initial Purchasers and their counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel) and make such of the
representatives of the Company as shall be reasonably requested by the Initial
Purchasers or their counsel (and, in the case of a Shelf Registration Statement,
the Holders or their counsel) available for discussion of such document, and
shall not at any time file or make any amendment to the Registration Statement,
any Prospectus or any amendment of or supplement to a Registration Statement or
a Prospectus or any document which is to be incorporated by reference into a
Registration Statement or a Prospectus, of which the Initial Purchasers and
their counsel (and, in the case of a Shelf Registration Statement, the Holders
and their counsel) shall not have previously been advised and furnished a copy
or to which the Initial Purchasers or their counsel (and, in the case of a Shelf
Registration Statement, the Holders or their counsel) shall reasonably object;
(k) obtain a CUSIP number for all Exchange Notes or Registrable Notes,
as the case may be, not later than the effective date of a Registration
Statement;
(l) cause the Indenture to be qualified under the Trust Indenture Act
of 1939, as amended (the "TIA"), in connection with the registration of the
Exchange Notes or Registrable Notes, as the case may be, cooperate with the
Trustee and the Holders to effect such changes to the Indenture as may be
required for the Indenture to be so qualified in accordance with the terms of
the TIA and execute, and use its reasonable best efforts to cause the Trustee to
execute, all documents as may be required to effect such changes and all other
forms and documents required to be filed with the SEC to enable the Indenture to
be so qualified in a timely manner;
(m) in the case of a Shelf Registration, upon execution of customary
confidentiality agreements reasonably satisfactory to the Company and its
counsel, make available for inspection by a representative of the Holders of the
Registrable Notes, any Underwriter participating in any disposition pursuant to
such Shelf Registration Statement, and attorneys and accountants designated by
the Holders, at reasonable times and in a reasonable manner, all financial and
other records, pertinent documents and properties of the Company, and cause the
respective officers, directors and employees of the Company to supply all
information reasonably requested by any such representative, Underwriter,
attorney or accountant in connection with a Shelf Registration Statement;
<PAGE>
(n) if reasonably requested by any Holder of Registrable Notes covered
by a Registration Statement, (i) promptly incorporate in a Prospectus supplement
or post-effective amendment such information with respect to such Holder as such
Holder reasonably requests to be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as the Company has received notification of the matters to be incorporated in
such filing; and
(o) in the case of a Shelf Registration, use its reasonable best
efforts to enter into such customary agreements and take all such other actions
in connection therewith (including those requested by the Holders of a majority
in principal amount of the Registrable Notes being sold) in order to expedite or
facilitate the disposition of such Registrable Notes including, but not limited
to, an Underwritten Offering and in such connection, (i) to the extent possible,
make such representations and warranties to the Holders and any Underwriters of
such Registrable Notes with respect to the business of the Company and its
subsidiaries, the Registration Statement, Prospectus and documents incorporated
by reference therein or deemed incorporated by reference therein, if any, in
each case, in form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested, (ii) use its reasonable best efforts to obtain opinions of counsel to
the Company (which counsel and opinions, in form, scope and substance, shall be
reasonably satisfactory to the Holders and such Underwriters and their
respective counsel) addressed to each selling Holder and Underwriter of
Registrable Notes, covering the matters customarily covered in opinions
requested in underwritten offerings, (iii) use its reasonable best efforts to
obtain "cold comfort" letters from the independent certified public accountants
of the Company (and, if necessary, any other certified public accountant of any
subsidiary of the Company, or of any business acquired by the Company for which
financial statements and financial data are or are required to be included in
the Registration Statement) addressed to each selling Holder and Underwriter of
Registrable Notes, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings, and (iv) deliver such documents and certificates as may
be reasonably requested by the Holders of a majority in principal amount of the
Registrable Notes being sold or the Underwriters, and which are customarily
delivered in underwritten offerings, to evidence the continued validity of the
representations and warranties of the Company made pursuant to clause (i) above
and to evidence compliance with any customary conditions contained in an
underwriting agreement.
