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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 March 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 333-50475
KMC TELECOM HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3545325
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1545 Route 206, Suite 300
Bedminster, New Jersey 07921
(Address, including zip code, of principal executive offices)
(908) 470-2100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding
Common Stock, par value $0.01 852,676 shares,
per share. as of April 27, 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 March 31, 1999................................................ 2
Unaudited Condensed Consolidated Statements of Operations,
Three Months Ended March 31, 1998 and 1999........................ 3
Unaudited Condensed Consolidated Statements of Cash Flows, Three
Months Ended March 31, 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.........................................11
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk...........14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings....................................................14
ITEM 2. Changes in Securities and Use of Proceeds............................14
ITEM 3. Defaults Upon Senior Securities......................................14
ITEM 4. Submission of Matters to a Vote of Security Holders..................15
ITEM 5. Other Information....................................................15
ITEM 6. Exhibits and Reports on Form 8-K.....................................16
SIGNATURES....................................................................17
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
KMC Telecom Holdings, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
December 31, March 31,
1998 1999
--------------- ------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................................................... $ 21,181 $ 47,792
Accounts receivable, net of allowance for doubtful accounts.................. 7,539 11,256
Prepaid expenses and other current assets.................................... 1,315 826
--------------- ------------------
Total current assets............................................................ 30,035 59,874
Investments held for future capital expenditures................................ 27,920 29,000
Networks and equipment, net..................................................... 224,890 269,474
Intangible assets, net.......................................................... 2,829 2,930
Deferred financing costs, net................................................... 20,903 29,768
Due from affiliate.............................................................. - 400
Other assets.................................................................... 4,733 2,216
--------------- ------------------
$ 311,310 $ 393,662
=============== ==================
Liabilities, redeemable and nonredeemable equity (deficiency)
Current liabilities:
Accounts payable............................................................. $ 21,052 $ 29,364
Accrued expenses............................................................. 10,374 20,524
--------------- ------------------
Total current liabilities....................................................... 31,426 49,888
Notes payable................................................................... 41,414 75,000
Senior discount notes payable................................................... 267,811 275,071
--------------- ------------------
Total liabilities............................................................... 340,651 399,959
Commitments and contingencies
Redeemable equity:
Senior redeemable, exchangeable, PIK preferred stock, par value $.01 per
share; authorized: -0- shares in 1998, 230 shares in 1999; shares issued
and outstanding:
Series E, - 0 - shares in 1998 and 25 shares in 1999 ($25,000
liquidation preference)................................................. - 20,575
Series F, - 0 - shares in 1998 and 40 shares in 1999 ($40,000
liquidation preference)................................................. - 35,249
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).. 36,704
30,390
Series C, 175 shares in 1998 and 1999 ($17,500 liquidation preference).. 21,643 24,298
Redeemable common stock, 224 shares issued and outstanding................... 23,782
22,305
Redeemable common stock warrants............................................. 674 2,895
--------------- ------------------
Total redeemable equity......................................................... 75,012 143,503
--------------- ------------------
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 6,923
Unearned compensation........................................................ (5,824) (5,085)
Accumulated deficit.......................................................... (112,285) (151,644)
--------------- ------------------
Total nonredeemable equity (deficiency)......................................... (104,353) (149,800)
--------------- ------------------
$ 311,310 $ 393,662
=============== ==================
</TABLE>
See accompanying notes.
2
<PAGE>
KMC Telecom Holdings, Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1998 1999
---------------- ----------------
<S> <C> <C>
Revenue.............................................. $ 2,793 $ 11,078
Operating expenses:
Network operating costs........................... 5,816 19,670
Selling, general and administrative............... 3,472 11,990
Stock option compensation expense................. 1,099 3,869
Depreciation and amortization..................... 994 5,523
---------------- ----------------
Total operating expenses....................... 11,381 41,052
---------------- ----------------
Loss from operations................................. (8,588) (29,974)
Interest income...................................... 2,166 942
Interest expense..................................... (6,542) (10,327)
---------------- ----------------
Net loss.............................................
(12,964) (39,359)
Dividends and accretion on redeemable preferred stock
(3,353) (11,444)
---------------- ----------------
Net loss applicable to common shareholders........... $ (16,317) $ (50,803)
================ ================
Net loss per common share............................ $ (20.18) $ (59.87)
================ ================
Weighted average number of common shares outstanding.
808 849
================ ================
</TABLE>
See accompanying notes.
3
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KMC Telecom Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1998 1999
--------------- ----------------
<S> <C> <C>
Operating Activities
Net loss........................................................................ $ (12,964) $ (39,359)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................ 994 5,523
Non-cash interest expense.................................................... 5,802 8,291
Non-cash stock option compensation expense................................... 1,099 3,869
Changes in assets and liabilities:
Accounts receivable....................................................... (627) (3,717)
Prepaid expenses and other current assets................................. (387) 489
Accounts payable.......................................................... (916) (2,024)
Accrued expenses.......................................................... 1,134 2,369
Due from affiliate........................................................ (25) (400)
Other assets.............................................................. (533) (34)
--------------- ----------------
Net cash used in operating activities........................................... (6,423) (24,993)
--------------- ----------------
Investing Activities
Construction of networks and purchases of equipment............................. (8,772) (36,479)
Acquisitions of franchises, authorizations and related assets................... (431) (303)
Deposit on purchases of equipment............................................... (5,000) -
Purchases of investments, net................................................... (165,500) (1,080)
--------------- ----------------
Net cash used in investing activities........................................... (179,703) (37,862)
--------------- ----------------
Financing Activities
Repayment of notes payable...................................................... (20,801) -
Proceeds from issuance of preferred stock, net of issuance costs................ - 58,200
Proceeds from issuance of common stock and warrants, net of issuance costs...... 20,451 -
Proceeds from exercise of stock options......................................... - 333
Proceeds from issuance of senior discount notes, net of issuance costs.......... 225,923 -
Proceeds from senior secured credit facility, net of issuance costs............. - 33,147
Issuance costs of Lucent Facility............................................... - (2,214)
Dividends on preferred stock of subsidiary...................................... (592) -
--------------- ----------------
Net cash provided by financing activities....................................... 224,981 89,466
--------------- ----------------
Net increase in cash and cash equivalents....................................... 38,855 26,611
Cash and cash equivalents, beginning of period.................................. 15,553 21,181
--------------- ----------------
Cash and cash equivalents, end of period........................................ $ 54,408 $ 47,792
=============== ================
Supplemental disclosure of cash flow information
Cash paid during the period for interest, net of amounts capitalized............ $ 875 $ 464
=============== ================
</TABLE>
See accompanying notes.
4
<PAGE>
KMC Telecom Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 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., and KMC Telecom of Virginia, Inc. are
collectively referred to herein as the Company. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting. Accordingly, they do not include certain information and
note disclosures required by generally accepted accounting principles for annual
financial reporting and should be read in conjunction with the financial
statements and notes thereto of KMC Telecom Holdings, Inc. as of and for the
year ended December 31, 1998.
The unaudited interim financial statements reflect all adjustments
which management considers necessary for a fair presentation of the results of
operations for these periods. The results of operations for the interim periods
are not necessarily indicative of the results for the full year.
The balance sheet of KMC Telecom Holdings, Inc. at December 31, 1998
was derived from the audited consolidated balance sheet at that date.
2. Investments Held for Future Capital Expenditures
The Company has designated certain amounts as investments held for
future capital expenditures. As of March 31, 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 $16.8
million and debt securities (US government obligations and commercial bonds due
within 1 year) of $12.2 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 March 31, 1999, the
carrying value of such held-to-maturity debt securities approximated their fair
value.
3. Networks and Equipment
Networks and equipment are comprised of the following (in thousands):
December 31, March 31,
1998 1999
---------------- ------------------
Fiber optic systems................... $ 99,502 $ 109,237
Telecommunications equipment.......... 115,769 139,532
Furniture and other................... 7,340 16,520
Leasehold improvements................ 1,177 1,455
Construction-in-progress.............. 11,770 18,207
---------------- ------------------
235,558 284,951
Less accumulated depreciation......... (10,668) (15,477)
---------------- ------------------
$ 224,890 $ 269,474
================ ==================
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 three months ended March 31, 1998 and 1999 amounted to
$605,000 and $539,000, respectively.
5
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4. Intangible Assets
Intangible assets are comprised of the following (in thousands):
December 31, March 31,
1998 1999
---------------- -----------------
Franchise costs............................ $ 1,690 $ 1,952
Authorizations and rights-of-ways.......... 1,455 1,501
Building access agreements and other....... 1,062 1,057
---------------- -----------------
4,207 4,510
Less accumulated amortization.............. (1,378) (1,580)
---------------- -----------------
$ 2,829 $ 2,930
================ =================
5. Due from Affiliate
The Company has an agreement in principle with KMC Services LLC, a
limited liability company wholly owned by Harold N. Kamine, the Chairman of our
Board of Directors, pursuant to which KMC Services LLC will offer to the Company
financial and energy services which are related to the Company's business. KMC
Services LLC may also offer its services to third parties in jurisdictions in
which the Company is not offering telecommunications services; provided that
such third parties are not competitors of the Company. Initially, KMC Services
LLC will offer a leasing program for equipment physically installed at a
customer's premises, known as CPE equipment, for the Company to integrate into
its ClearStarSMAdvantage program, whereby the Company will be able to offer CPE
equipment for lease or sale to its customers. The equipment will be owned by KMC
Services LLC and the Company will have no liability for the cost of the
equipment, the financing related to it or the obligation for any lease charges.
Any such sale or lease will be between the Company's customer and KMC Services
LLC. The specific terms and conditions of the agreement between KMC Services LLC
and the Company are currently being negotiated by the parties. As of March 31,
1999, the Company has loaned KMC Services LLC an aggregate of approximately
$400,000 pursuant to the agreement in principle. The loan bears interest at the
rate of 10% per annum and is payable December 31, 1999.
6. Accrued Expenses
Accrued expenses are comprised of the following (in thousands):
December 31, March 31,
1998 1999
-----------------------------
Accrued compensation............................... $ 4,138 $ 3,814
Deferred revenue................................... 1,187 1,978
Accrued costs related to financing activities...... 380 8,217
Other accrued expenses............................. 4,669 6,515
=============================
$ 10,374 $ 20,524
=============================
7. Lucent Loan and Security Agreement
KMC Telecom III entered into a Loan and Security Agreement (the "Lucent
Facility") dated February 4, 1999 with Lucent Technologies Inc. ("Lucent") which
provides for borrowings to be used to fund the acquisition of certain
telecommunications equipment and related expenses. The Lucent Facility provides
for an aggregate commitment of up to $600 million, of which $125 million is
immediately available to purchase Lucent products and an additional $125 million
will become available upon KMC Telecom III's receipt of an additional $35
million of funded equity or qualified intercompany loans, as defined in the
agreement. 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
6
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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 March 31,
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 or default
shall occur, the interest rate will be increased by two percentage points.
Interest on each LIBOR loan is payable on each LIBOR interest payment date in
arrears and interest on each base rate loan is payable quarterly in arrears. KMC
Telecom III must pay an annual commitment fee on the unused portion of the
Lucent Facility of 1.25%.
Loans borrowed under the Lucent Facility amortize in amounts based upon
the following percentages of the aggregate amount of the loans drawn under the
Lucent Facility:
Payment Dates Amortization
------------------------------ ---------------------
May 1, 2002 - February 1, 2003 2.5% per quarter
May 1, 2003 - February 1, 2006 5.0% per quarter
May 1, 2006 - February 1, 2007 7.5% per quarter
KMC Holdings has unconditionally guaranteed the repayment of up to $250
million under the Lucent Facility when such repayment is due, whether at
maturity, upon acceleration, or otherwise. KMC Telecom III Holdings, Inc., which
owns the shares of KMC Telecom III and is wholly-owned by KMC Holdings, has
pledged the shares of KMC Telecom III to Lucent to collateralize its obligations
under the guaranty. In addition, KMC Telecom III has pledged all of its assets
to Lucent.
The Lucent Facility contains a number of affirmative and negative
covenants including, among others, covenants restricting the ability of KMC
Telecom III to consolidate or merge with any person, sell or lease assets not in
the ordinary course of business, sell or enter into any long term leases of dark
fiber, redeem stock, pay dividends or make any other payments (including
payments of principal or interest on loans) to KMC Holdings, create
subsidiaries, transfer any permits or licenses, or incur additional indebtedness
or act as guarantor for the debt of any other person, subject to certain
conditions.
KMC Telecom III is required to comply with certain financial tests and
maintain certain financial ratios, including, among others, a ratio of total
debt to contributed capital, certain minimum revenues, maximum EBITDA losses and
minimum EBITDA, maximum capital expenditures and minimum access lines, a maximum
total leverage ratio, a minimum debt service coverage ratio, a minimum fixed
charge coverage ratio and a maximum consolidated leverage ratio. The covenants
become more restrictive upon the earlier of (i) July 1, 2002 and (ii) after KMC
Telecom III achieves positive EBITDA for two consecutive fiscal quarters.
Failure to satisfy any of the financial covenants will constitute an
event of default under the Lucent Facility, permitting the lenders to terminate
the commitment and/or accelerate payment of outstanding indebtedness. The Lucent
Facility also includes other customary events of default, including, without
limitation, a cross-default to other material indebtedness, material
undischarged judgments, bankruptcy, loss of a material franchise or material
license, breach of representations and warranties, a material adverse change,
and the occurrence of a change of control.
8. Preferred Stock and Warrant Issuances
Series E Preferred Stock
On February 4, 1999, the Company issued 25,000 shares of Series E
Senior Redeemable, Exchangeable, PIK Preferred Stock (the "Series E Preferred
Stock") to Newcourt Commercial Finance Corporation ("Newcourt Finance"),
7
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generating aggregate gross proceeds of $22.9 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.
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
$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.
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
8
<PAGE>
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
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.
9. Commitments and Contingencies
Purchase Commitments
As of March 31, 1999, the Company has outstanding commitments
aggregating approximately $133.0 million related to purchases of
telecommunications equipment and fiber optic cable and its obligations under its
agreements with certain suppliers.
Litigation
By letter dated August 29, 1997, KMC Telecom notified I-Net, Inc.
("I-NET") that KMC Telecom considered I-NET to be in default under a Master
Telecommunications System Rollout Agreement, dated as of October 1, 1996 (the
"I-Net Agreement"), as a result of I-NET's failure to provide design plans and
specifications for several systems for which it had agreed to provide such plans
and specifications, to properly supervise construction of the systems or to
provide personnel with the necessary expertise to manage the projects. On
February 12, 1998, the Company received a demand for arbitration from Wang
Laboratories, Inc. ("Wang"), the successor to I-NET. The demand seeks at least
$4.1 million. The Company believes that it has meritorious defenses to Wang's
claims and has asserted counterclaims seeking in excess of $2.5 million as a
result of I-NET's defaults under the I-NET Agreement. The arbitration
proceedings are currently underway. The Company believes that resolution of this
matter will not have a material adverse impact on its financial condition. No
assurance can be given, however, as to the ultimate resolution of this matter.
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
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(i) an initial public offering with gross proceeds of at least $40 million, (ii)
the sale of substantially all of the stock or assets of the Company or (iii) the
merger or consolidation of the Company with one or more other corporations) has
taken place by the later of (x) October 22, 2003 or (y) 90 days after the final
maturity date of the Senior Discount Notes. The restrictive covenants of the
Senior Discount Notes limit the Company's ability to repurchase such securities.
All of the securities subject to such "put rights" are presented as redeemable
equity in the accompanying balance sheets.
The redeemable preferred stock, redeemable common stock and redeemable
common stock warrants are being accreted up to their fair market values from
their respective issuance dates to their earliest potential redemption date
(October 22, 2003). At March 31, 1999, the aggregate redemption value of the
redeemable equity was approximately $175 million, reflecting per share
redemption amounts of $727 for the Series A Preferred Stock, $286 for the Series
C Preferred Stock and $150 for the redeemable common stock and redeemable common
stock warrants.
10. Net Loss Per Common Share
The following table sets forth the computation of net loss per common
share-basic (in thousands, except share and per share amounts):
Three Months Ended
March 31,
----------------------------------
1998 1999
---------------- ----------------
Numerator:
Net loss................................ $ (12,964) $ (39,359)
Dividends and accretion on redeemable
preferred stock...................... (3,353) (11,444)
---------------- ----------------
Numerator for net loss per common share
- basic.............................. $ (16,317) $ (50,803)
================ ================
Denominator:
Denominator for net loss per common share
- weighted average number of common
shares outstanding 808,467 848,565
================ ================
Net loss per common share - basic.......... $ (20.18) $ (59.87)
================ ================
Options and warrants to purchase an aggregate of 251,885 and 364,495
shares of common stock were outstanding as of March 31, 1998 and 1999,
respectively, but a computation of diluted net loss per common share has not
been presented, as the effect would be anti-dilutive.
11. Subsequent Events
On April 30, 1999, the Company issued 35,000 additional shares of
Series E Preferred Stock and warrants to purchase an aggregate of 60,353 shares
of Common Stock at $.01 per share for aggregate proceeds of $35.0 million. These
shares of Series E Preferred Stock have identical rights and privileges as the
shares of Series E Preferred Stock issued on February 4, 1999. The warrants are
exercisable from February 4, 2000 through February 1, 2009.
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.
10
<PAGE>
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 March 31, 1999 Compared To
Three Months Ended March 31, 1998
Revenue. Revenue increased from $2.8 million for the three months ended
March 31, 1998 (the "1998 First Quarter") to $11.1 million for the three months
ended March 31, 1999 (the "1999 First Quarter"). This increase is primarily
attributable to the fact that we derived revenues from 22 markets during the
entire 1999 First Quarter compared to only 8 markets during the entire 1998
First Quarter. In addition, each of our systems that generated revenues during
the 1998 First Quarter generated increased revenues during the 1999 First
Quarter. Revenue for the 1998 and 1999 First Quarters included $2.1 million and
$6.2 million, respectively, of revenue derived from resale of switched services
and an aggregate of $662,000 and $4.9 million (including $1.7 million of revenue
related to reciprocal compensation during the 1999 First Quarter), respectively,
of revenue derived from on-net special access, private line and switched
services.
Network Operating Costs. Network operating costs increased from $5.8
million in the 1998 First Quarter to $19.7 million in the 1999 First Quarter.
This increase of $13.9 million was due primarily to the increase in the number
of markets in which we operated in the 1999 First Quarter and the related
increases of $4.4 million in costs associated with providing resale services and
leasing unbundled network element services, $4.5 million in personnel costs,
$1.9 million in contracted network support costs, $1.1 million in consultant and
professional services related costs and $2.0 million in facilities, travel and
other direct operating costs.
Costs associated with providing on-net switched services were greater
than revenue generated from on-net switched services because we hired personnel
and staffed local offices prior to generating revenue and obtaining sufficient
revenue volume to cover such fixed operating costs.
Costs associated with providing resale services are greater than the
revenues generated from these services because of narrow discounts provided by
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. Resale is primarily an interim strategy for us to
create a backlog of customers to be transitioned to our on-net switched
facilities once our own switches become commercially operational. We now have
switches in commercial operation in 22 of our 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 $3.5 million for the 1998 First Quarter
to $12.0 million for the 1999 First Quarter. This increase of $8.5 million
resulted primarily from increases of $3.5 million in personnel costs, $1.6
million in professional costs (consisting primarily of legal costs), $1.9
million in advertising costs, $900,000 in travel related expenses, along with
increases in other marketing and general and administrative costs aggregating
approximately $600,000.
Stock Option Compensation Expense. Stock option compensation expense, a
non-cash charge, increased from $1.1 million for the 1998 First Quarter to $3.9
million in the 1999 First Quarter. This increase resulted from an increase in
the estimated fair value of the Company's Common Stock.
Depreciation and Amortization. Depreciation and amortization expense
increased from $994,000 for the 1998 First Quarter to $5.5 million for the 1999
First Quarter primarily as a result of depreciation expense associated with the
greater number of networks commercially operational during the 1999 First
Quarter.
Interest Expense. Interest expense increased from $6.5 million in the
1998 First Quarter to $10.3 million in the 1999 First Quarter. The increase
resulted primarily from increased interest charges incurred on the Senior
Discount Notes for the full 1999 First Quarter compared to only 2 months of
interest on the Senior Discount Notes during the 1998 First Quarter, a higher
accreted value of the Senior Discount Notes in the 1999 First Quarter and
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increased interest charges related to the Senior Secured Credit Facility during
the 1999 First Quarter as a result of increased borrowings thereunder. The
Company capitalized interest of $539,000 related to network construction
projects during the 1999 First Quarter and $605,000 during the 1998 First
Quarter.
Net Loss. For the reasons stated above, net loss increased from $13.0
million for the 1998 First Quarter to $39.4 million for the 1999 First Quarter.
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 and the Senior Discount Notes.
In February 1999, we issued PIK Preferred Stock and warrants to
purchase common stock for aggregate gross proceeds of $65.0 million to two
purchasers. In April 1999, we issued additional shares of PIK Preferred Stock
and warrants to purchase common stock to one additional purchaser for aggregate
gross proceeds of $35.0 million.
In February 1999, our subsidiary which will own the approximately 14
additional networks which we currently plan to construct over the next 12
months, 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. After giving effect to the April 1999 issuance of PIK Preferred
Stock, $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.
At March 31, 1999, the Company had $75.0 million of indebtedness
outstanding under the Senior Secured Credit Facility, and had $175.0 million in
borrowing capacity under the Senior Secured Credit Facility.
Net cash provided by financing activities from borrowings and equity
issuances was $89.5 million for the three months ended March 31, 1999. Our net
cash used in operating and investment activities was $62.9 million for the three
months ended March 31, 1999.
We made capital expenditures of $49.4 million in the three months ended
March 31, 1999. We currently plan to make additional capital expenditures of
approximately $230.0 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 March 31, 1999, the Company had outstanding commitments aggregating
approximately $133.0 million related to the purchase of fiber optic cable and
telecommunications equipment as well as engineering services, principally under
the Company's agreements with Lucent Technologies Inc.
We believe that our cash, investments held for future capital
expenditures and borrowings available under the Senior Secured Credit Facility
and the Lucent Facility, together with the net proceeds from our April 1999
issuance of our PIK Preferred Stock will be sufficient to meet our liquidity
needs through the completion of our initial 23 networks. We currently anticipate
constructing networks in approximately 14 additional Tier III Markets over the
next 12 months for which we will require additional financing. Additional
sources of financing may include public or private equity or debt financings by
the Company, capitalized leases and other financing arrangements.