In the case of a Shelf Registration Statement, the Company may require
each Holder of Registrable Notes to furnish to the Company such information
regarding the Holder and the proposed distribution by such Holder of such
Registrable Notes as the Company may from time to time reasonably request in
writing. No Holder of Registrable Notes may include its Registrable Notes in
such Shelf Registration Statement unless and until such Holder furnishes such
information to the Company. Each Holder including Registrable Notes in a Shelf
Registration shall agree to furnish promptly to the Company any information
regarding such Holder and the proposed distribution by such Holder of such
Registrable Notes required to make any information previously furnished to the
Company by such Holder not materially misleading.
<PAGE>
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 3(e)(v) hereof, such Holder will forthwith
discontinue disposition of Registrable Notes pursuant to a Registration
Statement until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3(i) hereof, and, if so directed by
the Company, such Holder will deliver to the Company (at its expense) all copies
in its possession, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Registrable Notes current at the
time of receipt of such notice. If the Company shall give any such notice to
suspend the disposition of Registrable Notes pursuant to a Registration
Statement, the Company shall extend the period during which the Registration
Statement shall be maintained effective pursuant to this Agreement by the number
of days during the period from and including the date of the giving of such
notice to and including the date when the Holders shall have received copies of
the supplemented or amended Prospectus necessary to resume such dispositions.
There may not be more than two such suspensions during any 365 day period and
any such suspensions may not exceed 30 days for each suspension.
The Holders of Registrable Notes covered by a Shelf Registration
Statement who desire to do so may sell such Registrable Notes in an Underwritten
Offering; provided that the Company shall be required to use its reasonable best
efforts to effect an underwritten offering only upon the request of Holders of
at least 25% in aggregate principal amount of the Registrable Notes outstanding
at the time such request is delivered to the Company. In any such Underwritten
Offering, the investment banker or investment bankers and manager or managers
(the "Underwriters") that will administer the offering will be selected by the
Majority Holders of the Registrable Notes included in such offering, subject to
approval by the Company, which approval will not be unreasonably withheld.
4. Participation of Broker-Dealers in Exchange Offer.
(a) The staff of the SEC has taken the position that any broker-dealer
that receives Exchange Notes for its own account in the Exchange Offer in
exchange for Notes that were acquired by such broker-dealer as a result of
market-making or other trading activities (a "Participating Broker-Dealer"), may
be deemed to be an "underwriter" within the meaning of the 1933 Act and must
deliver a prospectus meeting the requirements of the 1933 Act in connection with
any resale of such Exchange Notes.
<PAGE>
The Company understands that it is the staff's position that if the
Prospectus contained in the Exchange Offer Registration Statement includes a
plan of distribution containing a statement to the above effect and the means by
which Participating Broker-Dealers may resell the Exchange Notes, without naming
the Participating Broker-Dealers or specifying the amount of Exchange Notes
owned by them, such Prospectus may be delivered by Participating Broker-Dealers
to satisfy their prospectus delivery obligation under the 1933 Act in connection
with resales of Exchange Notes for their own accounts, so long as the Prospectus
otherwise meets the requirements of the 1933 Act.
(b) In light of the above, notwithstanding the other provisions of
this Agreement, the Company agrees that the provisions of this Agreement as they
relate to a Shelf Registration shall also apply to an Exchange Offer
Registration to the extent, and with such reasonable modifications thereto as
may be, reasonably requested by the Initial Purchasers or by one or more
Participating Broker-Dealers, in each case as provided in clause (ii) below, in
order to expedite or facilitate the disposition of any Exchange Notes by
Participating Broker-Dealers consistent with the positions of the staff of the
SEC recited in Section 4(a) above; provided that:
(i) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement, as
would otherwise be contemplated by Section 3(i), for a period
exceeding 180 days after the last Exchange Date (as such period may be
extended pursuant to the penultimate paragraph of Section 3 of this
Agreement) and Participating Broker-Dealers shall not be authorized by
the Company to deliver and shall not deliver such Prospectus after
such period in connection with the resales contemplated by this
Section 4; and
(ii) the application of the Shelf Registration procedures set
forth in Section 3 of this Agreement to an Exchange Offer
Registration, to the extent not required by the positions of the staff
of the SEC or the 1933 Act and the rules and regulations thereunder,
will be in conformity with the reasonable request to the Company by
the Initial Purchasers or with the reasonable request in writing to
the Company by one or more broker-dealers who certify to the Initial
Purchasers and the Company in writing that they anticipate that they
will be Participating Broker-Dealers; and provided further that, in
connection with such application of the Shelf Registration procedures
set forth in Section 3 to an Exchange Offer Registration, the Company
shall be obligated (x) to deal only with one entity representing the
Participating Broker-Dealers, which shall be Morgan Stanley & Co.