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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.
Year 2000 Compliance
Similar to all businesses, we may be affected by the inability of
certain computer software to distinguish between the years 1900 and 2000 due to
a commonly-used programming convention. Unless such programs are modified or
replaced prior to January 1, 2000, calculations based on date arithmetic or
logical operations performed by such programs may be incorrect. In addition, the
Senior Secured Credit Facility and the Lucent Facility impose certain Year 2000
compliance obligations on the Company.
Management's plan to address the effect of the Year 2000 issue focuses
on the following areas: applications systems (including our billing system and
financial software), infrastructure (including personal computers and servers
used throughout the Company), and other third party business partners, vendors
and suppliers. Management's analysis and review of these areas is comprised
primarily of the following phases: developing an inventory of hardware, software
and embedded chips; assessing the degree to which each area is currently
compliant with Year 2000 requirements; performing renovations, repairs and
replacements as needed to attain compliance; testing to ensure compliance; and,
developing a contingency plan for each area if our initial efforts to attain
compliance are either unsuccessful or untimely.
Management completed the inventory and assessment phases of the project
during the fourth quarter of 1998. The renovation, repair and replacement phase
and the testing phase have commenced; however, we expect to continue these
phases throughout 1999.
Further, we are currently in the process of implementing new billing
software systems, operational software systems and financial and personnel
software systems. Although these implementations were made necessary by the
expansion of our business and were not directly related to Year 2000 issues,
they have enabled us to utilize new software for these purposes which the
respective suppliers have certified as Year 2000 compliant.
Costs incurred to date have primarily consisted of labor from the
redeployment of existing information services and operational resources. We
expect to spend approximately $150,000 for these Year 2000 compliance efforts
which will be expensed as incurred. This amount does not include the costs of
the new billing software, operational software and financial and personnel
software systems which we are implementing as a result of the expansion of our
business.
If the software applications of the local exchange carriers, long
distance carriers or others on whose services we depend or with which our
systems interact are not Year 2000 compliant, it could affect our systems which
could have a material adverse effect on our business, financial condition and
results of operations.
We have formed a contingency team to develop a work plan in the event
that certain programs and hardware are not fully compliant and operational
before January 1, 2000. The costs associated with this effort are currently
being evaluated and cannot yet be determined. In the event that certain, or all,
of the contingency plans are deployed, we will incur additional costs; however,
as contingency plans are not yet developed, we cannot determine these costs at
present.
Although we do not presently anticipate a material business
interruption as a result of the Year 2000 issue, the worst case scenario if all
of our Year 2000 efforts fail would result in a daily loss of revenues of
approximately $100,000 calculated based upon 1998 revenues.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risks relating to the Company's operations result primarily from
changes in interest rates. The substantial majority of the Company's long-term
debt bears interest at a fixed rate. However, the fair market value of the fixed
rate debt is sensitive to changes in interest rates. The Company is subject to
the risk that market interest rates will decline and the interest expense due
under the fixed rate debt will exceed the amounts due based on current market
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rates. Under its current policies, the Company does not utilize any interest
rate derivative instruments to manage its exposure to interest rate changes.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities and Use of Proceeds.
(a) Not Applicable.
(b) Not Applicable.
(c) On February 4, 1999, we issued units (the "Units") consisting of an
aggregate of 25,000 shares of Series E Senior Redeemable, Exchangeable, PIK
Preferred Stock, par value $.01 per share (the "Series E Preferred Stock"), and
40,000 shares of Series F Senior Redeemable, Exchangeable, PIK Preferred Stock,
par value $.01 per share (the "Series F Preferred Stock"), and warrants (the
"Warrants") to purchase approximately 24,660 shares of our Common Stock, par
value $.01 per share, for aggregate gross proceeds of $65.0 million. Newcourt
Commercial Finance Corporation ("Newcourt Finance"), a subsidiary of Newcourt
Capital, Inc. ("Newcourt"), acquired all of the Series E Preferred Stock, 10,000
shares of the Series F Preferred Stock and Warrants to purchase 18,227 shares of
Common Stock. Lucent Technologies Inc. ("Lucent") acquired 30,000 shares of the
Series F Preferred Stock and Warrants to purchase 6,433 shares of Common Stock.
The sale of the Units to Newcourt Finance and Lucent was made in reliance
on the exemption from registration provided by Section 4(2) of the Securities
Act, on the basis that the transaction did not involve a public offering. The
offer and sale was made to only two institutional investors. In the Securities
Purchase Agreement applicable to the transaction, Newcourt Finance and Lucent
each made representations as to their investment intent. The Securities Purchase
Agreement places substantial restrictions upon transfer of the securities and
the certificates representing the securities have been legended to that effect.
The Warrants issued as part of the Units entitle the holders of the
Warrants to purchase an aggregate of 24,660 shares of Common Stock and are
exercisable from February 4, 2000 through February 1, 2009 at a price of $.01
per share.
On January 25, 1999, one individual exercised stock options to purchase
14,800 shares of Common Stock previously granted to that individual under the
1998 Stock Purchase and Option Plan for Key Employees of KMC Telecom Holdings,
Inc. and Affiliates for aggregate gross proceeds of $333,000. The sale was made
in reliance on the exemption from registration provided by Section 4(2) of the
Securities Act, on the basis that the transaction did not involve a public
offering. An Option Exercise and Investment Representation Statement signed by
the individual contains representations as to his investment intent and imposes
substantial restrictions upon transfer of the securities.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) (i) Written consents of the stockholders of the Company, dated as
of February 1, 1999, were executed by such stockholders in lieu of a Special
Meeting of stockholders.
(a) (ii) Written consents of the holders of the Company's Series A
Cumulative Convertible Preferred Stock, voting as a class, dated as of February
1, 1999, were executed by such holders in lieu of a Special Meeting of such
holders.
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(a) (iii) Written consents of the holders of the Company's Series C
Cumulative Convertible Preferred Stock, voting as a class, dated as of February
1, 1999, were executed by such holders in lieu of a Special Meeting of such
holders.
(b) Not Applicable.
(c) (i) The stockholders of the Company, by unanimous written consent,
approved and adopted an amendment to the Company's Amended and Restated
Certificate of Incorporation to effect an increase in the aggregate number of
authorized shares of its capital stock from 3,598,800 to 3,748,800 shares,
representing an increase in the aggregate number of authorized shares of its
preferred stock from 598,800 to 748,800.
(c) (ii) The holders of the Company's Series A Cumulative Convertible
Preferred Stock, by unanimous written consent, approved the authorization and
filing of a Certificate of Voting Powers, Designations, Preferences and Relative
Participating, Optional or Other Special Rights and Qualifications, Limitations
and Restrictions Thereof of the Series E Senior Redeemable, Exchangeable, PIK
Preferred Stock of the Company (the "Series E Certificate of Designation"), as
required by the Certificate of Designation governing the rights of the holders
of the Series A Cumulative Convertible Preferred Stock. The Series E Certificate
of Designation designates 175,000 shares of the Company's authorized shares of
Preferred Stock as a series, denominated as the Series E Senior Redeemable,
Exchangeable, PIK Preferred Stock (the "Series E Preferred Stock").
(c) (iii) The holders of the Company's Series A Cumulative Convertible
Preferred Stock, by unanimous written consent, approved the authorization and
filing of a Certificate of Voting Powers, Designations, Preferences and Relative
Participating, Optional or Other Special Rights and Qualifications, Limitations
and Restrictions Thereof of the Series F Senior Redeemable, Exchangeable, PIK
Preferred Stock of the Company (the "Series F Certificate of Designation"), as
required by the Certificate of Designation governing the rights of the holders
of the Series A Cumulative Convertible Preferred Stock. The Series F Certificate
of Designation designates 55,000 shares of the Company's authorized shares of
Preferred Stock as a series, denominated as the Series F Senior Redeemable,
Exchangeable, PIK Preferred Stock (the "Series F Preferred Stock").
(c) (iv) The holders of the Company's Series C Cumulative Convertible
Preferred Stock, also by unanimous written consent, approved the authorization
and filing of the Series E Certificate of Designation, as required by the
Certificate of Designation governing the rights of the holders of the Series C
Cumulative Convertible Preferred Stock.
(c) (v) The holders of the Company's Series C Cumulative Convertible
Preferred Stock, also by unanimous written consent, approved the authorization
and filing of the Series F Certificate of Designation, as required by the
Certificate of Designation governing the rights of the holders of the Series C
Cumulative Convertible Preferred Stock.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Securities Purchase Agreement dated as of February 4, 1999
among KMC Telecom Holdings, Inc., and Newcourt Commercial
Finance Corporation and Lucent Technologies Inc.
10.2 Warrant Agreement dated as of February 4, 1999 among KMC
Telecom Holdings, Inc., The Chase Manhattan Bank, as Warrant
Agent, Newcourt Commercial Finance Corporation and Lucent
Technologies Inc.
10.3 Warrant Registration Rights Agreement dated as of February 4,
1999 among KMC Telecom Holdings, Inc., Newcourt Commercial
Finance Corporation and Lucent Technologies Inc.
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10.4 Loan and Security Agreement dated February 4, 1999 among KMC
Telecom III, Inc., KMC Telecom Leasing III LLC, the financial
institutions signatory thereto from time to time as Lenders,
Lucent Technologies Inc., as agent for the Lenders and the
party to be named as Collateral Agent for the Lenders.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1999.
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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: May 5, 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)
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Exhibit Index
No. Description
- --- -----------
10.1 Securities Purchase Agreement dated as of February 4, 1999 among KMC
Telecom Holdings, Inc., Newcourt Commercial Finance Corporation and
Lucent Technologies Inc.
10.2 Warrant Agreement dated as of February 4, 1999 among KMC Telecom
Holdings, Inc., The Chase Manhattan Bank, as Warrant Agent, Newcourt
Commercial Finance Corporation and Lucent Technologies Inc.
10.3 Warrant Registration Rights Agreement dated as of February 4, 1999
among KMC Telecom Holdings, Inc., Newcourt Commercial Finance
Corporation and Lucent Technologies Inc.
10.4 Loan and Security Agreement dated February 4, 1999 among KMC Telecom
III, Inc., KMC Telecom Leasing III LLC, the financial institutions
signatory thereto from time to time as Lenders, Lucent Technologies
Inc., as agent for the Lenders and the party to be named as
Collateral Agent for the Lenders.
27.1 Financial Data Schedule
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SECURITIES PURCHASE AGREEMENT (this "Agreement") dated as of February
4, 1999 among KMC Telecom Holdings, Inc., a Delaware corporation (the "Issuer"),
and Newcourt Commercial Finance Corporation, a Delaware corporation ("Newcourt")
and Lucent Technologies Inc., a Delaware corporation ("Lucent" and together with
Newcourt, the "Purchasers" and each individually, a "Purchaser").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Certificates of Designations" means, collectively, the Series E
Certificate of Designations and the Series F Certificate of Designations.
"Charter" means the Amended and Restated Certificate of Incorporation
of the Issuer, as amended as of the Closing Date.
"Closing" has the meaning set forth in Section 2.02.
"Closing Date" has the meaning set forth in Section 2.02.
"Common Stock" means the Common Stock, par value $.01 per share, of
the Issuer.
"Environmental Laws" shall mean any applicable law concerning releases
into any part of the natural environment, or protection of natural resources,
the environment and public and employee health and safety including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. ss. 9601 ET Seq.), the Hazardous Materials Transportation Act (49
U.S.C. ss. 1801 ET Seq), the Resource Conservation and Recovery Act (42 U.S.C.
ss. 6901 ET Seq), the Clean Water Act (33 U.S.C. ss. 1251 ET seq), the Clean Air
Act (33 U.S.C. ss. 7401 ET Seq), the Toxic Substances Control Act (15 U.S.C. ss.
7401 ET Seq), and the Occupational Safety and Health Act (29 U.S.C. ss. 651 ET
seq.), as such laws have been and may be amended or supplemented through the
Closing Date, and the regulations promulgated pursuant thereto, and any
applicable state or local statutes, and the regulations promulgated pursuant
thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Closing Date, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession.
"Lien" means any lien, claim, charge, pledge, mortgage, security
interest or other encumbrance.
"Loan and Security Agreement" means the Loan and Security Agreement,
<PAGE>
dated as of February 4, 1999, among KMC Telecom III, Inc., KMC Telecom Leasing
III LLC, certain lenders from time to time parties thereto, Lucent and the
Collateral Agent (as defined therein).
"Material Adverse Effect" means a material adverse effect, or any
event, occurrence, state of circumstances or facts or development involving a
prospective material adverse effect, on the business, operations, assets,
condition (financial or otherwise), results of operations, properties, assets,
value or prospects of the Issuer and its Subsidiaries taken as a whole.
"Person" means an individual, general partnership, limited
partnership, corporation, limited liability company, trust, joint stock company,
association, joint venture or any other entity or organization, whether or not a
legal entity, including a government or political subdivision or an agency or
instrumentality thereof.
"Preferred Stock" means, collectively, the Series E Preferred Stock
and the Series F Preferred Stock.
"Regulation D" means Regulation D under the Securities Act.
"Securities" means, collectively, the Series E & F Unit, the Series F
Unit and the shares of Preferred Stock and the Warrants comprising such units,
to be issued and sold by the Issuer and purchased by the Purchasers as set forth
in Section 2.01.
"Securities Act" means the Securities Act of 1933, as amended.
"Series E Certificate of Designations" means the Certificate of
Designations in substantially the form of Exhibit A hereto relating to the
Series E Preferred Stock to be filed with the Secretary of State of Delaware.
"Series E Preferred Stock" means the Issuer's Series E Senior
Redeemable, Exchangeable, PIK Preferred Stock having the rights, preferences and
privileges set forth in the Series E Certificate of Designations.
"Series E & F Unit" has the meaning set forth in Section 2.01.
"Series F Certificate of Designations" means the Certificate of
Designations in substantially the form of Exhibit B hereto relating to the
Series F Preferred Stock to be filed with the Secretary of State of Delaware.
"Series F Preferred Stock" means the Issuer's Series F Senior
Redeemable, Exchangeable, PIK Preferred Stock having the rights, preferences and
privileges set forth in the Series F Certificate of Designations.
"Series F Unit" has the meaning set forth in Section 2.01.
"Springing Warrants" means the Warrants which may be issued pursuant
to Section 2.4 of the Warrant Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of capital stock entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof, or at least a majority of the ownership interests,
and the power to direct the policies, management and affairs thereof, is at the
time owned or controlled, directly or indirectly, by such Person or one or more
of the other Subsidiaries of such Person or a combination thereof.
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<PAGE>
"Taxes" shall mean all taxes, charges, fees, levies or other
assessments, including, without limitation, all net income, gross receipts,
capital, sales, use, ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation, property and
estimated taxes, customs, duties, fees, assessments and charges of any kind
whatsoever, together with any interest and any penalties, fines, additions to
tax or additional amounts imposed by any public or governmental taxing authority
(domestic or foreign) and shall include any transferee liability in respect of
Taxes.
"Tax Returns" shall mean all returns, declarations, reports,
estimates, information returns and statements required to be filed in respect of
any Taxes.
"Warrants" means the warrants to purchase shares of Common Stock to be
issued pursuant to the Warrant Agreement; each warrant entitling the holder
thereof to purchase 0.471756 shares of Common Stock.
"Warrant Agreement" means the warrant agreement, dated the date
hereof, between the Issuer and The Chase Manhattan Bank, as warrant agent.
"Warrant Registration Rights Agreement" means the warrant registration
rights agreement, dated the date hereof, between the Issuer and the Purchasers.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.01. COMMITMENT TO PURCHASE. (a) Subject to the terms and
conditions hereinafter stated, upon the basis of the representations and
warranties of the Purchasers herein contained, the Issuer agrees to issue and
sell to Newcourt and, upon the basis of the representations and warranties of
the Issuer herein contained, Newcourt agrees to purchase from the Issuer the
Series E & F Unit, which consists of (i) an aggregate of 25,000 shares of Series
E Preferred Stock, (ii) 10,000 shares of Series F Preferred Stock and (iii)
38,636 Warrants (the "Series E & F Unit"), on the date hereof for an aggregate
purchase price of $35,000,000.
(b) Subject to the terms and conditions hereinafter stated, upon the
basis of the representations and warranties of the Purchasers herein contained,
the Issuer agrees to issue and sell to Lucent and, upon the basis of the
representations and warranties of the Issuer herein contained, Lucent agrees to
purchase from the Issuer the Series F Unit, which consists of (i) an aggregate
of 30,000 shares of Series F Preferred Stock and (ii) 13,636 Warrants (the
"Series F Unit"), on the date hereof for an aggregate purchase price of
$30,000,000.
SECTION 2.02. THE CLOSING. (a) Subject to the fulfillment or waiver of
the conditions set forth in Article V hereof, the purchase and sale of the
Securities, as set forth in Section 2.01 (the "Closing"), shall take place at
the offices of Shearman & Sterling at 10:00 a.m. on the date hereof or on such
other date and at such other location as the Issuer and the Purchasers shall
agree. The date and time of the Closing are referred to herein as the "Closing
Date."
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(b) At the Closing, each Purchaser shall deliver to the Issuer, by
wire transfer (of immediately available funds) to an account designated by the
Issuer in writing delivered to each Purchaser, the respective consideration
referred to in Section 2.01.
(c) At the Closing, the Issuer shall deliver to (i) Newcourt, against
payment of the consideration set forth in Section 2.01(a), certificates
evidencing the Series E & F Unit (including the shares of Series E Preferred
Stock, the shares of Series F Preferred Stock and Warrants referred to therein),
registered in the name of Newcourt and (ii) Lucent, against payment of the
consideration set forth in Section 2.01(b), certificates evidencing the Series F
Unit (including the shares of Series F Preferred Stock and Warrants referred to
therein), registered in the name of Lucent.
(d) At the Closing, the Issuer shall execute and deliver Warrant
Certificates (as defined in the Warrant Agreement) representing the Springing
Warrants to the Warrant Agent as provided in Section 2.4(a) of the Warrant
Agreement.
SECTION 2.03. USE OF PROCEEDS. The proceeds from the issuance of the
Series E & F Unit and the Series F Unit will be used to make equity
contributions or "Qualified Intercompany Loans" (as defined in the Loan and
Security Agreement) to KMC Telecom III, Inc. and to pay fees and expenses
relating to the transactions contemplated by this Agreement.
SECTION 2.04. ALLOCATION OF CONSIDERATION. (a) The Issuer and Newcourt
hereby agree that for income tax purposes (but not for any other purpose) the
allocation of the consideration described in Section 2.01(a) for the Series E
Preferred Stock, the Series F Preferred Stock and the Warrants comprising the
Series E & F Unit shall be as follows: $22,909,265 of the consideration shall be
allocated to the Series E Preferred Stock, $9,721,235 of the consideration shall
be allocated to the Series F Preferred Stock, and $2,369,500 of the
consideration shall be allocated to the Warrants.
(b) The Issuer and Lucent hereby agree that for income tax purposes
the allocation of the consideration described in Section 2.01(b) for the Series
F Preferred Stock and the Warrants comprising the Series F Unit shall be as
follows: $29,163,706 of the consideration shall be allocated to the Series F
Preferred Stock and $836,294 of the consideration shall be allocated to the
Warrants.
(c) In light of the highly conditional nature of the purchase rights
provided for in the Springing Warrants, the parties agree that for income tax
purposes only, none of the consideration for the Series E & F Unit or for the
Series F Unit will be allocated to the Springing Warrants.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE ISSUER
The Issuer represents and warrants to each Purchaser as follows as of
the Closing Date:
SECTION 3.01. ORGANIZATION, STANDING, ETC. (a) The Issuer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority under such laws to own or lease and operate its properties and to
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carry on its business as now conducted. The Issuer is duly qualified or licensed
to do business as a foreign corporation in good standing in each jurisdiction in
which the nature of the business transacted by it or the character of the
properties owned or leased by it requires it to so qualify or be licensed,
except where the failure to so qualify or be licensed or be in good standing
would not have a Material Adverse Effect. The copies of the Issuer's Charter,
bylaws and other organizational documents and instruments (in each case, as
amended and/or restated through the date hereof), heretofore made available to
the Purchasers, are true, complete and correct copies thereof.
(b) Each Subsidiary of the Issuer is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its formation, has
all corporate or other power and authority to own its properties and conduct its
business as now conducted and is duly qualified or licensed to transact business
as a foreign company in good standing in each jurisdiction in which the nature
of the business transacted by it or the character of the properties owned or
leased by it requires it to so qualify or be licensed, except (i) as disclosed
on SCHEDULE 3.01 hereto, or (ii) where the failure to so qualify or be licensed
or be in good standing would not have a Material Adverse Effect. All the
outstanding shares of capital stock of each corporate Subsidiary of the Issuer
have been duly authorized and validly issued and are fully paid and
nonassessable and, except as disclosed on SCHEDULE 3.01 hereto are owned
directly or indirectly by the Issuer free and clear of all liens, security
interests, charges and encumbrances. The Issuer does not own any interest in any
other company or entity other than the Subsidiaries set forth on SCHEDULE 3.01.
Except as set forth on SCHEDULE 3.01 hereto, there are no outstanding options,
warrants, rights, agreements or commitments to any third party to subscribe for
or purchase any equity security of any Subsidiary or to cause any Subsidiary to
issue any such equity security.
SECTION 3.02. CAPITALIZATION. (a) The Issuer's authorized capital
stock consists of 3,000,000 shares of Common Stock and 748,800 shares of
preferred stock. Of the 748,800 authorized shares of preferred stock (i) 123,800
shares have been designated as Series A Cumulative Convertible Preferred Stock
(the "Series A Preferred Stock") all of which are currently outstanding, (ii)
350,000 shares have been designated as Series C Cumulative Convertible Preferred
Stock (the "Series C Preferred Stock") of which 175,000 shares are currently
outstanding, (iii) 25,000 shares have been designated as Series D Cumulative
Convertible Preferred Stock (the "Series D Preferred Stock") of which none are
currently outstanding, (iv) 175,000 shares have been designated as Series E
Preferred Stock, of which 25,000 shares will be outstanding upon the
consummation of the purchase of the Series E & F Unit pursuant to this Agreement
and 55,000 shares have been reserved for issuance upon conversion of the Series
F Preferred Stock and (v) 55,000 shares have been designated as Series F
Preferred Stock, of which 40,000 shares will be outstanding upon consummation of
the purchase of the Series F Unit and the Series E & F Unit pursuant to this
Agreement. Of the 3,000,000 authorized shares of Common Stock: (i) 837,876
shares are issued and outstanding, (ii) 600,000 shares have been reserved for
issuance upon conversion of the Series A Preferred Stock, (iii) 333,333 shares
have been reserved for issuance upon conversion of the Series C Preferred Stock,
(iv) 10,000 shares have been reserved for issuance upon exercise of a warrant
held by General Electric Capital Corporation, (v) 100,385 shares have been
reserved for issuance upon exercise of warrants issued in connection with the
Issuer's offering of its 12 1/2% Senior Discount Notes, (vi) 131,877 shares have
been reserved for issuance upon exercise of the Warrants and the Springing
Warrants, (vii) 262,750 shares have been reserved for issuance pursuant to
options granted under the 1998 Stock Purchase and Option Plan for Key Employees
of KMC Telecom Holdings, Inc. and Affiliates and (viii) no shares are held in
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treasury. No other shares of capital stock have been issued or reserved for
issuance for any purpose. All of the outstanding shares of capital stock of the
Issuer have been duly authorized and validly issued, are fully paid and
nonassessable, free of preemptive rights and have been offered and issued
without violation of the Securities Act or any preemptive rights of any person.
SCHEDULE 3.02 hereto accurately sets forth, as of the date hereof, the number of
issued and outstanding shares of Common Stock held by each person known by the
Issuer to own beneficially or of record any shares of the Issuer's capital
stock.
(b) Except as disclosed on SCHEDULE 3.02 hereto: (i) there are no
issued or outstanding securities that are convertible into or exchangeable for
shares of the Issuer's capital stock ("Convertible Securities"); (ii) there are
no issued or outstanding subscriptions, options, warrants or other rights to
purchase or acquire any shares of the capital stock of the Issuer or any
Convertible Securities ("Option Rights") other than the Warrants; (iii) the
Issuer is not a party to any agreement or understanding pursuant to which it is
obligated to purchase or redeem any shares of its capital stock or any
Convertible Securities or Option Rights, other than pursuant to the redemption
provisions in respect of the Preferred Stock set forth in the Certificates of
Designations, and is not otherwise under any obligation to repurchase, redeem or
otherwise acquire any shares of its capital stock or any Convertible Securities
or Option Rights; (iv) the Issuer is not a party to any agreement or
understanding pursuant to which it is obligated to register any shares of its
capital stock or other securities under the Securities Act or any state
securities law; and (v) the Issuer is not, and to the best knowledge of the
Issuer, no securities holder of the Issuer is a party to any voting agreement,
voting trust, irrevocable proxy or other agreement affecting the voting rights
of any shares of the Issuer's capital stock or any agreement providing for any
call or put option, right of first refusal or offer or other right to acquire or
dispose of any shares of the Issuer's capital stock or any Convertible
Securities or Option Rights. Except as described in Section 3.02(a) or Schedule
3.02, no shares of Common Stock are issuable upon the exercise of any
outstanding Convertible Securities or Option Rights of the Issuer and no
additional shares of Common Stock will become issuable upon exercise of such
Convertible Securities or Option Rights on account of the issuance of the
warrants.
SECTION 3.03. AUTHORIZATION; NON-CONTRAVENTION. The execution,
delivery and performance by the Issuer of this Agreement, the Warrant Agreement
and the Warrant Registration Rights Agreement, the issuance, sale and delivery
by the Issuer of the Securities and the execution of Springing Warrants and the
amendments to the Charter effected by the filing of the Certificates of
Designations are within the Issuer's corporate powers, have been duly authorized
by all necessary corporate action, require no action by or in respect of, or
filing with, any governmental body, agency or official (other than the filing of
the Certificates of Designations with the Secretary of State of Delaware) and do
not (i) contravene or constitute a default under any provision of applicable law
or regulation, judgment, injunction, order or decree binding upon or applicable
to the Issuer, (ii) contravene or constitute a default under the Charter or
bylaws or (iii) require any consent, approval or other action by any other
Person (other than the holders of the Series A Cumulative Convertible Preferred
Stock and the Series C Cumulative Convertible Preferred Stock which consent
shall be obtained prior to the Closing Date) or constitute a default under or
contravene any material agreement, judgment, injunction, order, decree or other
instrument binding upon the Issuer or any of its Subsidiaries.
SECTION 3.04. BINDING EFFECT. This Agreement, the Warrant Agreement
and the Warrant Registration Rights Agreement have been duly authorized,
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executed and delivered by the Issuer and constitute valid and legally binding
obligations of the Issuer, enforceable in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(whether enforcement is sought by proceedings in equity or at law). The Issuer
has duly authorized the issuance, sale and delivery of the Securities to the
Purchasers and, when issued and delivered by the Issuer pursuant to this
Agreement against payment of the consideration set forth herein, and, with
respect to the Warrants, countersigned by the Warrant Agent (as defined in the
Warrant Agreement), and with respect to the Preferred Stock, authenticated by
the Transfer Agent (as defined in the Certificate of Designations), the
Securities will be validly issued, fully paid and non-assessable free and clear
of all Liens and without violation of any preemptive rights. The Issuer has duly
authorized the issuance and delivery of the Springing Warrants in accordance
with the terms and conditions set forth in Section 2.4 of the Warrant Agreement,
and, when countersigned by the Warrant Agent and delivered pursuant Section 2.4
of the Warrant Agreement, the Springing Warrants will be validly issued, fully
paid and non-assessable free and clear of all Liens and without violation of any
preemptive rights. All of the shares of Common Stock to be issued upon exercise
of the Warrants and the Springing Warrants have been duly and validly authorized
and reserved for issuance upon such exercise and, when issued and delivered upon
exercise of the Warrants and the Springing Warrants in accordance with the terms
of the Warrant Agreement, will be duly and validly issued, fully paid and
non-assessable free and clear of all Liens and without violation of any
preemptive rights. All of the shares of Series E Preferred Stock to be issued
upon conversion of the Series F Preferred Stock have been duly and validly
authorized and reserved for issuance upon such conversion, and when issued and
delivered upon such conversion in accordance with the terms of the Series F
Certificate of Designation will be duly and validly issued, fully paid and
nonassessable.
SECTION 3.05. GOVERNMENTAL REGULATION. Except for the Securities Act,
the Exchange Act and state securities laws, the Issuer is not subject to any
federal or state or foreign law or regulation limiting its ability to issue the
Securities or the Springing Warrants or perform its obligations under the terms
of this Agreement, the Warrant Agreement, the Warrant Registration Rights
Agreement, the Securities or the Springing Warrants. Except as may be required
pursuant to "blue sky laws" or as may be required under the Securities Act or
the Exchange Act in connection with the registration of Warrant Shares as
contemplated under the Warrant Registration Rights Agreement, no notices,
reports or other filings are required to be made by the Issuer or any Subsidiary
with, nor are any consents, registrations, applications, approvals, permits,
licenses or authorizations required to be obtained by the Issuer or any
Subsidiary from, any public or governmental authority or other third party in
connection with the execution and delivery of this Agreement, the Warrant
Agreement or the Warrant Registration Rights Agreement, or the consummation by
the Issuer of the transactions contemplated hereby or thereby, or the exercise
by the Purchasers of their rights hereunder, except for any of the foregoing,
the failure of which to make or obtain would not have a Material Adverse Effect
or adversely affect either of the Purchasers' rights hereunder.
SECTION 3.06. SOLICITATION. Assuming the representations and
warranties of the Purchasers set forth in Section 4.06 hereof are true and
correct in all material respects, the offer and sale of the Securities pursuant
to this Agreement and the issuance of the shares of Series E Preferred Stock
upon conversion of the Series F Preferred Stock and the issuance of the shares
of Common Stock upon exercise of the Warrants and the Springing Warrants
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pursuant to the Warrant Agreement will be exempt from the registration
requirements of the Securities Act. No form of general solicitation or general
advertising was used by the Issuer or, to the best of its knowledge, any other
Person acting on its behalf, in respect of the Securities or in connection with
the offer and sale of the Securities. Neither the Issuer nor any Person acting
on behalf of the Issuer has, either directly or indirectly, sold or offered for
sale to any Person any of the Securities or any other similar security of the
Issuer except as contemplated by this Agreement. Neither the Issuer nor any
Person acting on its behalf has, in connection with the offering of the
Securities, engaged in any action that would require the registration under the
Securities Act of the offering and sale of the Securities pursuant to this
Agreement.
SECTION 3.07. AUTHORIZATION TO DO BUSINESS. The Issuer and its
Subsidiaries (i) possess all licenses, certificates, authorizations, approvals
and permits issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct their respective businesses, as
presently conducted, excepting any licence, certificate, authorization, approval
or permit, the failure to possess which, singly or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect and (ii) have not
received any notice of proceedings relating to revocation or modification of any
such license, certificate, authorization, approval or permit, nor is the Issuer
or any of its Subsidiaries in violation of, or in default under, any such
license, authorization, approval or permit or any decree, order, judgment
applicable to the Issuer or its Subsidiaries the effect of which, singly or in
the aggregate, could reasonably be expected to result in a Material Adverse
Effect.
SECTION 3.08. COMPLIANCE WITH LAWS. Except as set forth on SCHEDULE
3.08 hereto and except as would not have a Material Adverse Effect, the business
of the Issuer and each of the Subsidiaries has been and is presently being
conducted in compliance with all applicable federal, state, county and local
ordinances, statutes, rules, regulations and laws (collectively "Laws").
SECTION 3.09. LITIGATION. Except as set forth on SCHEDULE 3.09 hereto,
there are no pending actions, suits, proceedings, arbitrations or investigations
against or affecting the Issuer or any of its Subsidiaries or any of their
respective properties, assets or operations, or with respect to which the Issuer
or any such Subsidiary is responsible by way of indemnity or otherwise (a
"Material Claim") that, if there is an adverse decision, could singly, or in the
aggregate, with all such other actions, suits, investigations or proceedings,
have a Material Adverse Effect, and, to the knowledge of the Issuer, no such
actions, suits, proceedings or investigations are threatened.
SECTION 3.10. PROPERTIES. Except as described in SCHEDULE 3.10 hereto,
the Issuer and its Subsidiaries have good and marketable title to all their
material property and assets, free and clear of all Liens except (a)
materialmen's, mechanics', carriers', workmen's, warehousemen's, repairmen's, or
other like Liens arising in the ordinary course of business with respect to
moneys not yet due and payable; (b) Liens for current Taxes not yet due and
payable or which are being contested in good faith and by proper procedures; or
(c) Liens or minor imperfections of title that do not materially interfere with
the use or materially detract from the value of such property.
SECTION 3.11. TAX MATTERS. The Issuer and its Subsidiaries have filed
all Tax Returns required to be filed and are not in default in the payment of
any Taxes which were payable pursuant to such returns or any assessments in
respect thereof, other than any which the Issuer or any such Subsidiary is
contesting in good faith by proper procedures.
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SECTION 3.12. PATENTS AND TRADEMARKS. Each of the Issuer and its
Subsidiaries has sufficient right, title and ownership of all patents,
trademarks, service marks, trade names, copyrights, licenses with respect to the
foregoing, information, proprietary rights and processes, or shall be able to
obtain all such licenses and other authority necessary or useful for the lawful
conduct of its business as it is contemplated to be conducted, without any known
conflicts with the rights of others. No stockholder, officer, director or
employee of the Issuer or any Subsidiary owns any rights therein which are
competitive with those to be owned or used by the Company and any Subsidiaries.
Neither the Issuer nor any Subsidiary has been sued or charged with any
infringement of any patent, license or permit or has knowledge of any basis for
any such claim.
SECTION 3.13. LABOR MATTERS. (a) Neither the Issuer nor any Subsidiary
is party to any labor or collective bargaining agreement and there are no labor
or collective bargaining agreements which pertain to employees of the Issuer or
any Subsidiary.
(b) No employees of the Issuer or any Subsidiary are represented by
any labor organization. No labor organization or group of employees of the
Issuer or any Subsidiary has made a demand for recognition or certification, and
there are no representation or certification proceedings or petitions seeking a
representation proceeding presently pending or, to the knowledge of the Issuer,
threatened to be brought or filed, with the NLRB or any other labor relations
tribunal or authority. To the knowledge of the Issuer, there are no organizing
activities involving the Issuer or any Subsidiary pending with, or threatened
by, any labor organization.
(c) There are no strikes, work stoppages, slowdowns, lockouts,
material arbitrations or material grievances or other material labor disputes
pending or, to the knowledge of the Issuer, threatened against or involving the
Issuer or any Subsidiary. Except as would not result in any Material Adverse
Effect, there are no unfair labor practice charges, grievances or complaints
pending or, to the knowledge of the Issuer, threatened by or on behalf of any
employee or group of employees of the Issuer or any Subsidiary.
SECTION 3.14. ENVIRONMENTAL MATTERS. (a) Except as set forth in
SCHEDULE 3.14, (i) each of the Issuer and the Subsidiaries is in material
compliance with all Environmental Laws and (ii) neither the Issuer nor any
Subsidiary has received any written communication from a governmental authority
with respect to such compliance or the failure thereof.
(b) Except as set forth in SCHEDULE 3.14, (i) there is no civil,
criminal or administrative action, claim, demand, investigation or notice
relating to a violation of an Environmental Law (an "Environmental Claim")
pending or, to the knowledge of the Issuer, threatened and (ii) to the knowledge
of the Issuer, there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the release,
emission, discharge or disposal of any chemical, pollutant, contaminant, waste,
toxic substance, petroleum or petroleum product, that would form the basis of
any Environmental Claim, in either case (A) against the Issuer or any
Subsidiary, (B) against any person or entity whose liability for any
Environmental Claim the Issuer or any Subsidiary has or may have retained or
assumed either contractually or by operation of law, or (C) involving any real
or personal property which the Issuer or any Subsidiary owns, leases or manages
except, in each case, as would not have a Material Adverse Effect.
SECTION 3.15. INSURANCE. The Issuer and its Subsidiaries, in the
reasonable determination of the Issuer's management, maintain with financially
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sound and reputable insurers insurance against loss or damage of the kinds
customarily insured against by corporations of established reputation engaged in
the same or a similar business and similarly situated, and of such types and in
such amounts as is customarily carried under similar circumstances by such other
corporations.
SECTION 3.16. YEAR 2000. The Issuer has engaged in a review of the
hardware and software products used by the Issuer and the Subsidiaries in their
businesses (collectively, the "SOFTWARE") which it believes to be adequate to
identify any material deficiency in "Year 2000 Capabilities". "Year 2000
Capabilities" means the ability of the Software (i) to manage and manipulate
data involving dates, including single century formulas and multi-century
formulas, and to not generate incorrect values or invalid results involving such
dates, (ii) to provide that all date-related user interface functionalities and
data fields include the indication of century, and (iii) to provide that all
date-related data interface functionalities include the indication of century.
The Issuer is taking appropriate steps to identify exposure to deficiencies in
Year 2000 Capabilities resulting from the Year 2000 Capabilities of its vendors,
and to address them on a timely basis. In addition, the Issuer believes that it
has adequate resources to cause its Software to include Year 2000 Capabilities
which currently may not contain them and that the costs of causing its Software
to include Year 2000 Capabilities will not be material to the Issuer's
consolidated financial position, results of operations or cashflows.
SECTION 3.17. CERTAIN EXISTING AGREEMENTS. Except as disclosed in any
document or report filed by the Issuer with the Securities and Exchange
Commission or on SCHEDULE 3.17 hereto, as of the date hereof and as of the
Closing Date: (i) there are and will be no agreements providing for encumbrances
or restrictions that would be grandfathered under Section XI(C) of the
Certificates of Designations, (ii) there is and will be no outstanding
Indebtedness that would be grandfathered under Section XI(A)(a) of the
Certificates of Designations, and (iii) there are and will be no agreements with
any Affiliate (as defined in the Certificates of Designations) or any
stockholder agreements (including registration rights agreements or related
purchase agreements) that would be grandfathered pursuant to Section XI(E) of
the Certificates of Designations.
SECTION 3.18. FINANCIAL INFORMATION. (a) The Issuer has furnished to
each Purchaser the audited consolidated financial statements of the Issuer dated
as of December 31, 1997 and for the year then ended, and the unaudited
consolidated financial statements for the fiscal quarter ended September 30,
1998 and for the month of October 1998, (collectively, the "FINANCIALS"). The
Financials have been prepared in accordance with GAAP applied on a basis
consistent with that of preceding periods and are complete and correct in all
material respects. The Financials fairly represent the Issuer's consolidated
financial position as of the dates of the balance sheets included in the
Financials and its consolidated results of operations for the periods indicated
therein. There are no omissions from the Financials or any other facts or
circumstances not reflected in the Financials which are or may be material
according to GAAP.
(b) Except as and to the extent expressly set forth in the Financials,
or the notes, schedules or exhibits thereto, or as disclosed in the documents
filed by the Issuer with the Securities and Exchange Commission, (i) as of
September 30, 1998 (the "BALANCE SHEET DATE"), neither the Issuer nor its
Subsidiaries had any material liabilities or obligations (whether absolute,
contingent, accrued or otherwise) that would be required to be included on a
balance sheet or in the notes, schedules or exhibits thereto prepared in
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accordance with GAAP, (ii) since the Balance Sheet Date, the Issuer and its
Subsidiaries have not incurred any such material liabilities or obligations
other than in the normal course of business and (iii) since December 31, 1997,
no event has occurred that has resulted in or is reasonably likely to result in
a Material Adverse Effect.
SECTION 3.19. DISCLOSURE. The Company has provided the Purchasers with
disclosure about its and its Subsidiaries' business that in the aggregate did
not contain an untrue statement of a material fact or omit to state a material
fact necessary to make the statements in such disclosure not misleading.
SECTION 3.20. INVESTMENT COMPANY ACT. The Company is not, and after
giving effect to the offering and sale of the Securities and the application of
the proceeds thereof will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
SECTION 3.21. BROKERS. No brokerage or finder's commissions or fees
are payable in connection with the transactions contemplated by this Agreement,
and the Issuer shall defend, indemnify and hold each Purchaser harmless from and
against any liability, loss or expense (including, without limitation,
reasonable attorneys fees) arising in connection with any claim for any such
commissions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, represents and warrants to
the Issuer as follows:
SECTION 4.01. ORGANIZATION. It is duly organized and existing under
the laws of its jurisdiction of organization.
SECTION 4.02. AUTHORITY; NO OTHER ACTION. (a) The execution, delivery
and performance of this Agreement and the Warrant Registration Rights Agreement
are within its powers and have been duly authorized on its part by all requisite
corporate action.
(b) No action by or in respect of, or filing with, any governmental
authority, agency or official is required for the execution, delivery and
performance by such Purchaser of this Agreement or the Warrant Registration
Rights Agreement.
SECTION 4.03. NO CONFLICT. The execution, delivery and performance by
it of this Agreement and the Warrant Registration Rights Agreement and the
consummation of the transactions contemplated hereby and thereby do not and will
not (i) violate its charter, bylaws or similar organizational documents or (ii)
violate any applicable law, rule, regulation, judgment, injunction, order or
decree, which violation would (a) affect the validity of this Agreement or the
Warrant Registration Rights Agreement or (b) individually or in the aggregate
impair the ability of such Purchaser to perform in any material respect the
obligations which it has under this Agreement or the Warrant Registration Rights
Agreement.
SECTION 4.04. BINDING EFFECT. This Agreement and the Warrant
Registration Rights Agreement have been duly authorized, executed and delivered
by it and, except as limited by applicable bankruptcy, insolvency,
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reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
enforcement is sought by proceedings in equity or at law), constitute valid and
binding agreements of such Purchaser enforceable in accordance with their
respective terms.
SECTION 4.05. NO DEFAULTS. It is not in violation of its charter,
bylaws or similar organizational documents or in default under any provision of
applicable law or regulation or of any agreement, judgment, injunction, order,
decree or other instrument binding upon it, which violation or default (i) would
affect the validity of this Agreement or the Warrant Registration Rights
Agreement or (ii) would (individually or in the aggregate) impair the ability of
such Purchaser to perform in any material respect the obligations which it has
under this Agreement or the Warrant Registration Rights Agreement.
SECTION 4.06. PRIVATE PLACEMENT. (a) It understands that (i) the
offering and sale of the Securities is intended to be exempt from registration
under the Securities Act pursuant to Section 4(2) of the Securities Act and (ii)
there is no existing public or other market for any of the Securities and there
can be no assurance that it will be able to sell or dispose of such Securities
purchased by it pursuant to this Agreement.
(b) It is an "Accredited Investor" as such term is defined in
Regulation D.
(c) It has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Securities and it is capable of bearing the economic risks of
such investment, including a complete loss of its investment in the Securities.
(d) It has had access to the management and records of the Issuer and
has been furnished with all the information that it has requested from the
Issuer for determining whether to purchase the Securities and has been given the
opportunity to ask questions of, and receive answers from, management of the
Issuer regarding its business and affairs and concerning the terms and
conditions of the Securities and other related matters.
(e) It understands that the Securities and the shares of Common Stock
issuable upon exercise of the Warrants are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Issuer in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act only in certain limited
circumstances. In this connection, it represents that it is familiar with SEC
Rules 144 and 144A, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
(f) In addition to the restrictions on transfer imposed by federal or
state securities laws, Lucent hereby covenants and agrees with the Issuer that
it will not transfer, sell, assign or pledge all or any part of the Securities
purchased by it hereunder until the earlier of (i) one year after the date of
any future issuance and sale by the Issuer of any high yield debt securities
yielding gross proceeds to the Issuer of at least $50,000,000 or (ii) August 4,
2000. Notwithstanding the foregoing, the Series F Preferred Stock may be held by
an Affiliate (as defined in the "Certificate of Designations") of Lucent that is
under its control.