Incorporated unless it elects not to act as such representative, (y)
to pay the fees and expenses of only one counsel representing the
Participating Broker-Dealers, which shall be counsel to the Initial
Purchasers unless such counsel elects not to so act and (z) to cause
to be delivered only one, if any, "cold comfort" letter with respect
to the Prospectus in the form existing on the last Exchange Date and
with respect to each subsequent amendment or supplement, if any,
effected during the period specified in clause (i) above.
(c) The Initial Purchasers shall have no liability to the Company or
any Holder with respect to any request that they may make pursuant to Section
4(b) above.
<PAGE>
5. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Initial
Purchasers, each Holder and each person, if any, who controls any Initial
Purchaser or any Holder within the meaning of either Section 15 of the 1933 Act
or Section 20 of the 1934 Act, or is under common control with, or is controlled
by, any Initial Purchaser or any Holder, from and against all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred by any Initial Purchaser, any Holder or any such
controlling or affiliated person in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement (or any
amendment thereto) pursuant to which Exchange Notes or Registrable Notes were
registered under the 1933 Act, including all documents incorporated therein by
reference, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or caused by any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to any of the Initial Purchasers or any Holder furnished to the Company
in writing by any Initial Purchaser or any selling Holder expressly for use
therein; provided, that the foregoing indemnity agreement shall not inure to the
benefit of any Holder or any Person controlling such Holder, with respect to any
sale or disposition of Registrable Notes by such Holder in violation of the
penultimate paragraph of Section 3 of this Agreement. In connection with any
Underwritten Offering permitted by Section 3, the Company will also indemnify
the Underwriters, if any, selling brokers, dealers and similar securities
industry professionals participating in the distribution, their officers and
directors and each Person who controls such Persons (within the meaning of the
1933 Act and the 1934 Act) to the same extent as provided above with respect to
the indemnification of the Holders, if requested in connection with any
Registration Statement.
<PAGE>
(b) Each Holder (including any Initial Purchaser if it is a Holder)
agrees, severally and not jointly, to indemnify and hold harmless the Company,
each Initial Purchaser and the other selling Holders, and each of their
respective directors, officers who sign the Registration Statement and each
Person, if any, who controls the Company, any Initial Purchaser and any other
selling Holder within the meaning of either Section 15 of the 1933 Act or
Section 20 of the 1934 Act to the same extent as the foregoing indemnity from
the Company to the Initial Purchasers and the Holders, but only with reference
to information relating to such Holder furnished to the Company in writing by
such Holder expressly for use in any Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement thereto).
<PAGE>
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any Person in respect of which indemnity may be
sought pursuant to either paragraph (a) or paragraph (b) above, such person (the
"indemnified party") shall promptly notify the Person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (a) the reasonable fees and expenses of more than
one separate firm (in addition to any local counsel) for all Initial Purchasers
and all Persons, if any, who control the Initial Purchasers within the meaning
of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, (b) the
reasonable fees and expenses of more than one separate firm (in addition to any
local counsel) for the Company, its directors, its officers who sign the
Registration Statement and each Person, if any, who controls the Company within
the meaning of either such Section and (c) the reasonable fees and expenses of
more than one separate firm (in addition to any local counsel) for all Holders
and all Persons, if any, who control any Holders within the meaning of either
such Section, and that all such fees and expenses shall be reimbursed as they
are incurred. In such case involving any Initial Purchaser and Persons who
control such Initial Purchaser, such firm shall be designated in writing by
Morgan Stanley & Co. Incorporated. In such case involving the Holders and such
Persons who control Holders, such firm shall be designated in writing by the
Majority Holders. In all other cases, such firm shall be designated by the
Company. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but, if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 60 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party for such fees and expenses of counsel in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which such
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) If the indemnification provided for in paragraph (a) or paragraph
(b) of this Section 5 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or parties on the one hand and of the indemnified party or parties on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company and the Holders shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the Holders
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Holders'
respective obligations to contribute pursuant to this Section 5(d) are several
in proportion to the respective principal amount of Registrable Notes of such
Holder that were registered pursuant to a Registration Statement.