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ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.01. CONDITIONS TO THE PURCHASERS' OBLIGATIONS. The
obligation of each Purchaser to purchase the Securities to be purchased by it
hereunder is subject to the satisfaction, on or prior to the Closing Date, of
the following conditions:
(a) each of the representations and warranties of the Issuer
contained herein shall be true and correct in all material respects on
and as of such Closing Date and each of the Purchasers shall have
received a certificate attesting thereto signed by the President or a
Vice President of the Issuer;
(b) there shall not have occurred and there shall not otherwise
exist any condition, event or development having, or likely to have
(in the reasonable judgment of the Purchasers), a Material Adverse
Effect;
(c) the Purchasers shall have received an opinion from Shearman &
Sterling, special counsel to the Issuer, and an opinion from Kelley,
Drye & Warren LLP, counsel to the Issuer, each dated the Closing Date,
in form reasonably satisfactory to the Purchasers;
(d) the Secretary or an Assistant Secretary of the Issuer shall
have delivered to the Purchasers at the Closing Date a Certificate
dated as of the Closing Date certifying: (i) that attached thereto is
a true and complete copy of the bylaws of the Issuer as in effect on
the date of such certification; (ii) that attached thereto is a true
and complete copy of all resolutions adopted by the Board of Directors
of the Issuer authorizing the execution, delivery and performance of
this Agreement, the Warrant Agreement and the Warrant Registration
Rights Agreement, the issuance, sale and delivery of the Securities,
and that all such resolutions are in full force and effect and are all
the resolutions adopted in connection with the transactions
contemplated by this Agreement, the Warrant Agreement and the Warrant
Registration Rights Agreement; (iii) that attached thereto is a true
and complete copy of the Charter as in effect on the date of such
certification; and (iv) to the incumbency and specimen signature of
certain officers of the Issuer;
(e) all corporate and other proceedings to be taken by the Issuer
in connection with the transactions contemplated by this Agreement,
the Warrant Agreement and the Warrant Registration Rights Agreement
and all documents reflecting or evidencing such proceedings shall be
reasonably satisfactory in scope, form and substance to the Purchasers
and their legal counsel, and the Purchasers and their legal counsel
shall have received all such duly executed counterpart originals or
certified or other copies of such documents and instruments as they
may reasonably request.
(f) Newcourt shall have received duly executed and authenticated
certificates representing the Series E & F Unit being purchased by it
pursuant hereto;
(g) Lucent shall have received duly executed and authenticated
certificates representing the Series F Unit being purchased by it
pursuant hereto;
13
<PAGE>
(h) the Certificates of Designations shall have been duly filed
with the Secretary of State of Delaware and shall be in full force and
effect; and
(i) the Issuer shall have paid to the Purchasers all fees and
expense reimbursements required to be so paid on or prior to the
Closing Date pursuant to the terms of this Agreement or the fee
letters being executed and delivered concurrently with the execution
and delivery of this Agreement.
SECTION 5.02. CONDITIONS TO ISSUER'S OBLIGATIONS. The obligations of
the Issuer to issue and sell the Securities to the Purchasers pursuant to this
Agreement are subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) the representations and warranties of each Purchaser
contained herein shall be true and correct in all material respects on
and as of the Closing Date; and
(b) the Issuer shall have simultaneously received from each
Purchaser by wire transfer (of immediately available funds) to an
account designated by the Issuer in writing delivered to each
Purchaser, the consideration referred to in Section 2.01.
ARTICLE VI
COVENANTS
SECTION 6.01. COVENANTS OF THE ISSUER.
(a) ANNOUNCEMENTS. No party or any Affiliate (as defined in the
Certificates of Designations), officer or agent of the parties hereto shall make
any announcement concerning the transactions contemplated hereby without the
other parties' consent, which consent may be withheld in their sole discretion;
PROVIDED, HOWEVER, that any party or such Affiliate, officer or agent may make
any announcements required by applicable law so long as the text of such
announcement shall have been provided to the parties hereto prior to the making
of such announcement. The parties agree to consult with each other with respect
to announcements concerning the transactions contemplated hereby.
(b) SECURITIES. The Issuer hereby covenants to each of the Purchasers,
that from and after the date hereof and so long as any Purchaser owns any
Securities, the Issuer shall:
(i) EXCHANGE OF CERTIFICATES. Upon surrender by the holder of any
certificates representing Securities (or securities issued upon
exchange, conversion or exercise thereof) for exchange or reissuance
at the office of the Issuer, cause to be issued in exchange therefor
new certificates in such denomination or denominations as may be
requested for the same aggregate number of Securities (or securities
issued upon exchange, conversion or exercise thereof) represented by
the certificates so surrendered and registered as such holder may
request, subject to the provisions thereof.
(ii) REPLACEMENT OF CERTIFICATES. Upon receipt by the Issuer of
evidence reasonably satisfactory to it of loss, theft, destruction or
mutilation of any certificate evidencing any of the Securities (or
14
<PAGE>
securities issued upon exchange, conversion or exercise thereof), and
(in case of loss, theft or destruction) of indemnity reasonably
satisfactory to the Issuer, and upon the surrender and cancellation of
such certificate, if mutilated, the Issuer shall make and deliver in
lieu of such certificate a new certificate for the number of
Securities (or securities issued upon exchange, conversion or exercise
thereof), as the case may be, evidenced by such lost, stolen,
destroyed or mutilated certificate which remains outstanding. A
Purchaser's (which term does not include any successors or assigns of
the Purchasers) agreement of indemnity shall constitute indemnity
satisfactory to the Issuer for the purposes of this Section 6.01(b)
without the need of any further surety or bond.
(iii) GOVERNMENT AND OTHER APPROVALS. Promptly prepare, submit
and file with all public and governmental authorities, all
applications, notices, registrations, certificates, statements and
such other information, documents and instruments as may be required
pursuant to any federal, state or local law or rule or regulation of
the National Association of Securities Dealers, Inc. or any securities
exchange, in connection with the consummation of the transactions
contemplated by this Agreement, including the effect of any dividends,
exchange or conversion rights, anti-dilution provisions or Board
control contemplated by the terms of the Securities or other
securities of the Issuer which may be acquired by the Purchasers
pursuant to this Agreement. The Issuer shall use its best efforts to
obtain any necessary consents or approvals from any authority in
connection with the consummation of the transactions contemplated by
this Agreement, including the effect of any dividends, exchange or
conversion rights, anti-dilution provisions or Board control
contemplated by the terms of the Securities.
(c) ACCESS AND CONFIDENTIALITY. Prior to the Closing Date, the Issuer
shall (and shall cause each of its Subsidiaries to) afford the Purchasers and
their respective representatives reasonable access during normal business hours
to its properties, books, contracts and records and personnel and advisors and
the Issuer shall (and shall cause each of the Subsidiaries to) furnish promptly
to the Purchasers all information concerning its business properties and
personnel as the Purchasers or their respective representatives may reasonably
request, provided that any review will be conducted in a way that will not
interfere unreasonably with the conduct of the Issuer's business.
(d) REPORTS TO HOLDERS. At all times, upon the request of any
Purchaser so long as the Purchaser owns any Securities, the Company shall supply
to such Purchaser such financial and other information as such Purchaser may
reasonably determine to be necessary in order to permit compliance with Rule
144A in connection with a resale or a proposed resale of any of the Securities.
(e) RESERVATION OF SERIES E PREFERRED STOCK. Issuer shall use its
reasonable best efforts with one year after the Closing Date to amend its
Charter to increase the number of authorized shares of the Company's preferred
stock and amend the Series E Certificate of Designations in order to provide for
the reservation of, and the Issuer hereby agrees to reverse, a sufficient number
of authorized but unissued shares of Series E Preferred Stock (i) to be issued
upon conversion of the Series F Preferred Stock and (ii) to provide for the
payment of all dividends that may accrue on the shares of Series E Preferred
Stock then outstanding in additional shares of Series E Preferred Stock.
15
<PAGE>
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party by certified first class mail at its
address with a return receipt requested, by Federal Express or similar overnight
mail service with signature required for receipt, or by telecopy at the
telecopier number set forth below or such other address or telecopier number as
such party may hereinafter specify in writing for the purpose to the party
giving such notice. Each such notice, request or other communication shall be
effective (i) if given by telecopy, when such telecopy is transmitted to the
telecopy number specified in this Section and the appropriate electronic
confirmation is received and a copy of such notice is sent by overnight mail
service or (ii) if given by mail or overnight courier, 72 hours after such
communication is deposited in the mails with first class postage prepaid or
given to overnight courier service, addressed as aforesaid.
Issuer: KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster NJ 07921
Attn: Michael Sternberg
President, Chief Executive Officer
Fax: (908) 719-8776
Purchasers: Newcourt Commercial Finance Corporation
c/o Newcourt Capital USA, Inc.
2 Gatehall Drive
Parsippany, NJ 07054
Attn: Vice President - Credit
Fax: (973) 355-7644
with a copy to:
Newcourt Commercial Finance Corporation
c/o Newcourt Capital USA, Inc.
1 Gatehall Drive
Parsippany, NJ 07054
Attn: Vice President - Legal
Fax: (973) 355-7645
Lucent Technologies Inc.
283 King George Rd.
Room A1D 27
Warren, NJ 07059
Attn:
Fax:
SECTION 7.02. NO WAIVERS. No failure or delay on the part of any party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
SECTION 7.03. SUCCESSORS AND ASSIGNS. Subject to Section ss. 4.06(f),
each Purchaser may assign its rights hereunder without the consent of the Issuer
16
<PAGE>
to any transferee of any of the Securities. Otherwise, no party to this
Agreement may assign any of its rights or obligations hereunder to any person
except with the prior written consent of the other parties hereto (which consent
may not be unreasonably withheld). This Agreement shall be binding upon the
Issuer and each Purchaser and their respective successors and assigns.
SECTION 7.04. NEW YORK LAW. This Agreement shall be governed by the
laws of the State of New York.
SECTION 7.05. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
executed in any number of counterparts each of which shall be an original with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by the other hereto.
SECTION 7.06. ENTIRE AGREEMENT. This Agreement, the Warrant Agreement,
the Warrant Registration Rights Agreement, the fee letters and the other side
letters being executed and delivered concurrently with the execution and
delivery of this Agreement, and the Certificates of Designations constitute the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein and therein, and there are no restrictions,
promises, representations, warranties, covenants, or undertakings with respect
to the subject matter hereof, other than those expressly set forth or referred
to herein or therein. This Agreement and the documents referred to in the
preceding sentence supersede all prior agreements and understandings between the
parties hereto with respect to the subject matter hereof.
SECTION 7.07. EXPENSES. Whether or not the transactions contemplated
in this Agreement shall be consummated, the Issuer shall pay each Purchaser's
reasonable out-of-pocket expenses on demand arising in connection with the
execution and delivery of this Agreement, the Warrant Agreement, the Warrant
Registration Rights Agreement and the Certificates of Designation (collectively,
the "Transaction Documents") and the purchase of the Securities, including,
without limitation: (i) the reasonable fees and expenses of counsel to the
Purchasers in connection with the preparation and negotiation of the Transaction
Documents and the consummation of the transactions contemplated therein, and
(ii) costs and expenses, including reasonable attorneys fees and expenses and
the fees and expenses of any other special or financial advisors, incurred in
connection with any bankruptcy or insolvency of the Issuer or in connection with
any workout or restructuring of any of the transactions contemplated in the
Transaction Documents. The obligations of the Issuer under this Section 7.07
shall survive any transfer of any of the Securities by a Purchaser or any
subsequent holder thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the day and year first above written.
KMC Telecom Holdings, Inc
By: /s/ Cynthia Worthman
------------------------------------------
Name: Cynthia Worthman
Title: Vice President, Chief Financial
Officer
17
<PAGE>
Lucent Technologies Inc.
By: /s/ Leslie L. Rogers
------------------------------------------
Name:
Title:
Newcourt Commercial Finance Corporation
By: /s/ John P. Sirico, III
------------------------------------------
Name:
Title:
18
<PAGE>
SECURITIES PURCHASE AGREEMENT
dated as of
February 4, 1999
among
KMC TELECOM HOLDINGS, INC
and
LUCENT TECHNOLOGIES INC.
and
NEWCOURT COMMERCIAL FINANCE CORPORATION
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.......................................1
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.01. Commitment to Purchase............................4
SECTION 2.02. The Closing.......................................4
SECTION 2.03. Use of Proceeds...................................5
SECTION 2.04. Allocation of Consideration.......................5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE ISSUER
SECTION 3.01. Organization, Standing, etc.......................5
SECTION 3.02. Capitalization....................................6
SECTION 3.03. Authorization; Non-Contravention..................7
SECTION 3.04. Binding Effect....................................8
SECTION 3.05. Governmental Regulation...........................8
SECTION 3.06. Solicitation......................................9
SECTION 3.07. Authorization to Do Business......................9
SECTION 3.08. Compliance with Laws..............................9
SECTION 3.09. Litigation........................................9
SECTION 3.10. Properties.......................................10
SECTION 3.11. Tax Matters......................................10
SECTION 3.12. Patents and Trademarks...........................10
SECTION 3.13. Labor Matters....................................10
SECTION 3.14. Environmental Matters............................11
SECTION 3.15. Insurance........................................11
SECTION 3.16. Year 2000........................................11
SECTION 3.17. Certain Existing Agreements......................11
SECTION 3.18. Financial Information............................12
SECTION 3.19. Disclosure.......................................12
SECTION 3.20. Investment Company Act...........................12
SECTION 3.21. Brokers..........................................12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 4.01. Organization.....................................13
SECTION 4.02. Authority; No Other Action.......................13
SECTION 4.03. No Conflict......................................13
SECTION 4.04. Binding Effect...................................13
SECTION 4.05. No Defaults......................................13
SECTION 4.06. Private Placement................................14
i
<PAGE>
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.01. Conditions to the Purchasers' Obligations........14
SECTION 5.02. Conditions to Issuer's Obligations...............16
ARTICLE VI
COVENANTS
SECTION 6.01. Covenants of the Issuer..........................16
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Notices..........................................18
SECTION 7.02. No Waivers.......................................19
SECTION 7.03. Successors and Assigns...........................19
SECTION 7.04. New York Law.....................................19
SECTION 7.05. Counterparts; Effectiveness......................19
SECTION 7.06. Entire Agreement.................................19
SECTION 7.07. Expenses.........................................19
EXHIBITS
Exhibit A - Series E Certificate of Designations
Exhibit B - Series F Certificate of Designations
Exhibit C - Form of Opinion of Counsel to Issuer
SCHEDULES
Schedule 3.01 -
Schedule 3.02 -
Schedule 3.08 -
Schedule 3.09 -
Schedule 3.10 -
Schedule 3.14 -
Schedule 3.17 -
ii
<PAGE>
EXHIBIT A
Series E Certificate of Designations
<PAGE>
EXHIBIT B
Series F Certificate of Designations
<PAGE>
EXHIBIT C
Form of Opinion of Counsel to Issuer
<PAGE>
SCHEDULE 3.01
<PAGE>
SCHEDULE 3.02
<PAGE>
SCHEDULE 3.08
<PAGE>
SCHEDULE 3.09
<PAGE>
SCHEDULE 3.10
<PAGE>
SCHEDULE 3.14
<PAGE>
SCHEDULE 3.17
- --------------------------------------------------------------------------------
WARRANT AGREEMENT
among
KMC TELECOM HOLDINGS, INC.
and
THE CHASE MANHATTAN BANK,
as Warrant Agent
and
NEWCOURT COMMERCIAL FINANCE CORPORATION.
and
LUCENT TECHNOLOGIES INC.
and
ANY ADDITIONAL PURCHASERS
Dated as of February 4, 1999
- --------------------------------------------------------------------------------
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of February 4, 1999 (this "Agreement"),
among KMC TELECOM HOLDINGS, INC., a Delaware corporation (the "COMPANY"), and
Newcourt Commercial Finance Corporation, a Delaware corporation ("NEWCOURT"),
Lucent Technologies Inc. ("LUCENT") and any other Person (as defined herein) who
becomes a party to this Agreement after the date hereof in accordance with the
provisions of Section 2.5 hereof (each an "ADDITIONAL PURCHASER" and together
with Newcourt and Lucent, the "Purchasers") and The Chase Manhattan Bank, as
warrant agent (the "WARRANT AGENT").
W I T N E S S E T H:
WHEREAS, in connection with the sale of shares of its preferred
stock from time to time, the Company intends to issue and sell warrants (each, a
"WARRANT" and collectively, the "WARRANTS") to be issued under this Agreement,
each Warrant initially entitling the holder thereof to purchase 0.471756 shares
of Common Stock (as defined below) of the Company at an exercise price of $.01
per Common Share (as defined below);
WHEREAS, pursuant to the terms of a Securities Purchase Agreement of
even date herewith (the "PURCHASE AGREEMENT"), among the Company, Newcourt and
Lucent, the Company has agreed to issue and sell to (a) Newcourt a unit (the
"SERIES E & F UNIT"), consisting of 25,000 shares of the Company's Series E
Senior, Redeemable, Exchangeable PIK Preferred Stock (the "SERIES E PREFERRED
STOCK"), 10,000 shares of the Company's Series F Senior, Redeemable,
Exchangeable PIK Preferred Stock (the "SERIES F PREFERRED STOCK") and 38,636
Warrants and (b) Lucent a unit (the "SERIES F UNIT" and together with the Series
E Unit, the "UNITS"), consisting of 30,000 shares of the Company's Series F
Preferred Stock and 13,636 Warrants;
WHEREAS, the Series E Preferred Stock, the Series F Preferred Stock
and the Warrants, as the case may be, included in the Units will become
separately transferable on the Business Day after the date the Units are
initially issued (the "SEPARATION DATE"); or
WHEREAS, as described in Section 2.4 of this Agreement, holders of
Series E Preferred Stock and holders of Series F Preferred Stock are entitled to
receive 227,273 Warrants, unless certain conditions are satisfied;
WHEREAS, in addition to the 38,636 Warrants that will be issued as
part of the Series E & F Unit, the 13,636 Warrants that will be issued as part
of the Series F Unit and the Warrants that may be issued to the holders of the
Series E Preferred Stock and the holders of the Series F Preferred Stock
pursuant to Section 2.4 hereof, the Company may, from time to time, issue and
sell additional Warrants pursuant to this Agreement in connection with the offer
and sale to Additional Purchasers of additional units, consisting of shares of
Series E Preferred Stock and Warrants or Series F Preferred Stock and Warrants;
1
<PAGE>
WHEREAS, the Company desires to engage the Warrant Agent to act on
the Company's behalf, and the Warrant Agent desires to act on behalf of the
Company, in connection with the issuance of the Warrant Certificates (as defined
below) and the other matters as provided herein, including, without limitation,
for the purpose of defining the terms and provisions of the Warrants and the
respective rights and obligations thereunder of the Company and the record
holders thereof (together with the holders of shares of Common Stock (or other
securities) received upon exercise thereof, the "HOLDERS").
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements contained herein and in the Purchase Agreement (and any purchase
agreement to be entered into between the Company and any Additional Purchasers
in connection with any future sale of units by the Company), the Company, the
Purchasers and the Warrant Agent hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Additional Purchaser" means any Person who becomes a party to this
Agreement in accordance with the provisions of Section 2.5 hereof, in connection
with the purchase by such Person from the Company of Warrants to be issued by
the Company pursuant to this Agreement.
"Auditors" means, at any time, the independent auditors of the
Company at such time.
"Board" means the board of directors of the Company from time to
time.
"Business Day" means a day other than a Saturday or Sunday on which
commercial banks in The City of New York are open for business.
"Certificate for Surrender" means the form on the reverse side of
the Warrant Certificate substantially in the form included in Exhibit A hereto.
"Closing Date" means February 4, 1999.
2
<PAGE>
"Commission" means the United States Securities and Exchange
Commission.
"Common Shares" means the shares of the Common Stock of the
Company.
"Common Stock" means the common stock, par value $0.01 per share,
of the Company.
"Company" has the meaning specified in the preamble to this
Agreement.
"Cut-off Time" means the earliest point in time at which the Company
has issued and outstanding shares of Series E Preferred Stock and Series F
Preferred Stock having an aggregate liquidation preference of $100 million,
excluding any shares of Series E Preferred Stock or Series F Preferred Stock
issued to pay dividends thereon.
"Current Market Value" has the meaning specified in Section
4.1(f) hereof.
"Eligible Shares" means (i) all shares of Series E Preferred Stock
and Series F Preferred Stock purchased from the Company prior to the Cut-off
Time and (ii) includes any shares of Series E Preferred Stock issued upon
conversion of any shares of Series F Preferred Stock described in clause (i),
and (iii) excludes any shares of Series E Preferred Stock or Series F Preferred
Stock issued to pay dividends thereon.
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
"Exercise Price" has the meaning specified in Section 3.1 hereof.
"Expiration Date" means February 1, 2009.
"Financial Expert" means one of the Persons listed in Appendix A
hereto.
"Holders" has the meaning specified in the recitals to this
Agreement.
"Independent Financial Expert" means a Financial Expert that does
not (and whose directors, executive officers and 5% stockholders do not) have a
direct or indirect financial interest in the Company or any of its subsidiaries
or Affiliates, which has not been for at least five years and, at the time it is
called upon to give independent financial advice to the Company is not (and none
of its directors, executive officers or 5% stockholders is) a promoter,
director, or officer of the Company or any of its subsidiaries or Affiliates.
The Independent Financial Expert may be compensated and indemnified by the
Company for opinions or services it provides as an Independent Financial Expert.
3
<PAGE>
"Institutional Accredited Investor" shall mean an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) of Regulation D under the Securities Act.
"Officer" means, with respect to the Company, (i) the Chairman of
the Board, the Vice Chairman of the Board, the President, the Chief Executive
Officer, the Chief Operating Officer, the Chief Financial Officer and (ii) the
Treasurer or any Assistant Treasurer, the Secretary or any Assistant Secretary
of the Company.
"Officers' Certificate" means a certificate signed by one Officer
listed in clause (i) of the definition thereof and one Officer listed in clause
(ii) of the definition thereof; PROVIDED, HOWEVER, that any such certificate may
be signed by any two of the Officers listed in clause (i) of the definition
thereof in lieu of being signed by one Officer listed in clause (i) of the
definition thereof and one Officer listed in clause (ii) of the definition
thereof.
"Opinion of Counsel" means a written opinion signed by legal
counsel, who may be an employee of or counsel to the Company or an applicable
Holder.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, trust, unincorporated organization or other
entity or any government or any agency or political subdivision thereof.
"Private Placement Legend" means the legend set forth on the Warrant
Certificates in the form set forth in Section 2.2 hereof.
"Purchase Agreement" has the meaning specified in the recitals to
this Agreement.
"Purchasers" has the meaning specified in the recitals to this
Agreement.
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
"Right" has the meaning specified in Section 4.1(c) hereof.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the United States Securities Act of 1933,
as amended.
"Separation Date" has the meaning specified in the recitals to
this Agreement.
"Series E Preferred Stock" has the meaning specified in the
recitals to this Agreement.
"Series E & F Unit" has the meaning specified in the recitals to
this Agreement
4
<PAGE>
"Series F Preferred Stock" has the meaning specified in the
recitals to this Agreement.
"Series F Unit" has the meaning specified in the recitals to this
Agreement
"Spread" means, with respect to any Warrant, the last reported trade
price of the Common Shares issuable upon exercise of such Warrant at the close
of business on any Business Day on the principal exchange or quotation system on
which the Company's Common Shares are listed, less the Exercise Price of such
Warrant, as adjusted as provided herein.
"Transfer Agent" means Chase Mellon Shareholder Services, L.L.C.,
the transfer agent for the Series E Preferred Stock and the Series F Preferred
Stock, and its successors and assigns, or as appointed by the Company which in
no event shall be the Company or an Affiliate of the Company.
"Springing Notice" has the meaning specified in Section 2.4 of
this Agreement.
"Springing Warrants" has the meaning specified in Section 2.4 of
this Agreement.
"Springing Warrant Date" has the meaning specified in Section 2.4
of this Agreement.
"Subscription Form" means the form on the reverse side of the
Warrant Certificate substantially in the form included in Exhibit A hereto.
"Underlying Securities" shall mean the Common Shares (or other
securities) issuable upon exercise of the Warrants.
"Units" has the meaning specified in the recitals to this
Agreement.
"Value Report" has the meaning specified in Section 4.1(k) hereof.
"Warrants" has the meaning specified in the recitals to this
Agreement, including the Springing Warrants.
"Warrant Agent" has the meaning specified in the preamble to this
Agreement.
"Warrant Certificates" has the meaning specified in Section 2.1
hereof.
"Warrant Registration Rights Agreement" means the Warrant
Registration Rights Agreement, of even date herewith, between the Company and
the Purchasers.
5
<PAGE>
"Warrant Registration Statement" means a shelf registration
statement on the appropriate form which will be filed by the Company pursuant to
the Warrant Registration Rights Agreement.
ARTICLE II
ORIGINAL ISSUE OF WARRANTS
SECTION 2.1. FORM OF WARRANT CERTIFICATES. Certificates representing
the Warrants (the "WARRANT CERTIFICATES") shall be substantially in the form
attached hereto as Exhibit A, shall be dated the date on which such Warrant
Certificates are countersigned by the Warrant Agent and shall have such
insertions as are appropriate or required or permitted by this Agreement and may
have such letters, numbers or other marks of identification and such legends and
endorsements stamped, printed, lithographed or engraved thereon as the Company
may deem appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any law or with any rule or
regulation pursuant thereto or with any rule or regulation of any securities
exchange on which the Warrants may be listed, or to conform to usage.
Warrants shall be issued initially in registered form substantially
in the form set forth in Exhibit A.
The definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Warrants may be listed, all as determined by the officers
executing such Warrant Certificates, as evidenced by their execution of such
Warrant Certificates.
SECTION 2.2. RESTRICTIVE LEGENDS. The Warrant Certificates
shall bear the following legend on the face thereof:
THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS, AND ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR"), (2) AGREES THAT
IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) (TAKING INTO
ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF
APPLICABLE) RESELL OR OTHERWISE TRANSFER THE WARRANTS REPRESENTED BY THIS
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CERTIFICATE EXCEPT (A) TO KMC TELECOM HOLDINGS, INC. (THE "COMPANY") OR ANY
SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE WARRANT AGENT A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTIONS ON TRANSFER OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE WARRANT
AGENT), AND, AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK
THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER
OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE WARRANT AGENT. IF THE
PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO EACH OF THE WARRANT AGENT AND THE
COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER
OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE WARRANT AGREEMENT
CONTAINS A PROVISION REQUIRING THE WARRANT AGENT TO REFUSE TO REGISTER ANY
TRANSFER OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IN VIOLATION OF
THE FOREGOING RESTRICTIONS.
SECTION 2.3. EXECUTION AND DELIVERY OF WARRANT CERTIFICATES. (a)
Warrant Certificates evidencing Warrants to be issued under the Agreement, each
Warrant to purchase initially 0.471756 Common Shares, may be executed, on or
after the date of this Agreement, by the Company and delivered to the Warrant
Agent for countersignature, and the Warrant Agent shall thereupon countersign
and deliver such Warrant Certificates upon the order and at the written
direction of the Company signed by its Chairman of the Board, Vice Chairman of
the Board, President, Chief Operating Officer, Chief Financial Officer or Chief
Executive Officer to the purchasers thereof on the date of issuance. The Warrant
Agent is hereby authorized to countersign and deliver Warrant Certificates as
required by this Section 2.3, Section 2.4, Section 2.5 or by Section 3.3,
Article VI or Article VIII hereof.
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The Warrant Certificates shall be executed on behalf of the Company
by its Chairman of the Board, Vice Chairman of the Board, President, Chief
Operating Officer, Chief Financial Officer or Chief Executive Officer either
manually or by facsimile signature printed thereon. The Warrant Certificates
shall be countersigned by manual signature of the Warrant Agent and shall not be
valid for any purpose unless so countersigned. In case any officer or director
of the Company whose signature shall have been placed upon any of the Warrant
Certificates shall cease to be such officer or director of the Company before
countersignature by the Warrant Agent and the issuance and delivery thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant Agent
and issued and delivered with the same force and effect as though such person
had not ceased to be such officer or director of the Company.
(b) On the Closing Date, 38,636 Warrants shall be issued by the
Company and registered in the name of Newcourt in connection with the issuance
and sale to Newcourt of the Series E & F Unit and 13,636 Warrants shall be
issued by the Company and registered in the name of Lucent in connection with
the issuance and sale to Lucent of the Series F Unit.
Section 2.4. SPRINGING WARRANTS. (a) In addition to the Warrants
described in Section 2.3(b), on the Closing Date the Company shall execute
Warrant Certificates representing 227,273 Warrants, registered in blank form
(the "Springing Warrants") and shall deliver such Springing Warrants to the
Warrant Agent together with a written order directing the Warrant Agent to hold
such Springing Warrants until either:
(i) the Warrant Agent has received the Springing Notice, as
described below, accompanied by a certificate of the Transfer Agent,
certifying as to the amount of shares of Series F Preferred Stock
that are outstanding as of such date, upon receipt of which the
Warrant Agent shall be authorized to promptly countersign and
deliver the Springing Warrants to the holders of Eligible Shares in
accordance with Section 2.4(c) below; or
(ii) the Warrant Agent has received written notice from the Company,
signed by the President or a Vice President of the Company,
certifying that the Company has redeemed all outstanding shares of
Series F Preferred Stock prior to the Springing Warrant Date and
accompanied by a certificate of the Transfer Agent, certifying that
no shares of Series F Preferred Stock are outstanding as of such
date, upon receipt of which the Warrant Agent shall return the
Warrant Certificates representing the Springing Warrants to the
Company for cancellation.
(b) If the Company fails to redeem all shares of Series F Preferred
Stock prior to the date (the "Springing Warrant Date") which is the earlier of
(i) the date that is sixty days after the date on which the Company closes an
underwritten primary offering of at least $200 million of its Common Stock
pursuant to an effective registration statement under the Securities Act or (ii)
February 4, 2001, then the holders of Eligible Shares shall be entitled to
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receive the Springing Warrants. Each holder of Eligible Shares shall be entitled
to receive a number of Springing Warrants equal to 227,273 multiplied by a
fraction, the numerator of which shall be the aggregate liquidation preference
of such holder's Eligible Shares and the denominator of which shall be the
aggregate liquidation preference of all outstanding Eligible Shares. On or after
the Springing Warrant Date, a holder or holders of at least 10% or more of the
aggregate outstanding Eligible Shares may deliver a notice to the Warrant Agent
in the form set forth in Exhibit C hereto (the "Springing Notice"), accompanied
by a certificate of the Transfer Agent, certifying as to the number of shares of
Series F Preferred Stock that are outstanding as of such date.
(c) Upon receipt of the Springing Notice and the certificate of the
Transfer Agent, the Warrant Agent shall be authorized and the Warrant Agent
shall, in coordination with the Transfer Agent for the Series E Preferred Stock
and the Series F Preferred Stock, countersign and deliver to each registered
holder of Eligible Shares, at such holder's address as set forth on the records
of the Transfer Agent, the number of Springing Warrants which such holder is
entitled to receive pursuant to Section 2.4(b).
(d) The Company may from time to time, with the consent of the
holders of a majority of the shares of Series E Preferred Stock and Series F
Preferred Stock then outstanding, execute and deliver to the Warrant Agent
additional Springing Warrants together with specific instructions, reasonably
acceptable to the Warrant Agent, with respect to the countersignature, issuance
and delivery of such Springing Warrants. If the Company executes and delivers
any additional Springing Warrants to the Warrant Agent, references in this
Section 2.4 to "227,273" shall be deemed to be references to such larger number
as the Company specifies in writing to the Warrant Agent.
SECTION 2.5. ADDITIONAL WARRANTS. From time to time, the Company may
issue and sell additional Warrants under this Agreement, together with shares of
Series E Preferred Stock or Series F Preferred Stock, to Additional Purchasers;
PROVIDED THAT, any such Additional Purchaser shall agree to all of the terms and
conditions of, and assume all of the rights and obligations of a "Purchaser"
under, this Agreement and the Warrant Registration Rights Agreement, such action
to be evidenced by such Additional Purchaser executing and delivering to the
Company and the Warrant Agent a counterpart to the signature page of this
Agreement (in the form attached hereto as Exhibit D) and the Warrant
Registration Rights Agreement (in the form set forth therein). Other than such
Additional Purchaser, the Company and the Warrant Agent with respect to this
Agreement, and the Company and such Additional Purchaser with respect to the
Warrant Registration Rights Agreement, no other party need execute such
counterparts in order for them to be effective. The Company shall execute and
deliver Warrant Certificates, representing the amount of Warrants to be issued
pursuant to this Section 2.5, to the Warrant Agent for countersignature, and the
Warrant Agent shall thereupon countersign and deliver such Warrant Certificates
upon the order and at the written direction of the Company signed by the
officers of the Company set forth in Section 2.03.
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ARTICLE III
EXERCISE PRICE AND EXERCISE OF WARRANTS
SECTION 3.1. EXERCISE PRICE. Each Warrant Certificate shall, when
countersigned by the Warrant Agent, initially entitle the Holder thereof,
subject to the provisions of this Agreement, to purchase the number of Common
Shares indicated thereon at a purchase price (the "EXERCISE PRICE") of $.01 per
Common Share, subject to adjustment as provided in Section 4.1 and Article V
hereof.
SECTION 3.2. EXERCISE; RESTRICTIONS ON EXERCISE. At any time
beginning one year after the Closing Date and on or before the Expiration Date,
any outstanding Warrants may be exercised on any Business Day by the Holders
thereof; PROVIDED, that the Warrant Registration Statement is, at the time of
exercise, effective and available for the exercise of the Warrants or the
exercise of such Warrants is exempt from the registration requirements of the
Securities Act. Any Warrants not exercised by 5:00 p.m., New York City time, on
the Expiration Date shall expire and all rights of the Holders of such Warrants
shall terminate. Additionally, pursuant to Section 4.1(j)(ii) hereof and subject
to the conditions set forth therein, the Warrants shall expire and all rights of
the Holders of such Warrants shall terminate in the event the Company merges or
consolidates with or sells all or substantially all of its property and assets
to a Person (other than an Affiliate of the Company) if the consideration
payable to holders of Common Stock in exchange for their Common Stock in
connection with such merger, consolidation or sale consists solely of cash or in
the event of the dissolution, liquidation or winding up of the Company.
SECTION 3.3. METHOD OF EXERCISE; PAYMENT OF EXERCISE PRICE. In order
to exercise all or any of the Warrants represented by a Warrant Certificate, the
Holder thereof must surrender for exercise the Warrant Certificate to the
Warrant Agent at its corporate trust office address set forth in Section 11.5
hereof, with the Subscription Form set forth on the reverse of the Warrant
Certificate duly executed, together with payment in full of the Exercise Price
then in effect for each Common Share (or other securities) issuable upon
exercise of the Warrants as to which a Warrant is exercised; such payment may be
made by wire transfer, in cash or by certified or official bank or bank
cashier's check payable to the order of the Company and shall be made to the
Warrant Agent at its corporate trust office address set forth in Section 11.5
hereof prior to the close of business on the date the Warrant Certificate is
surrendered to the Warrant Agent for exercise. Notwithstanding the foregoing, if
the Common Shares (or other securities) issuable upon exercise of the Warrants
are registered under the Exchange Act, the Exercise Price may be paid by
surrendering additional Warrants to the Warrant Agent having an aggregate Spread
equal to the aggregate Exercise Price of the Warrants being exercised. All
payments received upon exercise of Warrants shall be delivered to the Company by
the Warrant Agent as instructed in writing by the Company. If less than all the
Warrants represented by a Warrant Certificate are exercised or surrendered (in
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connection with a cashless exercise), such Warrant Certificate shall be
surrendered and a new Warrant Certificate of the same tenor and for the number
of Warrants which were not exercised or surrendered shall be executed by the
Company and delivered to the Warrant Agent and the Warrant Agent shall
countersign the new Warrant Certificate, registered in such name or names as may
be directed in writing by the Holder, and shall deliver the new Warrant
Certificate to the Person or Persons entitled to receive the same. Upon the
exercise of any Warrants following the surrender of a Warrant Certificate in
conformity with the foregoing provisions, the Warrant Agent shall instruct the
Company to transfer promptly to the Holder or, upon the written order of the
Holder of such Warrant Certificate, appropriate evidence of ownership of any
Common Shares or other security or property to which it is entitled, registered
or otherwise placed in such name or names as may be directed in writing by the
Holder, and to deliver such evidence of ownership to the Person or Persons
entitled to receive the same and fractional shares, if any, or an amount in
cash, in lieu of any fractional shares, as provided in Section 4.5 hereof;
PROVIDED that the Holder of such Warrant shall be responsible for the payment of
any transfer taxes required as the result of any change in ownership of such
Warrants or the issuance of such Common Shares other than to the Holder of such
Warrants and any such transfer shall comply with applicable law. Upon the
exercise of a Warrant or Warrants, the Warrant Agent is hereby authorized and
directed to requisition from any transfer agent of the Common Shares (and all
such transfer agents are hereby authorized to comply with all such requests)
certificates (bearing the legend set forth in Section 11.10 hereof, if
applicable, unless a registration statement relating to such Common Shares filed
with the Commission shall then be in effect or the Company and the Holder
exercising such Warrant or Warrants otherwise agree) for the necessary number of
Common Shares to which said Holder may be entitled. The Company shall enter, or
shall cause any transfer agent of the Common Shares to enter, the name of the
Person entitled to receive the Common Shares upon exercise of the Warrants into
the Company's register of shareholders within 14 days of such exercise. A
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of the surrender for exercise, as provided above, of the
Warrant Certificate representing such Warrant together with payment in full of
the Exercise Price (or surrender of sufficient Warrant Certificates in
connection with a cashless exercise) and, for all purposes under this Agreement,
the Person entitled to receive any Common Shares deliverable upon such exercise
shall, as between such Person and the Company, be deemed to be the Holder of
such Common Shares of record as of the close of business on such date and shall
be entitled to receive, and the Warrant Agent shall deliver to such Person, any
Common Shares to which such Person would have been entitled had such Person been
the registered holder on such date.
ARTICLE IV
ADJUSTMENTS
SECTION 4.1. ADJUSTMENTS. The Exercise Price and the number of
Common Shares issuable upon exercise of each Warrant shall be subject to
adjustment from time to time as follows:
(a) DIVISIONS; CONSOLIDATIONS; RECLASSIFICATIONS. In case the
Company shall, on or before the Expiration Date, (i) issue any Common Shares in
payment of a dividend or other distribution with respect to its Common Stock,
(ii) subdivide its issued and outstanding Common Shares, (iii) consolidate its
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issued and outstanding Common Shares into a smaller number of shares, or (iv)
reclassify or convert the Common Shares (other than a reclassification in
connection with a merger, consolidation or other business combination which will
be governed by Section 4.1(j)), then the number of Common Shares purchasable
upon exercise of each Warrant immediately prior to the record date for such
issue or distribution or the effective date of such subdivision, consolidation,
reclassification or conversion shall be adjusted so that the Holder of each
Warrant shall thereafter be entitled to receive the kind and number of Common
Shares which such Holder would have been entitled to receive after the happening
of any of the events described above had such Warrant been exercised immediately
prior to the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this Section 4.1(a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(b) RIGHTS; OPTIONS; WARRANTS. In case the Company shall issue
rights, options, warrants or convertible or exchangeable securities (other than
convertible or exchangeable securities subject to Section 4.1(a)) to all holders
of its Common Shares, entitling them to subscribe for or purchase Common Shares
at a price per share which is lower (at the record date for such issuance) than
the then Current Market Value per Common Share, then the Company shall ensure
that at the time of such issuance, the same or a like offer or invitation is
made to the Holders of the Warrants as if their Warrants had been exercised on
the day immediately preceding the record date of such offer or invitation on the
terms (subject to any adjustment pursuant to Section 4.1(a) for a prior event)
on which such Warrants could have been exercised on such date; PROVIDED that if
the Board so resolves, the Company shall not be required to ensure that the same
offer or invitation is made to the Holders of the Warrants, but the number of
Common Shares thereafter purchasable upon the exercise of each Warrant shall
instead be adjusted and shall be determined by multiplying the number of Common
Shares theretofore purchasable upon exercise of each Warrant by a fraction, the
numerator of which shall be the sum of (i) the number of Common Shares
outstanding immediately prior to the issuance of such rights, options, warrants
or convertible or exchangeable securities plus (ii) the number of additional
Common Shares which may be purchased or subscribed for upon exercise, exchange
or conversion of such rights, options, warrants or convertible or exchangeable
securities and the denominator of which shall be the sum of (x) the number of
Common Shares outstanding immediately prior to the issuance of such rights,
options, warrants or convertible or exchangeable securities plus (y) the number
of shares which the total consideration received by the Company for such rights,
options, warrants or convertible or exchangeable securities so offered would
purchase at the then Current Market Value per Common Share. Except as otherwise
provided above, such adjustment shall be made whenever such rights, options,
warrants or convertible or exchangeable securities are issued, and shall become
effective retroactively immediately after the record date for the determination
of shareholders entitled to receive such rights, options, warrants or
convertible or exchangeable securities.
(c) ISSUANCE OF COMMON SHARES AT LOWER VALUES. In case the Company
shall sell and issue any Common Share or Right (as defined below) (excluding (i)
any Right issued in any of the transactions described in Section 4.1(a) or (b)
above, (ii) Common Shares issued pursuant to (x) any Rights outstanding on the
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date of this Agreement or any Rights issued in any transaction described in
Section 4.1(a) or (b) above and (y) a Right, if on the date such Right was
issued, the exercise, conversion or exchange price per Common Share with respect
thereto was at least equal to the then Current Market Value per Common Share,
(iii) any Common Shares or Rights issued (A) as consideration when any
corporation or business is acquired, merged into or becomes part of the Company
or a subsidiary of the Company or (B) in good faith in connection with any other
acquisition of assets, in each case in an arm's-length transaction between the
Company and a Person other than an Affiliate of the Company, (iv) grants or
exercises of Rights granted to or exercised by employees, directors, consultants
or advisors of the Company or any of its subsidiaries for issuances of shares of
Common Stock to such Persons and (v) exercises of Rights by former employees,
former directors, former consultants or former advisors of the Company or any of
its subsidiaries for issuances of shares of Common Stock to such Persons) at a
price per Common Share (determined in the case of any such Right, by dividing
(x) the total consideration receivable by the Company in consideration of the
sale and issuance of such Right, plus the total consideration payable to the
Company upon exercise, conversion or exchange thereof, by (y) the total number
of Common Shares covered by such Right) that is lower than the Current Market
Value per Common Share in effect immediately prior to such sale or issuance,
then the number of Common Shares thereafter purchasable upon the exercise of
each Warrant shall be determined by multiplying the number of Common Shares
theretofore purchasable upon exercise of such Warrant by a fraction, the
numerator of which shall be the number of Common Shares outstanding immediately
after such sale or issuance and the denominator of which shall be the number of
Common Shares outstanding immediately prior to such sale or issuance plus the
number of Common Shares which the aggregate consideration received (determined
as provided below) for such sale or issuance would purchase at such Current
Market Value per Common Share. For purposes of this Section 4.1(c), the Common
Shares which the holder of any such Right shall be entitled to subscribe for or
purchase shall be deemed to be issued and outstanding as of the date of such
sale and issuance and the consideration received by the Company therefor shall
be deemed to be the consideration received by the Company for such Right, plus
the consideration or premiums stated in such Right to be paid for the Common
Shares covered thereby. In case the Company shall sell and issue any Right
together with one or more other securities as part of a unit at a price per
unit, then in determining the "price per Common Share" and the "consideration
received by the Company" for purposes of the first sentence of this Section
4.1(c), the Board shall determine, in good faith, the fair value of the Right
then being sold as part of such unit. For purposes of this paragraph, a "RIGHT"
shall mean any right, option, warrant or convertible or exchangeable security
containing the Right to subscribe for or acquire one or more Common Shares,
excluding the Warrants. This Section 4.1(c) shall not apply to: (i) the exercise
of Warrants, or the conversion or exchange of other securities convertible or
exchangeable for Common Shares; or (ii) Common Shares issued upon the exercise
of Rights or warrants issued to all holders of Common Shares.
(d) DISTRIBUTIONS OF DEBT, ASSETS, SUBSCRIPTION RIGHTS OR
CONVERTIBLE SECURITIES. In case the Company shall make a distribution to all
holders of its Common Shares of evidences of its indebtedness, or assets, or
other distributions (excluding distributions in connection with the dissolution,
liquidation or winding-up of the Company which shall be governed by Section
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4.1(j) and distributions of securities referred to in Section 4.1(a), Section
4.1(b) or Section 4.1(c)), then, in each case, the number of Common Shares
purchasable after such record date upon the exercise of each Warrant shall be
determined by multiplying the number of Common Shares purchasable upon the
exercise of such Warrant immediately prior to such record date by a fraction,
the numerator of which shall be the Current Market Value per Common Share
immediately prior to the record date for such distribution and the denominator
of which shall be the Current Market Value per Common Share immediately prior to
the record date for such distribution less the then fair value (as determined in
good faith by the Board) of the evidences of indebtedness, or assets or other
distributions so distributed attributable to one Common Share. Such adjustment
shall be made whenever any such distribution is made, and shall become effective
on the date of distribution retroactive to the record date for the determination
of shareholders entitled to receive such distribution.