<PAGE>
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in paragraph (d) above shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 5, no Holder shall be required to indemnify or contribute any amount in
excess of the amount by which the total price at which Registrable Notes were
sold by such Holder exceeds the amount of any damages that such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 5 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Section 5
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Initial Purchaser, any Holder or any Person controlling any Initial
Purchaser or any Holder, or by or on behalf of the Company, its officers or
directors or any Person controlling the Company, (iii) acceptance of any of the
Exchange Notes and (iv) any sale of Registrable Notes pursuant to a Shelf
Registration Statement.
6. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered into, and
on or after the date of this Agreement will not enter into, any agreement which
is inconsistent with the rights granted to the Holders of Registrable Notes in
this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's other
issued and outstanding securities under any such agreements.
(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 has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Notes affected by such amendment, modification, supplement, waiver
or consent; provided, however, that no amendment, modification, supplement,
waiver or consent to any departure from the provisions of Section 5 hereof shall
be effective as against any Holder of Registrable Notes unless consented to in
writing by such Holder.
(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 6(c), which address initially is, with respect to the Initial
Purchasers, the address set forth in the Purchase Agreement; and (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 6(c).
<PAGE>
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.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee, at the
address specified in the Indenture.
(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 and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Notes in
violation of the terms of the Purchase Agreement. If any transferee of any
Holder shall acquire Registrable Notes, in any manner, whether by operation of
law or otherwise, such Registrable Notes shall be held subject to all of the
terms of this Agreement, and by taking and holding such Registrable Notes 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 such person shall be
entitled to receive the benefits hereof. The Initial Purchasers (in their
capacity as Initial Purchasers) shall have no liability or obligation to the
Company with respect to any failure by a Holder to comply with, or any breach by
any Holder of, any of the obligations of such Holder under this Agreement.
(e) Purchases and Sales of Notes. The Company shall not, and shall use
its best efforts to cause its affiliates (as defined in Rule 405 under the 1933
Act) not to, purchase and then resell or otherwise transfer any Notes.
(f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and 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.
<PAGE>
(i) Governing Law. This Agreement shall be governed by and construed
in accordance with the internal 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.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement 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
Confirmed and accepted as of the date first above written:
MORGAN STANLEY & CO. INCORPORATED
CREDIT SUISSE FIRST BOSTON CORPORATION
FIRST UNION CAPITAL MARKETS CORP.
CIBC WORLD MARKETS CORP.
BANCBOSTON ROBERTSON STEPHENS INC.
WASSERSTEIN PERELLA SECURITIES, INC.
By: MORGAN STANLEY & CO. INCORPORATED
In its individual capacity and as representative
of the other Initial Purchasers
By: /s/ Albert L. Lord
------------------------
Name: ALBERT L. LORD
Title: VICE PRESIDENT
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF KME TELECOM HOLDINGS, INC. AS OF SEPTEMBER 30, 1999 AND THE RELATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Sep-30-1999
<CASH> 21,207,000
<SECURITIES> 0
<RECEIVABLES> 25,905,000
<ALLOWANCES> (2,095,000)
<INVENTORY> 0
<CURRENT-ASSETS> 83,218,000
<PP&E> 454,055,000
<DEPRECIATION> (27,273,000)
<TOTAL-ASSETS> 697,496,000
<CURRENT-LIABILITIES> 207,341,000
<BONDS> 567,161,000
207,036,000
0
<COMMON> 6,000
<OTHER-SE> (284,948,000)
<TOTAL-LIABILITY-AND-EQUITY> 697,496,000
<SALES> 0
<TOTAL-REVENUES> 42,284,000
<CGS> 0
<TOTAL-COSTS> 75,209,000
<OTHER-EXPENSES> 74,150,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,848,000
<INCOME-PRETAX> (152,185,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (152,185,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (152,185,000)
<EPS-BASIC> (228.20)
<EPS-DILUTED> (228.20)
</TABLE>