(e) EXPIRATION OF RIGHTS, OPTIONS AND CONVERSION PRIVILEGES. Upon
the expiration of any rights, options, warrants or conversion or exchange
privileges (including, without limitation, any Rights) that have previously
resulted in an adjustment hereunder, if any thereof shall not have been
exercised, exchanged or converted, the Exercise Price and the number of Common
Shares issuable upon the exercise of each Warrant shall, upon such expiration,
be readjusted and shall thereafter, upon any future exercise, be such as they
would have been had they been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (i) the only Common
Shares so issued were the Common Shares, if any, actually issued or sold upon
the exercise, exchange or conversion of such rights, options, warrants or
conversion or exchange rights (including, without limitation, any Rights) and
(ii) such Common Shares, if any, were issued or sold for the consideration
actually received by the Company upon such exercise, exchange or conversion plus
the consideration, if any, actually received by the Company for issuance, sale
or grant of all such rights, options, warrants or conversion or exchange rights
(including, without limitation, any Rights) whether or not exercised.
(f) CURRENT MARKET VALUE. For the purposes of any computation under
this Article IV, the "CURRENT MARKET VALUE" per Common Share or of any other
security (herein collectively referred to as a "security") at any date herein
specified shall be:
(i) if the security is not registered under the Exchange Act, the
value of the security (1) most recently determined as of a date within the
six months preceding such date by an Independent Financial Expert selected
by the Board in accordance with the criteria for such valuation set out in
Section 4.1(k), or (2) if no such determination shall have been made
within such six-month period or if the Company so chooses, determined as
of such a date by an Independent Financial Expert selected by the Board in
accordance with the criteria for such valuation set out in Section 4.1(k),
or
(ii) if the security is registered under the Exchange Act, the
average of the daily market prices of the security for the 20 consecutive
trading days immediately preceding such date or, if the security has been
registered under the Exchange Act for less than 20 consecutive trading
days before such date, then the average of the daily market prices for all
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of the trading days before such date for which daily market prices are
available. The market price for each such trading day shall be: (A) in the
case of a security listed or admitted to trading on any national
securities exchange, the closing sales price, regular way, on such day, or
if no sale takes place on such day, the average of the closing bid and
asked prices on such day on the principal national securities exchange on
which such security is listed or admitted, as determined by the Board, in
good faith, (B) in the case of a security not then listed or admitted to
trading on any national securities exchange, the last reported sale price
on such day, or if no sale takes place on such day, the average of the
closing bid and asked prices on such day, as reported by a reputable
quotation source designated by the Company, (C) in the case of a security
not then listed or admitted to trading on any national securities exchange
and as to which no such reported sale price or bid and asked prices are
available, the average of the reported high bid and low asked prices on
such day, as reported by a reputable quotation service, or a newspaper of
general circulation in the Borough of Manhattan, City and State of New
York customarily published on each Business Day, designated by the
Company, or, if there shall be no bid and asked prices on such day, the
average of the high bid and low asked prices, as so reported, on the most
recent day (not more than 30 days prior to the date in question) for which
prices have been so reported and (D) if there are no bid and asked prices
reported during the 30 days prior to the date in question, the Current
Market Value of the security shall be determined as if the security were
not registered under the Exchange Act.
(g) CONSIDERATION RECEIVED. For purposes of any computation
respecting consideration received pursuant to this Section 4.1, the following
shall apply:
(i) in the case of the issuance of Common Shares for cash, the
consideration shall be the amount of such cash, PROVIDED that in no case
shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of Common Shares for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board (irrespective of the accounting
treatment thereof), whose determination shall be conclusive and described
in reasonable detail in a board resolution which shall be provided as soon
as practicable thereafter to the Warrant Agent; and
(iii) in the case of the issuance of rights, options, warrants or
securities convertible into or exchangeable for Common Shares, (including,
without limitation, any Rights), the aggregate consideration received
therefor shall be deemed to be the consideration received by the Company
for the issuance of such rights, options, warrants or securities
convertible into or exchangeable for Common Shares, plus the additional
minimum consideration, if any, to be received by the Company upon the
exercise, conversion or exchange thereof (the consideration in each case
to be determined in the same manner as provided in clauses (i) and (ii) of
this Section 4.1(g)).
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(h) DE MINIMIS ADJUSTMENTS. No adjustment in the number of Common
Shares purchasable hereunder shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the number of
Common Shares purchasable upon the exercise of each Warrant; PROVIDED, HOWEVER,
that any adjustments which by reason of this Section 4.1(h) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations shall be made to the nearest one-thousandth of a
share.
(i) ADJUSTMENT OF EXERCISE PRICE. Whenever the number of Common
Shares purchasable upon the exercise of each Warrant is adjusted, as herein
provided, the Exercise Price per Common Share payable upon exercise of such
Warrant shall be adjusted (calculated to the nearest $.01) so that it shall
equal the price determined by multiplying such Exercise Price immediately prior
to such adjustment by a fraction the numerator of which shall be the number of
Common Shares purchasable upon the exercise of each Warrant immediately prior to
such adjustment and the denominator of which shall be the number of Common
Shares so purchasable immediately thereafter. Following any adjustment to the
Exercise Price pursuant to this Article IV, the amount payable, when adjusted,
together with the amount paid in connection with the original issuance of the
Warrants, shall never be less than the par value per Common Share at the time of
such adjustment.
If after an adjustment, a Holder of a Warrant upon exercise of it
may receive shares of two or more classes in the capital of the Company, the
Company shall determine the allocation of the adjusted Exercise Price between
such classes of shares in a manner that the Board deems fair and equitable to
the Holders. After such allocation, the exercise privilege and the Exercise
Price of each class of shares shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Shares in this Article IV.
Such adjustment shall be made successively whenever any event listed
above shall occur.
(j) CONSOLIDATION, MERGER, ETC. (i) Subject to the provisions of
Subsection (ii) below of this Section 4.1(j), in case of the consolidation of
the Company with, or merger of the Company with or into, or of the sale of all
or substantially all of the properties and assets of the Company to, any Person,
and in connection therewith consideration is payable to holders of Common Shares
(or other securities or property purchasable upon exercise of Warrants) in
exchange therefor, the Warrants shall remain subject to the terms and conditions
set forth in this Agreement and each Warrant shall, after such consolidation,
merger or sale, entitle the Holder to receive upon exercise the number of shares
in the capital or other securities or property (including cash) of or from the
Person resulting from such consolidation or surviving such merger or to which
such sale shall be made or of the parent of such Person, as the case may be,
that would have been distributable or payable on account of the Common Shares if
such Holder's Warrants had been exercised immediately prior to such merger,
consolidation or sale (or, if applicable, the record date therefor); and in any
such case the provisions of this Agreement with respect to the rights and
interests thereafter of the Holders of Warrants shall be appropriately adjusted
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by the Board in good faith so as to be applicable, as nearly as may reasonably
be, to any shares, other securities or any property thereafter deliverable on
the exercise of the Warrants.
(ii) Notwithstanding the foregoing, (x) if the Company merges or
consolidates with, or sells all or substantially all of its property and
assets to, another Person (other than an Affiliate of the Company) and
consideration is payable to holders of Common Shares in exchange for their
Common Shares in connection with such merger, consolidation or sale which
consists solely of cash, or (y) in the event of the dissolution,
liquidation or winding up of the Company, then the Holders of Warrants
shall be entitled to receive distributions on the date of such event on an
equal basis with holders of Common Shares (or other securities issuable
upon exercise of the Warrants) as if the Warrants had been exercised
immediately prior to such event, less the Exercise Price. Upon receipt of
such payment, if any, the rights of a Holder shall terminate and cease and
such Holder's Warrants shall expire. In case of any such merger,
consolidation or sale of assets, the surviving or acquiring Person and, in
the event of any dissolution, liquidation or winding up of the Company,
the Company shall deposit promptly with the Warrant Agent the funds, if
any, necessary to pay the Holders of the Warrants. After receipt of such
deposit from such Person or the Company and after receipt of surrendered
Warrant Certificates, the Warrant Agent shall make payment by delivering a
check in such amount as is appropriate (or, in the case of consideration
other than cash, such other consideration as is appropriate) to such
Person or Persons as it may be directed in writing by the Holder
surrendering such Warrants.
(k) If required pursuant to Section 4.1(f)(i), the Current Market
Value shall be deemed to be equal to the value set forth in the Value Report (as
defined below) as determined by an Independent Financial Expert, which shall be
selected by the Board in its sole discretion, and retained on customary terms
and conditions, using one or more valuation methods that the Independent
Financial Expert, in its best professional judgment, determines to be most
appropriate. The Company shall use its reasonable best efforts to cause the
Independent Financial Expert to deliver to the Company, with a copy to the
Warrant Agent, within 45 days of the appointment of the Independent Financial
Expert, a value report (the "VALUE REPORT") stating the value of the Common
Shares and other securities or property of the Company, if any, being valued as
of the Valuation Date and containing a brief statement as to the nature and
scope of the examination or investigation upon which the determination of value
was made. The Warrant Agent shall have no duty with respect to the Value Report
of any Independent Financial Expert, except to keep it on file and available for
inspection by the Holders. The determination as to Current Market Value in
accordance with the provisions of this Section 4.1(k) shall be conclusive on all
Persons. The Independent Financial Expert shall consult with management of the
Company in order to allow management to comment on the proposed value prior to
delivery to the Company of any Value Report.
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(l) WHEN NO ADJUSTMENT REQUIRED. Without limiting any other
exception contained in this Section 4.1, and in addition thereto, no adjustment
need be made for:
(i) (A) grants to, exercises of Rights by, or issuances of
equity securities to employees, directors, consultants or
advisors of the Company or any of its subsidiaries and (B)
exercises of Rights by, or issuances of equity securities
in connection with Rights previously issued to former
employees, former directors, former consultants or former
advisors of KMC Telecom, Inc. (to the extent that all such
securities do not have an aggregate value in excess of 15%
of the equity value of the Company on a fully diluted
basis, as determined in good faith by the Board);
(ii) grants of options, warrants or other agreements or rights to
purchase capital stock of the Company entered into prior to
the date of the issuance of the Warrants or any issuance of
capital stock pursuant thereto or in connection therewith;
(iii) rights to purchase Common Shares pursuant to a Company plan
for the reinvestment of dividends or interest;
(iv) future options, warrants or other rights with an exercise or
conversion price at least equal to the fair market value of
the related shares on the date of grant, as determined in good
faith by the Company's Board of Directors;
(v) a change in the par value of the Common Shares (including a
change from par value to no par value or vice versa);
(vi) bona fide public offerings or private placements through
investment banks of national standing;
(vii) the issuance of Warrants pursuant to Section 2.4 hereof; and
(viii) the issuance of Warrants to pursuant to Section 2.5 hereof.
To the extent the Warrants become convertible into cash, no
adjustment need be made thereafter as to the cash. Interest will not accrue on
the cash.
SECTION 4.2. NOTICE OF ADJUSTMENT. Whenever the number of Common
Shares purchasable upon the exercise of each Warrant or the Exercise Price is
adjusted, as herein provided, the Company shall cause, so far as it is able, the
Warrant Agent promptly to mail, at the expense of the Company, to each Holder
notice of such adjustment or adjustments and shall deliver to the Warrant Agent
a certificate of the Auditors setting forth the number of Common Shares
purchasable upon the exercise of each Warrant and the Exercise Price after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.
Such certificate shall be conclusive evidence of the correctness of such
adjustment except in the case of manifest error. The Warrant Agent shall be
entitled to rely on such certificate and shall be under no duty or
responsibility with respect to any such certificate, except to exhibit the same,
from time to time, to any Holder desiring an inspection thereof during
reasonable business hours upon reasonable notice. The Warrant Agent shall not at
any time be under any duty or responsibility to any Holders to determine whether
any facts exist which may require any adjustment of the Exercise Price or the
number of Common Shares purchasable on exercise of the Warrants or any of the
other adjustments set forth in Section 4.1, or with respect to the nature or
extent of any such adjustment when made, or with respect to the method employed
in making such adjustment, or the validity or value (or the kind or amount) of
any Common Shares which may be purchasable on exercise of the Warrants. The
Warrant Agent shall not be responsible for any failure of the Company to make
any cash payment or to issue, transfer or deliver any Common Shares or share
certificates upon the exercise of any Warrant.
SECTION 4.3. STATEMENT ON WARRANTS. Irrespective of any adjustment
in the Exercise Price or the number or kind of shares purchasable upon the
exercise of the Warrants, Warrants theretofore or thereafter issued may continue
to express the same price and number and kind of shares as are stated in the
Warrants initially issuable pursuant to this Agreement.
SECTION 4.4. NOTICE OF CONSOLIDATION, MERGER, ETC. In case at any
time after the date hereof and prior to 5:00 p.m. (New York City time) on the
Expiration Date, there shall be any (i) consolidation or merger involving the
Company or sale, transfer or other disposition of all or substantially all of
the Company's property, assets or business (except (A) a merger or other
reorganization in which the Company shall be the surviving corporation and
holders of Common Shares receive no consideration in respect of their shares and
(B) a merger of the Company into a wholly owned subsidiary of the Company, the
principal purpose of which, in the good faith determination of the Board, is to
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change the state of incorporation of the Company) or (ii) any other transaction
contemplated by Section 4.1(j)(ii) above then, in any one or more of such cases,
the Company shall cause to be mailed to the Warrant Agent and shall use its
reasonable best efforts to cause the Warrant Agent to mail, at Company's
expense, to each Holder of a Warrant, at the earliest practicable time (and, in
any event, not less than 20 days before any date set for definitive action),
notice of the date on which such reorganization, sale, consolidation, merger,
dissolution, liquidation or winding up shall take place, as the case may be.
Such notice shall also set forth such facts as shall indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Exercise Price and the kind and amount of the Common Shares and other
securities, money and other property deliverable upon exercise of the Warrants.
Such notice shall also specify the date as of which the holders of record of the
Common Shares or other securities or property issuable upon exercise of the
Warrants shall be entitled to exchange their shares for securities, money or
other property deliverable upon such reorganization, sale, consolidation,
merger, dissolution, liquidation or winding up, as the case may be.
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SECTION 4.5. FRACTIONAL INTERESTS. If more than one Warrant shall be
presented for exercise in full at the same time by the same Holder, the number
of full Common Shares which shall be issuable upon such exercise thereof shall
be computed on the basis of the aggregate number of Common Shares purchasable on
exercise of the Warrants so presented. The Company shall not be required to
issue fractional Common Shares upon the exercise of Warrants. If any fraction of
a Common Share would, except for the provisions of this Section 4.5, be issuable
on the exercise of any Warrant (or specified portion thereof), the Company may
pay an amount in cash calculated by it to be equal to the then Current Market
Value per Common Share multiplied by such fraction computed to the nearest whole
cent.
SECTION 4.6. WHEN ISSUANCE OR PAYMENT MAY BE DEFERRED. In any case
in which this Article IV shall require that an adjustment in the Exercise Price
be made effective as of a record date for a specified event, the Company may
elect to defer until the occurrence of such event (i) issuing to the Holder of
any Warrant exercised after such record date the Common Shares and other shares
in the capital of the Company, if any, issuable upon such exercise over and
above the Common Shares and other shares in the capital of the Company, if any,
issuable upon such exercise and (ii) paying such Holder any amount in cash in
lieu of a fractional share; PROVIDED, HOWEVER, that the Company shall deliver to
such Holder a due bill or other appropriate instrument evidencing such Holder's
right to receive such additional Common Shares, other shares and cash upon the
occurrence of the event requiring such adjustment.
SECTION 4.7. INITIAL PUBLIC OFFERING. Notwithstanding anything to
the contrary herein contained, if the Company conducts an initial public
offering of equity securities (other than nonconvertible preferred shares), the
Company will give the Holders the opportunity to convert (i) such Warrants into
warrants to purchase such equity securities (other than nonconvertible preferred
shares) and (ii) any Common Shares or other securities that have been previously
received by the Holders upon the exercise of Warrants into such equity
securities (other than nonconvertible preferred shares). Such conversion
opportunity will be on terms and conditions determined to be fair and reasonable
by the Board.
ARTICLE V
DECREASE IN EXERCISE PRICE
The Board, in its sole discretion, shall have the right at any time,
or from time to time, to decrease the Exercise Price of the Warrants and/or
increase the number of shares issuable upon the exercise of the Warrants.
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ARTICLE VI
LOSS OR MUTILATION
Upon receipt by the Company and the Warrant Agent of evidence
satisfactory to them of the ownership and the loss, theft, destruction or
mutilation of any Warrant Certificate and of indemnity or bond satisfactory to
them and (in the case of mutilation) upon surrender and cancellation thereof,
then, in the absence of notice to the Company or the Warrant Agent that the
Warrants represented thereby have been acquired by a bona fide purchaser, the
Company shall execute and the Warrant Agent shall countersign and deliver to the
registered Holder of the lost, stolen, destroyed or mutilated Warrant
Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of
the same tenor and for a like aggregate number of Warrants. Upon the issuance of
any new Warrant Certificate under this Article VI, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and other expenses (including the fees and
expenses of the Warrant Agent) in connection therewith. Every new Warrant
Certificate executed and delivered pursuant to this Article VI in lieu of any
lost, stolen or destroyed Warrant Certificate shall constitute a contractual
obligation of the Company whether or not the allegedly lost, stolen or destroyed
Warrant Certificates shall be at any time enforceable by anyone and shall be
entitled to the benefits of this Agreement equally and proportionately with any
and all other Warrant Certificates duly executed and delivered hereunder. The
provisions of this Article VI are exclusive and shall preclude (to the extent
lawful) all other rights or remedies with respect to the replacement of
mutilated, lost, stolen, or destroyed Warrant Certificates.
ARTICLE VII
RESERVATION AND AUTHORIZATION
OF COMMON SHARES
The Company shall at all times reserve and keep available such
number of its authorized but unissued Common Shares deliverable upon exercise of
the Warrants as will be sufficient to permit the exercise in full of all
outstanding Warrants and will cause appropriate evidence of ownership of such
Common Shares to be delivered to the Warrant Agent upon its request for delivery
thereof upon the exercise of Warrants. The Company covenants that all Common
Shares of the Company that may be issued upon the exercise of the Warrants will,
upon issuance, be duly authorized, validly issued, fully paid and not subject to
any calls for funds and free from pre-emptive rights and all taxes, liens,
charges and security interests with respect to the issue thereof.
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ARTICLE VIII
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER
SECTION 8.1. TRANSFER AND EXCHANGE. The Warrant Certificates shall
be issued in registered form only. The Warrant Agent shall keep at its office a
register for the registration of Warrant Certificates and transfers or exchanges
of Warrant Certificates as herein provided and other appropriate data as
determined by the Warrant Agent. The Company shall, upon reasonable notice to
the Warrant Agent, have access to such register during the Warrant Agent's
regular business hours. All Warrant Certificates issued upon any registration of
transfer or exchange of Warrant Certificates shall be the valid obligations of
the Company, evidencing the same obligations, and entitled to the same benefits
under this Agreement, as the Warrant Certificates surrendered for such
registration of transfer or exchange.
The Warrants (other than any issued pursuant to Section 2.4 or
Section 2.5 hereof) shall initially be issued as part of the issuance of the
Units. Prior to the Separation Date, such Warrants may not be transferred or
exchanged separately from, but may be transferred or exchanged only together
with, the Series E Preferred Stock or the Series F Preferred Stock, as the case
may be, issued as part of the respective Unit. Any Warrants issued pursuant to
Section 2.5 hereof that are initially issued as part of a unit shall not be
transferred or exchanged separately from the other securities comprising such
unit until the date of separation as described in such unit.
A Holder may transfer its Warrants only by written application to
the Warrant Agent stating the name of the proposed transferee and otherwise
complying with the terms of this Agreement. No such transfer shall be effected
until, and such transferee shall succeed to the rights of a Holder only upon,
final acceptance and registration of the transfer by the Warrant Agent in the
register. Prior to the registration of any transfer of Warrants by a Holder as
provided herein, the Company, the Warrant Agent, and any agent of the Company or
the Warrant Agent may treat the Person in whose name the Warrants are registered
as the owner thereof for all purposes and as the Person entitled to exercise the
rights represented thereby, any notice to the contrary notwithstanding. When
Warrant Certificates are presented to the Warrant Agent with a request to
register the transfer or to exchange them for an equal amount of Warrants of
other authorized denominations, the Warrant Agent shall register such transfer
or make such exchange as requested if its requirements for such transactions are
met. To permit registrations of transfers and exchanges, the Company shall
execute Warrant Certificates at the Warrant Agent's request. No service charge
shall be made for any registration of transfer or exchange of Warrants, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer of Warrants.
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SECTION 8.2. Intentionally Omitted.
SECTION 8.3. SPECIAL TRANSFER PROVISIONS. The following
provisions shall apply:
(a) TRANSFERS TO QIBS. The following provisions shall apply with
respect to the registration of any proposed transfer of Warrants to a QIB: the
Warrant Agent shall only register the transfer if such transfer is being made by
a proposed transferor who has checked the box provided for on the form of
Warrant Certificate stating, or has otherwise advised the Company and the
Warrant Agent in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Warrant Certificate stating, or has otherwise
advised the Company and the Warrant Agent in writing, that it is purchasing the
Warrants for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a QIB within the
meaning of Rule 144A, and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information regarding
the Company as it has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon its foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
(b) TRANSFERS TO ANY OTHER PERSON. The following provision shall
apply with respect to the registration of any proposed transfer of Warrants to
any Person not specified in paragraph (a) above (including any Institutional
Accredited Investor which is not a QIB).
(i) The Warrant Agent shall register any proposed transfer of
Warrants to any such Person only if (x) the transferor has delivered to
the Warrant Agent and the Company a certificate substantially in the form
of Exhibit B-1 hereto and, if required by paragraph (d) thereof, an
Opinion of Counsel to the effect set forth therein and (y) the proposed
transferee has delivered to the Warrant Agent and the Company a
certificate substantially in the form of Exhibit B-2 hereto.
(c) PRIVATE PLACEMENT LEGEND. Upon the registration of transfer,
exchange or replacement of Warrant Certificates not bearing the Private
Placement Legend, the Warrant Agent shall deliver Warrant Certificates that do
not bear the Private Placement Legend. Upon the registration of transfer,
exchange or replacement of Warrant Certificates bearing the Private Placement
Legend, the Warrant Agent shall deliver only Warrant Certificates that bear the
Private Placement Legend unless there is delivered to the Warrant Agent an
Opinion of Counsel reasonably satisfactory to the Company, its Counsel and the
Warrant Agent to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(d) GENERAL. (i) By its acceptance of any Warrants represented by a
Warrant Certificate bearing the Private Placement Legend, each Holder of such
Warrants acknowledges the restrictions on transfer of such Warrants set forth in
this Agreement and in the Private Placement Legend and agrees that it will
transfer such Warrants only as provided in this Agreement. The Warrant Agent
shall not register a transfer of any Warrants unless such transfer complies with
the restrictions on transfer of such Warrants set forth in this Agreement. In
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connection with any transfer of Warrants, each Holder agrees by its acceptance
of Warrants to furnish the Warrant Agent or the Company such certifications,
legal opinions or other information as either of them may reasonably require to
confirm that such transfer is being made pursuant to an exemption from, or a
transaction not subject to, the registration requirements of the Securities Act
or any applicable laws of any state or foreign jurisdiction; PROVIDED that the
Warrant Agent shall not be required to determine (but may rely on a
determination made by the Company with respect to) the sufficiency of any such
certifications, legal opinions or other information.
(ii) The Warrant Agent shall retain, in accordance with its
customary procedure, copies of all letters, notices and other written
communications received pursuant to Section 8.2 hereof or this Section 8.3. The
Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Warrant Agent.
SECTION 8.4. SURRENDER OF WARRANT CERTIFICATES. Any Warrant
Certificate surrendered for registration of transfer, exchange or exercise of
the Warrants represented thereby shall, if surrendered to the Company, be
delivered to the Warrant Agent, and all Warrant Certificates surrendered or so
delivered to the Warrant Agent shall be promptly cancelled by the Warrant Agent
and shall not be reissued by the Company and, except as provided in this Article
VIII in case of an exchange, Article III hereof in case of the exercise of less
than all the Warrants represented thereby or Article VI in case of a mutilated
Warrant Certificate, no Warrant Certificate shall be issued hereunder in lieu
thereof. The Warrant Agent shall deliver to the Company from time to time or
otherwise dispose of such cancelled Warrant Certificates as the Company may
direct in writing.
ARTICLE IX
WARRANT HOLDERS
SECTION 9.1. WARRANT HOLDER DEEMED NOT A SHAREHOLDER. The Company
and the Warrant Agent may deem and treat the registered Holder(s) of the Warrant
Certificates as the absolute owner(s) thereof (notwithstanding any notation of
ownership or other writing thereon made by anyone), for the purpose of any
exercise thereof and for all other purposes, and neither the Company nor the
Warrant Agent nor any agent thereof shall be affected by any notice to the
contrary. Accordingly, the Company and/or the Warrant Agent shall not, except as
ordered by a court of competent jurisdiction as required by law, be bound to
recognize any equitable or other claim to or interest in the Warrants on the
part of any Person other than such registered Holder, whether or not it shall
have express or other notice thereof. Prior to the valid exercise of the
Warrants, no Holder of a Warrant Certificate, as such, shall be entitled to any
rights of a shareholder of the Company, including, without limitation, the right
to vote or to consent to any action of the shareholders, to receive dividends or
other distributions, to exercise any preemptive right or to receive any notice
of meetings of shareholders and, except as otherwise provided in this Agreement,
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shall not be entitled to receive any notice of any proceedings of the Company.
SECTION 9.2. RIGHT OF ACTION. All rights of action with respect to
this Agreement are vested in the Holders of the Warrants, and any Holder of any
Warrant, without the consent of the Warrant Agent or the Holders of any other
Warrant, may, on such Holder's own behalf and for such Holder's own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company suitable to enforce, or otherwise in respect of, such Holder's right
to exercise such Warrants in the manner provided in the Warrant Certificate
representing such Warrants and in this Agreement.
ARTICLE X
THE WARRANT AGENT
SECTION 10.1. DUTIES AND LIABILITIES. The Warrant Agent hereby
accepts the agency established by this Agreement and agrees to perform the same
upon the terms and conditions herein set forth, by all of which the Company and
the Holders of Warrants, by their acceptance thereof, shall be bound. The
Warrant Agent shall not, by countersigning Warrant Certificates or by any other
act hereunder, be deemed to make any representations as to the validity or
authorization of the Warrants or the Warrant Certificates (except as to its
countersignature thereon) or of any Common Shares issued upon exercise of any
Warrant, or as to the accuracy of the computation of the Exercise Price or the
number or kind or amount of Common Shares deliverable upon exercise of any
Warrant or the correctness of the representations of the Company made in the
certificates that the Warrant Agent receives. The Warrant Agent shall not be
accountable for the use or application by the Company of the proceeds of the
exercise of any Warrant. The Warrant Agent shall not have any duty to calculate
or determine any adjustments with respect to either the Exercise Price or the
kind and amount of Common Shares receivable by Holders upon the exercise of
Warrants required from time to time and the Warrant Agent shall have no duty or
responsibility in determining the accuracy or correctness of such calculation.
The Warrant Agent shall not be (a) liable for any recital or statement of fact
contained herein or in the Warrant Certificates or for any action taken,
suffered or omitted by it in good faith in the belief that any Warrant
Certificate or any other documents or any signatures are genuine or properly
authorized, (b) responsible for any failure on the part of the Company to comply
with any of its covenants and obligations contained in this Agreement or in the
Warrant Certificates or (c) liable for any act or omission in connection with
this Agreement except for its own gross negligence, bad faith or willful
misconduct. The Warrant Agent is hereby authorized to accept instructions with
respect to the performance of its duties hereunder from the Chairman of the
Board, the Vice Chairman of the Board, the President, Chief Executive Officer,
the Chief Operating Officer, the Chief Financial Officer, or any other executive
officer of the Company and to apply to any such officer for instructions (which
instructions will be promptly given in writing when requested) and the Warrant
Agent shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with the instructions of any such officer; PROVIDED,
HOWEVER, that, in its discretion, the Warrant Agent may, in lieu thereof, accept
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other evidence of such or may require such further or additional evidence as it
may deem reasonable. The Warrant Agent shall not be liable for any action taken
with respect to any matter in the event it requests instructions from the
Company as to that matter and does not receive such instructions within a
reasonable period of time after the request therefor.
The Warrant Agent may execute and exercise any of the rights and
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys, agents or employees, and the Warrant Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys, agents or employees; PROVIDED that reasonable care has been
exercised with respect to the retention of any such attorney, agent or employee.
The Warrant Agent shall not be under any obligation or duty to institute, appear
in or defend any action, suit or legal proceeding in respect hereof, unless
first indemnified to its reasonable satisfaction. The Warrant Agent shall
promptly notify the Company in writing of any claim made or action, suit or
proceeding instituted against it arising out of or in connection with this
Agreement.
The Company will perform, execute, acknowledge and deliver or cause
to be delivered all such further acts, instruments and assurances as are
consistent with this Agreement and as may reasonably be required by the Warrant
Agent in order to enable it to carry out or perform its duties under this
Agreement.
The Warrant Agent shall act solely as agent of the Company
hereunder. The Warrant Agent shall not be liable except for the failure to
perform such duties as are specifically set forth herein, and no implied
covenants or obligations shall be read into this Agreement against the Warrant
Agent, whose duties and obligations shall be determined solely by the express
provisions hereof.
SECTION 10.2. RIGHT TO CONSULT COUNSEL. The Warrant Agent may at any
time consult with legal counsel (who may be legal counsel for the Company), and
the written opinion or advice of such counsel shall be full and complete
authorization and protection to the Warrant Agent and the Warrant Agent shall
incur no liability or responsibility to the Company or to any Holder for any
action taken, suffered or omitted by it in good faith in accordance with the
opinion or advice of such counsel.
SECTION 10.3. COMPENSATION; INDEMNIFICATION. The Company agrees
promptly to pay the Warrant Agent from time to time and in any case within 30
days of receipt of an invoice, compensation for its services hereunder as the
Company and the Warrant Agent may agree from time to time, and to reimburse it
upon its request (which shall be accompanied by reasonable supporting
documentation) for reasonable fees or expenses and reasonable counsel fees and
expenses incurred in connection with the execution and administration of this
Agreement, and further agrees to indemnify the Warrant Agent and save it
harmless against any losses, liabilities or reasonable expenses arising out of
or in connection with the acceptance and administration of this Agreement,
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including, without limitation, the reasonable costs and expenses of
investigating or defending any claim of such liability, except that the Company
shall have no liability hereunder to the extent that any such loss, liability or
expense results from the Warrant Agent's own gross negligence, bad faith or
willful misconduct. The obligations of the Company under this Section 10.3 shall
survive the exercise and the expiration of the Warrants, the termination of this
Agreement and the resignation or removal of the Warrant Agent in respect of
services or expenses incurred in connection with the Warrants or this Agreement.
SECTION 10.4. NO RESTRICTIONS ON ACTIONS. Nothing in this Agreement
shall be deemed to prevent the Warrant Agent and any shareholder, director,
officer or employee of the Warrant Agent from buying, selling or dealing in any
of the Warrants or other securities of the Company or becoming pecuniarily
interested in transactions in which the Company may be interested, or
contracting with or lending money to the Company or otherwise acting as fully
and freely as though it were not the Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
SECTION 10.5. DISCHARGE OR REMOVAL; REPLACEMENT WARRANT AGENT. The
Warrant Agent may resign from its position as such and be discharged from all
further duties and liabilities hereunder (except liability arising as a result
of the Warrant Agent's own gross negligence, bad faith or willful misconduct),
after giving one month's prior written notice to the Company. The Company may at
any time remove the Warrant Agent upon one month's written notice specifying the
date when such discharge shall take effect, and the Warrant Agent shall
thereupon in like manner be discharged from all further duties and liabilities
hereunder, except as aforesaid. The Warrant Agent shall mail to each Holder of a
Warrant, at the Company's expense, a copy of said notice of resignation or
notice of removal, as the case may be. Upon such resignation or removal the
Company shall appoint in writing a new warrant agent. If the Company shall fail
to make such appointment within a period of 30 days after it has been notified
in writing of such resignation by the resigning Warrant Agent or after such
removal, then the resigning or removed Warrant Agent or the Holder of any
Warrant may apply to any court of competent jurisdiction for the appointment of
a new warrant agent. After 30 days from receipt of, or giving, notice, as the
case may be, and pending appointment of a successor to the original Warrant
Agent, either by the Company or by such a court, the duties of the Warrant Agent
shall be carried out by the Company. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company doing business
under the laws of the United States or any state thereof, in good standing and
having a combined capital and surplus of not less than $25,000,000. The combined
capital and surplus of any such new warrant agent shall be deemed to be the
combined capital and surplus as set forth in the most recent annual report of
its condition published by such warrant agent prior to its appointment, PROVIDED
that such reports are published at least annually pursuant to law or to the
requirements of a federal or state supervising or examining authority. After
acceptance in writing of such appointment by the new warrant agent, it shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; however, the original Warrant Agent shall in
all events deliver and transfer to the successor Warrant Agent all property
(including, without limitation, documents and recorded information), if any, at
the time held hereunder by the original Warrant Agent and if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
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<PAGE>
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning or
removed Warrant Agent. Not later than the effective date of any such
appointment, the Company shall file notice thereof with the resigning or removed
Warrant Agent and shall use its reasonable best efforts to forthwith cause a
copy of such notice to be mailed by the successor Warrant Agent to each Holder
of a Warrant. Failure to give any notice provided for in this Section 10.5,
however, or any defect therein, shall not affect the legality or validity of the
resignation of the Warrant Agent or the appointment of a new warrant agent, as
the case may be. No Warrant Agent hereunder shall be liable for any acts or
omissions of any successor Warrant Agent.
SECTION 10.6. SUCCESSOR WARRANT AGENT. Any corporation into which
the Warrant Agent or any new warrant agent may be merged or converted, or any
corporation resulting from any consolidation to which the Warrant Agent or any
new warrant agent shall be a party or any corporation succeeding to all or
substantially all the corporate agency business of the Warrant Agent, shall be a
successor Warrant Agent under this Agreement without any further act, PROVIDED
that such corporation would be eligible for appointment as successor to the
Warrant Agent under the provisions of Section 10.5 hereof. Any such successor
Warrant Agent shall promptly cause notice of its succession as Warrant Agent to
be mailed to each Holder of a Warrant.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. MONIES DEPOSITED WITH THE WARRANT AGENT. The Warrant
Agent shall not be required to pay interest on any monies deposited pursuant to
the provisions of this Agreement except such as it shall agree in writing with
the Company to pay thereon. Any monies, securities or other property which at
any time shall be deposited by the Company or on its behalf with the Warrant
Agent pursuant to this Agreement shall be and are hereby assigned, transferred
and set over to the Warrant Agent in trust for the purpose for which such
monies, securities or other property shall have been deposited; but such monies,
securities or other property need not be segregated from other funds, securities
or other property except to the extent required by law. Any monies, securities
or other property deposited with the Warrant Agent for payment or distribution
to the Holders that remains unclaimed for one year after the date the monies,
securities or other property was deposited with the Warrant Agent shall be
delivered to the Company upon its request therefor.
SECTION 11.2. PAYMENT OF TAXES. Subject to Article VI hereof, all
Common Shares issuable upon the exercise of Warrants shall be validly issued,
fully paid and not subject to any calls for funds, and the Company shall pay any
taxes and other governmental charges that may be imposed under the laws of the
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<PAGE>
United States of America or any political subdivision or taxing authority
thereof or therein in respect of the issue or delivery thereof upon exercise of
Warrants (other than income taxes imposed on the Holders). The Company shall not
be required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any certificate for Common Shares
(including other securities or property issuable upon the exercise of the
Warrants) or payment of cash to any Person other than the Holder of a Warrant
Certificate surrendered upon the exercise of a Warrant and in case of such
transfer or payment, the Warrant Agent and the Company shall not be required to
issue any share certificate or pay any cash until such tax or charge has been
paid or it has been established to the Warrant Agent's and the Company's
satisfaction that no such tax or charge is due.
SECTION 11.3. NO MERGER, CONSOLIDATION OR SALE OF ASSETS OF THE
COMPANY. Except as otherwise provided herein, the Company will not merge into or
consolidate with any other Person, or sell or otherwise transfer its property,
assets and business substantially as an entirety to a successor of the Company,
unless the Person resulting from such merger or consolidation, or such successor
of the Company, shall expressly assume, by supplemental agreement satisfactory
in form to the Warrant Agent and executed and delivered to the Warrant Agent,
the due and punctual performance and observance of each and every covenant and
condition of this Agreement or contained in the Warrants to be performed and
observed by the Company.
SECTION 11.4. REPORTS TO HOLDERS. Whether or not the Company is
required to file reports with the Commission, the Company shall file with the
Commission all reports and other information it would be required to file with
the Commission by Section 13(a) or 15(d) under the Exchange Act if it were
subject thereto. The Company shall supply the Warrant Agent and each Holder or
shall supply to the Warrant Agent for forwarding to each such Holder, without
cost to such Holder, copies of such reports and other information. In addition,
at all times, upon the request of any Holder or any prospective purchaser of the
Warrants designated by a Holder, the Company shall supply to such Holder or such
prospective purchaser the information required under Rule 144A under the
Securities Act.
SECTION 11.5. NOTICES; PAYMENT. (a) Except as otherwise provided in
Section 11.5(b) hereof, any notice, demand or delivery authorized by this
Agreement shall be sufficiently given or made when mailed, if sent by first
class mail, postage prepaid, addressed to any Holder of a Warrant at such
Holder's last known address appearing on the register of the Company maintained
by the Warrant Agent and to the Company or the Warrant Agent as follows:
To the Company:
KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, NJ 07921
Attention: Chief Financial Officer
29
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To the Warrant Agent:
The Chase Manhattan Bank
450 West 33rd St., 15th Floor
New York, NY 10001-2697
Attention: Capital Markets Fiduciary Services
or such other address as shall have been furnished to the party giving or making
such notice, demand or delivery. Any notice that is mailed in the manner herein
provided shall be conclusively presumed to have been duly given when mailed,
whether or not the Holder receives the notice.
(b) Payment of the Exercise Price should be made in accordance with
the provisions of this Agreement at the office of the Warrant Agent set forth
above.
(c) Any notice required to be given by the Company to the Holders
shall be made by mailing to the Holders at their last known addresses appearing
on the register maintained by the Warrant Agent. The Company hereby irrevocably
authorizes the Warrant Agent, in the name and at the expense of the Company, to
mail any such notice upon receipt thereof from the Company. Any notice that is
mailed in the manner herein provided shall be conclusively presumed to have been
duly given when mailed, whether or not the Holder receives the notice.
SECTION 11.6. BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of the Company and the Warrant Agent and their
respective successors and assigns, and the Holders from time to time of the
Warrants. Nothing in this Agreement is intended or shall be construed to confer
upon any Person, other than the Company, the Warrant Agent and the Holders of
the Warrants, any right, remedy or claim under or by reason of this Agreement or
any part hereof.
SECTION 11.7. COUNTERPARTS. This Agreement may be executed
manually or by facsimile in any number of counterparts, each of which shall
be deemed an original, but all of which together constitute one and the same
instrument.
SECTION 11.8. AMENDMENTS. The Warrant Agent may, without the consent
or concurrence of the Holders of the Warrants, by supplemental agreement or
otherwise, join with the Company in making any changes or corrections in this
Agreement that (a) are required to cure any ambiguity or to correct any
defective or inconsistent provision or clerical omission or mistake or manifest
error herein contained or (b) add to the covenants and agreements of the Company
in this Agreement further covenants and agreements of the Company thereafter to
be observed, or surrender any rights or power reserved to or conferred upon the
Company in this Agreement; PROVIDED that in either case such changes or
corrections do not and will not adversely affect, alter or change the rights,
privileges or immunities of the Holders of Warrants. Upon the Warrant Agent's
request, the Company shall promptly provide an Officer's Certificate and Opinion
30
<PAGE>
of Counsel which provide that all conditions precedent to adoption of an
amendment have been satisfied.
SECTION 11.9. HEADINGS. The descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
SECTION 11.10. COMMON SHARES LEGEND. Unless and until the Common
Shares issuable upon the exercise of the Warrants are registered under the
Securities Act, or unless otherwise agreed by the Company and the Holder
thereof, such Common Shares will bear a legend to the following effect:
THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAWS, AND ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR"), (2) AGREES THAT
IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) (TAKING
INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF
APPLICABLE), AS IN EFFECT WITH RESPECT TO SUCH TRANSFER, RESELL OR
OTHERWISE TRANSFER THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE
EXCEPT (A) TO KMC TELECOM HOLDINGS, INC. (THE "COMPANY") OR ANY SUBSIDIARY
THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRANSFER AGENT AND
REGISTRAR A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE COMMON SHARES
REPRESENTED BY THIS CERTIFICATE (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM THE TRANSFER AGENT AND REGISTRAR) AND AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
31
<PAGE>
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE COMMON
SHARES REPRESENTED BY THIS CERTIFICATE ARE TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE WITHIN THE
TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX
SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER
AND SUBMIT THIS CERTIFICATE TO THE TRANSFER AGENT AND REGISTRAR. IF THE
PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO EACH OF THE TRANSFER AGENT AND
REGISTRAR AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE
WARRANT AGREEMENT CONTAINS A PROVISION REQUIRING THE TRANSFER AGENT AND
REGISTRAR TO REFUSE TO REGISTER ANY TRANSFER OF THE SHARES OF COMMON STOCK
REPRESENTED BY THIS CERTIFICATE IN VIOLATION OF THE FOREGOING
RESTRICTIONS.
SECTION 11.11. THIRD PARTY BENEFICIARIES. The Holders shall be third
party beneficiaries to the agreements made hereunder between the Company, on the
one hand, and the Warrant Agent, on the other hand, and each Holder shall have
the right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder. By acquiring Warrants, each Holder agrees to be bound by the
obligations of Holders generally as set forth herein and as such obligations may
be applicable to such Holder.
SECTION 11.12. TERMINATION. Except as otherwise specified
herein, this Agreement shall terminate at 5:00 p.m. (New York City time) on
the Expiration Date. Notwithstanding the foregoing, this Agreement shall
terminate on any earlier date as of which all Warrants have been exercised.
SECTION 11.13. GOVERNING LAW. This Agreement shall be governed
by the laws of the State of New York.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed, as of the day and year first above written.
KMC TELECOM HOLDINGS, INC.
/s/ Cynthia Worthman
By: ---------------------------------------------
Name: Cynthia Worthman
Title: Vice President, Chief Financial
Officer
THE CHASE MANHATTAN BANK, as Warrant Agent
/s/ P. Kelly
By: ---------------------------------------------
Name: P. Kelly
Title: Vice President
LUCENT TECHNOLOGIES INC.
/s/ Leslie L. Rogers
By: ---------------------------------------------
Name:
Title:
NEWCOURT COMMERCIAL FINANCE CORPORATION
/s/ John P. Sirico, III
By: ---------------------------------------------
Name: John P. Sirico, III
Title: Vice President
33
<PAGE>
EXHIBIT A
FORM OF WARRANT CERTIFICATE
KMC TELECOM HOLDINGS, INC.
CUSIP No. _____
No. _____
WARRANTS TO PURCHASE COMMON SHARES
This certifies that ______________, or its registered assigns, is
the owner of ___________ Warrants, each of which represents the right to
purchase from KMC TELECOM HOLDINGS, INC., a Delaware corporation (the
"Company"), 0.471756 shares of the Common Stock, par value $0.01 per share, of
the Company (the "COMMON SHARES") at an exercise price (the "EXERCISE Price") of
$0.01 per Common Share (subject to adjustment as provided in the Warrant
Agreement hereinafter referred to below), upon surrender hereof at the office of
The Chase Manhattan Bank, or to its successor, as the warrant agent under the
Warrant Agreement (any such warrant agent being herein called the "WARRANT
AGENT"), with the Subscription Form on the reverse hereof duly executed, with
signature guaranteed as therein specified and simultaneous payment in full by
wire transfer, in cash or by certified or official bank or bank cashier's check
payable to the order of the Company. Notwithstanding the foregoing, if the
Common Shares (or other securities) issuable upon exercise of the Warrants are
registered under the Exchange Act, the Exercise Price may be paid by
surrendering additional Warrants to the Warrant Agent having an aggregate Spread
equal to the aggregate Exercise Price of the Warrants being exercised. At any
time beginning one year after the Closing Date and on or before the Expiration
Date, any outstanding Warrants may be exercised on any Business Day; PROVIDED
that the Warrant Registration Statement is, at the time of exercise, effective
and available for the exercise of Warrants or the exercise of such Warrants is
exempt from the registration requirements of the Securities Act.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of February 4, 1999 (the "WARRANT AGREEMENT"), among
The Chase Manhattan Bank, as Warrant Agent, the Company, Newcourt Commercial
Finance Corporation, Lucent Technologies Inc. and any Additional Purchaser (as
described therein) and a Warrant Registration Rights Agreement dated as of
February 4, 1999 (the "WARRANT REGISTRATION RIGHTS AGREEMENT"), among the
Company, Newcourt Commercial Finance Corporation, Lucent Technologies Inc., and
any Additional Purchaser and is subject to the Certificate of Incorporation and
Bylaws of the Company and to the terms and provisions contained therein, to all
of which terms and provisions the Holder of this Warrant Certificate consents by
acceptance hereof. The terms of the Warrant Agreement and the Warrant
Registration Rights Agreement are hereby incorporated herein by reference and
made a part hereof. Reference is hereby made to the Warrant Agreement and the
Warrant Registration Rights Agreement for a full description of the rights,
34
<PAGE>
limitations of rights, obligations, duties and immunities thereunder of the
Company and the Holders of the Warrants. The summary of the terms of the Warrant
Agreement and the Warrant Registration Rights Agreement contained in this
Warrant Certificate is qualified in its entirety by express reference to the
Warrant Agreement and the Warrant Registration Rights Agreement. All terms used
in this Warrant Certificate that are defined in the Warrant Agreement and the
Warrant Registration Rights Agreement shall have the meanings assigned to them
in such agreements.
Copies of the Warrant Agreement and the Warrant Registration Rights
Agreement are on file at the office of the Warrant Agent and may be obtained by
writing to the Warrant Agent at the following address:
The Chase Manhattan Bank
450 West 33rd St., 15th Floor
New York, NY 10001-2697
Attention: Capital Markets Fiduciary Services
If the Company merges or consolidates with or into, or sells all or
substantially all of its property and assets to, another Person and the
consideration received by holders of Common Shares consists solely of cash, the
Holders of Warrants shall be entitled to receive distributions on the date of
such event on an equal basis with holders of Common Shares (or other securities
issuable upon exercise of the Warrants) as if the Warrants had been exercised
immediately prior to such event (less the Exercise Price). Upon receipt of such
payment, if any, the rights of a Holder shall terminate and cease and such
Holder's Warrants shall expire.
The number of Common Shares purchasable upon the exercise of each
Warrant and the price per share are subject to adjustment as provided in the
Warrant Agreement. Except as stated in the immediately preceding paragraph, in
the event the Company merges or consolidates with, or sells all or substantially
all of its assets to, another Person, each Warrant will, upon exercise, entitle
the Holder thereof to receive the number of shares of capital stock or other
securities or the amount of money and other property which the holder of a
Common Share (or other securities or property issuable upon exercise of a
Warrant) is entitled to receive upon completion of such merger, consolidation or
sale.
As to any final fraction of a share which the same Holder of one or
more Warrant Certificates would otherwise be entitled to purchase upon exercise
thereof in the same transaction, the Company may pay the cash value thereof
determined as provided in the Warrant Agreement.
Subject to Article VI of the Warrant Agreement, all Common Shares
issuable by the Company upon the exercise of Warrants shall be validly issued,
fully paid and not subject to any calls for funds, and the Company shall pay any
taxes and other governmental charges that may be imposed under the laws of the
35
<PAGE>
United States of America or any political subdivision or taxing authority
thereof or therein in respect of the issue or delivery thereof upon exercise of
Warrants (other than income taxes imposed on the Holders). The Company shall not
be required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any certificate for Common Shares
(including other securities or property issuable upon the exercise of the
Warrants) or payment of cash to any Person other than the Holder of a Warrant
Certificate surrendered upon the exercise of a Warrant and in case of such
transfer or payment, the Warrant Agent and the Company shall not be required to
issue any share certificate or pay any cash until such tax or charge has been
paid or it has been established to the Warrant Agent's and the Company's
satisfaction that no such tax or charge is due.
Subject to the restrictions on and conditions to transfer set forth
in Articles II and VIII of the Warrant Agreement, this Warrant Certificate and
all rights hereunder are transferable by the registered Holder hereof, in whole
or in part, on the register of the Company maintained by the Warrant Agent for
such purpose at the Warrant Agent's office in New York, New York, upon surrender
of this Warrant Certificate duly endorsed, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Warrant Agent
duly executed, with signatures guaranteed as specified in the attached Form of
Assignment, by the registered Holder hereof or his attorney duly authorized in
writing and by such other documentation required pursuant to the Warrant
Agreement and upon payment of any necessary transfer tax or other governmental
charge imposed upon such transfer. Upon any partial transfer, the Company will
sign and issue and the Warrant Agent will countersign and deliver to such Holder
a new Warrant Certificate or Certificates with respect to any portion not so
transferred. Each taker and Holder of this Warrant Certificate, by taking and
holding the same, consents and agrees that prior to the registration of transfer
as provided in the Warrant Agreement, the Company and the Warrant Agent may
treat the Person in whose name the Warrants are registered as the absolute owner
hereof for any purpose and as the Person entitled to exercise the rights
represented hereby, any notice to the contrary notwithstanding. Accordingly, the
Company and/or the Warrant Agent shall not, except as ordered by a court of
competent jurisdiction as required by law, be bound to recognize any equitable
or other claim to or interest in the Warrants on the part of any Person other
than such registered Holder, whether or not it shall have express or other
notice thereof.
This Warrant Certificate may be exchanged at the office of the
Warrant Agent maintained for such purpose in New York, New York for Warrant
Certificates representing the same aggregate number of Warrants, each new
Warrant Certificate to represent such number of Warrants as the Holder hereof
shall designate at the time of such exchange.
Prior to the valid exercise of the Warrants represented hereby, the
Holder of this Warrant Certificate, as such, shall not be entitled to any rights
of a shareholder of the Company, including, without limitation, the right to
vote or to consent to any action of the shareholders, to receive any
distributions, to exercise any pre-emptive right or to receive any notice of
meetings of shareholders, and shall not be entitled to receive any notice of any
proceedings of the Company except as provided in the Warrant Agreement.
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<PAGE>
This Warrant Certificate shall be void and all rights evidenced
hereby shall cease on February 1, 2009, unless sooner terminated by the
liquidation, dissolution or winding-up of the Company or as otherwise provided
in the Warrant Agreement upon the consolidation or merger of the Company with,
or sale of the Company to, another Person or unless such date is extended as
provided in the Warrant Agreement.
[Balance of page intentionally left blank.]
This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
KMC TELECOM HOLDINGS, INC.
By: _________________________
Name: Cynthia Worthman
Title: Vice President, Chief Financial
Officer and Secretary
Dated: February __, 1999
Countersigned:
THE CHASE MANHATTAN BANK,
as Warrant Agent
By: -----------------------------
Name:
Title:
37
<PAGE>
FORM OF REVERSE OF WARRANT CERTIFICATE
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: The Chase Manhattan Bank
450 West 33rd St., 15th Floor
New York, NY 10001-2697
Attention: Capital Markets Fiduciary Services
The undersigned irrevocably exercises ________ of the Warrants
represented by this Warrant Certificate and herewith makes payment of $ _______
(such payment being by wire transfer, in cash or by certified or official bank
or bank cashier's check payable to the order or at the direction of KMC Telecom
Holdings, Inc. or, if the Common Shares (or other securities) issuable upon
exercise of the Warrants are registered under the Exchange Act, the exercise
price may be paid by surrendering additional Warrants to the Warrant Agent
having an aggregate Spread equal to the aggregate exercise price of the Warrants
being exercised) all at the exercise price and on the terms and conditions
specified in this Warrant Certificate and in the Warrant Agreement and the
Warrant Registration Rights Agreement referred to herein and surrenders this
Warrant Certificate and all right, title and interest therein to and directs
that the shares of Common Stock, par value $.01 per share, of KMC Telecom
Holdings, Inc. (the "COMMON SHARES") deliverable upon the exercise of such
Warrants be registered or placed in the name and at the address specified below
and delivered thereto.
CHECK ONE
|_| Payment made by wire transfer, in cash, or by certified or
official bank or bank cashier's check.
OR
|_| The Common Shares (or other securities) issuable upon exercise
of the Warrants are registered under the Exchange Act and
payment is being made by surrendering Warrants having an
aggregate Spread equal to the aggregate Exercise Price of the
Warrants being exercised.
Dated: ------------------------------------------
(Signature of Owner)
------------------------------------------
(Street Address)
------------------------------------------
(City) (State) (Zip Code)
Signature Guaranteed By:
-------------------------------------------
Securities and/or check or other property to be issued or delivered to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
39
<PAGE>
FORM OF ASSIGNMENT
In consideration of monies or other valuable consideration received
from the Assignee(s) named below, the undersigned registered Holder of this
Warrant Certificate hereby sells, assigns, and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants constituting
a part of the Warrants evidenced by this Warrant Certificate not being assigned
hereby) all of the right of the undersigned under this Warrant Certificate, with
respect to the number of Warrants set forth below:
Name(s) of Assignee(s): _____________________________________
Address: __________________________________________________
No. of Warrants: ___________________________________________
Please insert social security or other identifying number of assignee(s):
and does hereby irrevocably constitute and appoint ________________________ the
undersigned's attorney to make such transfer on the books of __________________
maintained for the purposes, with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES]
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<PAGE>
In connection with any transfer of Warrants, the undersigned
confirms that without utilizing any general solicitation or general advertising
that:
[Check One]
|_| (a) these Warrants are being transferred in compliance with the
exemption from registration under the U.S. Securities Act of 1933, as
amended, provided by Rule 144A thereunder.
OR
|_| (b) these Warrants are being transferred other than in accordance with
(a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Warrant Certificate and the
Warrant Agreement.
OR
|_| (c) these Warrants are being transferred pursuant to an effective
registration statement under the U.S. Securities Act of 1933, as
amended.
If none of the foregoing boxes is checked, the Warrant Agent shall not be
obligated to register the Warrants in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Article VIII of the Warrant Agreement shall
have been satisfied.
Dated:
-------------------------
(Signature of Owner)
-------------------------
(Street Address)
-------------------------
(City) (State) (Zip Code)
Signature Guaranteed By:
---------------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
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<PAGE>
The undersigned represents and warrants that it is purchasing the
Warrant(s) for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the U.S. Securities
Act of 1933, as amended, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding KMC Telecom Holdings, Inc. as the undersigned has requested pursuant
to Rule 144A or has determined not to request such information and that it is
aware that the transferor is relying upon the undersigned's foregoing
representations in order to claim the exemption from registration provided by
Rule 144A.
Dated:________________
----------------------------------------
[NOTE: To be executed by an executive officer]
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EXHIBIT B-1
Form of Certificate to be
Delivered by Transferor in Connection with
TRANSFERS TO PERSONS OTHER THAN QIBS
[Date]
KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, NJ 07921
The Chase Manhattan Bank
450 West 33rd St., 15th Floor
New York, NY 10001-2697
Attention: Capital Markets Fiduciary Services
Re: Warrants (the "Warrants") to Purchase
Common Shares of KMC Telecom Holdings, Inc. (the "Company")
Ladies and Gentlemen:
We hereby certify that such transfer is being effected in compliance
with the transfer restrictions applicable to the Warrants or interests therein
transferred pursuant to and in accordance with the Securities Act, and
accordingly we hereby further certify that (check one):
(a) |_| such transfer is being effected pursuant to and in accordance with
Rule 144 under the Securities Act;
or
(b) |_| such transfer is being effected to the Company or a subsidiary
thereof;
or
(c) |_| such transfer is being effected pursuant to an effective
registration statement under the Securities Act;
or
(d) |_| such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144 and Rule
144, and we hereby further certify that such transfer complies with the transfer
restrictions applicable to the Warrants or interests therein transferred to
persons other than QIBs and in accordance with the requirements of the exemption
claimed, which certification is supported by an Opinion of Counsel provided by
us or the transferee (a copy of which we have attached to this certification),
to the effect that such transfer is in compliance with the Securities Act. Upon
consummation of the proposed transfer in accordance with the terms of the
Warrant Agreement, the transferred Warrants or interests therein will be subject
to the restrictions on transfer enumerated in the Private Placement Legend
printed on the Certificated Warrant and in the Warrant Agreement and the
Securities Act.
Very truly yours,
[Name of Transferor]
By:--------------------------------------
Authorized Signatory
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EXHIBIT B-2
FORM OF CERTIFICATE TO BE
DELIVERED BY TRANSFEREES IN CONNECTION WITH
TRANSFERS TO PERSONS OTHER THAN QIBS
[Date]
KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, NJ 07921
The Chase Manhattan Bank
450 West 33rd St., 15th Floor
New York, NY 10001-2697
Attention: Capital Markets Fiduciary Services
Re: Warrants (the "WARRANTS") to Purchase
Common Shares of
KMC Telecom Holdings, Inc. (the "COMPANY")
Ladies and Gentlemen:
In connection with our proposed purchase of ___________ aggregate
number of Warrants, we confirm that:
1. We understand that any subsequent transfer of the Warrants, any
interest therein or the Common Shares issuable upon exercise of any Warrant
(the "WARRANT SHARES") is subject to certain restrictions and conditions
set forth in the Warrant Agreement dated as of February 4, 1999 relating to
the Warrants (the "WARRANT AGREEMENT") and the Warrant Registration Rights
Agreement dated February 4, 1999 relating to the Warrants (the "WARRANT
REGISTRATION RIGHTS AGREEMENT") and the undersigned agrees to be bound by,
and not to resell, pledge or otherwise transfer the Warrants or Warrant
Shares except in compliance with, such restrictions and conditions and the
U.S. Securities Act of 1933, as amended (the "SECURITIES ACT").
2. We understand that the Warrants represented by this Warrant
Certificate and, as of the date this Warrant Certificate was originally
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issued, the Warrant Shares have not been registered under the Securities
Act, and accordingly may not be offered, sold, pledged or otherwise
transferred except as set forth in the following sentence. We agree that we
will not, within the time period referred to in Rule 144(k) of the
Securities Act (taking into account the provisions of Rule 144(d) under the
Securities Act, if applicable) under the Securities Act as in effect on the
date of the transfer of this Warrant, resell or otherwise transfer the
Warrants represented by this Warrant Certificate except (a) to KMC Telecom
Holdings, Inc. or any subsidiary thereof, (b) to a qualified institutional
buyer in compliance with Rule 144A under the Securities Act, (c) pursuant
to the exemption from registration provided by Rule 144 under the
Securities Act (if available), (d) to an institutional accredited investor
that, prior to such transfer, furnishes to you, to the Company and, in the
case of the Warrant Shares, to the transfer agent and registrar therefor, a
signed letter containing certain representations and agreements relating to
the restrictions on transfer of the Warrants represented by this Warrant
Certificate (the form of which letter can be obtained from the Warrant
Agent) and an opinion of counsel acceptable to KMC Telecom Holdings, Inc.
and its counsel that such transfer is in compliance with the Securities Act
or (f) pursuant to an effective registration statement under the Securities
Act and, in each case, in accordance with applicable state securities laws.
3. We understand that, on any proposed resale of any Warrants, any
interest therein or Warrant Shares, we will be required to furnish to you
and the Company such certifications, legal opinions and other information
as you and the Company may reasonably require to confirm that the proposed
sale complies with the foregoing restrictions. We further understand that
the Warrants purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Warrants, and we and any accounts for which we are acting are each able to
bear the economic risk of our or its investment for an indefinite period of
time.
5. We are acquiring the Warrants purchased by us for our own account
or for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
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You, the Company and, if applicable, the transfer agent and registrar
for the Warrant Shares are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby.
Very truly yours,
[Name of Transferee]
By:------------------------------------
Authorized Signature
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EXHIBIT C
[Date]
KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, NJ 07921
The Chase Manhattan Bank
450 West 33rd St., 15th Floor
New York, NY 10001-2697
Attention: Capital Markets Fiduciary Services
Re: Warrants (the "WARRANTS") to Purchase
Common Shares of
KMC Telecom Holdings, Inc. (the "COMPANY")
Ladies and Gentlemen:
This notice is being provided pursuant to Section 2.4 of the Warrant
Agreement dated as of February 4, 1999 (the "WARRANT AGREEMENT"), among The
Chase Manhattan Bank, as Warrant Agent, the Company, Newcourt Commercial Finance
Corporation, Lucent Technologies Inc. and any Additional Purchaser (as described
therein). Capitalized terms not otherwise defined herein shall have the meaning
set forth in the Warrant Agreement.
The undersigned hereby certifies that (i) [it is][we are] the
holder[s] of at least 10% of the aggregate outstanding Eligible Shares and that
(ii) as of the date of this notice, the Company has failed to redeem all share
of Series F Preferred Stock by the earlier of:
(check one)
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(a) |_| the date that is sixty days after the date on which the
Company closes an underwritten primary offering of at least
$200 million of its Common Stock pursuant to an effective
registration statement under the Securities Act;
or
(b) |_| February 4, 2001
As a result in accordance with the provisions of Section 2.4 of the
Warrant Agreement, each holder of Eligible Shares (or their transferees) shall
be entitled to receive a number of Springing Warrants equal to 227,273
multiplied by a fraction, the numerator of which shall be the aggregate
liquidation preference of such holder's Eligible Shares and the denominator of
which shall be the aggregate liquidation preference of all outstanding Eligible
Shares. The Warrant Agent is hereby authorized and directed to countersign and
deliver to each registered holder of Eligible Shares, the number of Springing
Warrants each such holder is entitled to receive at such holder's address as set
forth on the records of the Transfer Agent for the Series E Preferred Stock and
the Series F Preferred Stock.
[NAME OF HOLDER OF SERIES [E][F] PREFERRED STOCK
By:________________________
Name:
Title:
Number of shares of Series [E][F] preferred
Stock:_______
[NAME OF HOLDER OF SERIES [E][F] PREFERRED STOCK
By:________________________
Name:
Title:
Number of shares of Series [E][F] preferred
Stock:_______
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<PAGE>
EXHIBIT D
IN WITNESS WHEREOF, the undersigned hereby agrees to the terms and
conditions of, and agrees to be bound by the provisions of, the Warrant
Agreement dated as of February 4, 1999, as if the undersigned was a party
thereto as of such date, and has caused this signature page thereto to be duly
executed as of the day and year set forth below.
Date:__________________ [ NAME OF ADDITIONAL OF PURCHASER ]
By:----------------------------------------------
Name:
Title:
Acknowledged and consented to:
THE CHASE MANHATTAN BANK, as Warrant Agent
By:----------------------------------------------
Name: Patricia Kelly
Title:
KMC TELECOM HOLDINGS, INC.
By:----------------------------------------------
Name:
Title:
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APPENDIX A
LIST OF FINANCIAL EXPERTS
Alex. Brown & Sons
Bear, Stearns & Co., Inc.
Dillon, Read & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Goldman, Sachs & Co.
Lazard Freres & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
PaineWebber Incorporated
Prudential Securities Inc.
Salomon Brothers Inc
Lehman Brothers
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TABLE OF CONTENTS
PAGE
ARTICLE I CERTAIN DEFINITIONS 2
ARTICLE II ORIGINAL ISSUE OF WARRANTS 6
SECTION 2.1. FORM OF WARRANT CERTIFICATES 6
SECTION 2.2. RESTRICTIVE LEGENDS 6
SECTION 2.3. EXECUTION AND DELIVERY OF WARRANT CERTIFICATES 7
ARTICLE III EXERCISE PRICE AND EXERCISE OF WARRANTS 10
SECTION 3.1. EXERCISE PRICE 10
SECTION 3.2. EXERCISE; RESTRICTIONS ON EXERCISE 10
SECTION 3.3. METHOD OF EXERCISE; PAYMENT OF EXERCISE PRICE 10
ARTICLE IV ADJUSTMENTS 12
SECTION 4.1. ADJUSTMENTS 12
SECTION 4.2. NOTICE OF ADJUSTMENT 19
SECTION 4.3. STATEMENT ON WARRANTS 19
SECTION 4.4. NOTICE OF CONSOLIDATION, MERGER, ETC 19
SECTION 4.5. FRACTIONAL INTERESTS 20
ARTICLE V DECREASE IN EXERCISE PRICE 21
ARTICLE VI LOSS OR MUTILATION 21
ARTICLE VII RESERVATION AND AUTHORIZATION OF COMMON SHARES 22
ARTICLE VIII WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER 22
SECTION 8.1. TRANSFER AND EXCHANGE 22
SECTION 8.3. SPECIAL TRANSFER PROVISIONS 23
SECTION 8.4. SURRENDER OF WARRANT CERTIFICATES 24
ARTICLE IX WARRANT HOLDERS 25
SECTION 9.1. WARRANT HOLDER DEEMED NOT A SHAREHOLDER 25
SECTION 9.2. RIGHT OF ACTION 25
ARTICLE X THE WARRANT AGENT 25
SECTION 10.1. DUTIES AND LIABILITIES 25
SECTION 10.2. RIGHT TO CONSULT COUNSEL 27
SECTION 10.3. COMPENSATION; INDEMNIFICATION 27
SECTION 10.4. NO RESTRICTIONS ON ACTIONS 27
SECTION 10.5. DISCHARGE OR REMOVAL; REPLACEMENT WARRANT AGENT 27
SECTION 10.6. SUCCESSOR WARRANT AGENT 28
ARTICLE XI MISCELLANEOUS 29
SECTION 11.1. MONIES DEPOSITED WITH THE WARRANT AGENT 29
SECTION 11.2. PAYMENT OF TAXES 29
SECTION 11.3. NO MERGER, CONSOLIDATION OR SALE OF ASSETS OF
THE COMPANY 29
SECTION 11.4. REPORTS TO HOLDERS 30
SECTION 11.5. NOTICES; PAYMENT 30
SECTION 11.6. BINDING EFFECT 31
SECTION 11.7. COUNTERPARTS 31
SECTION 11.8. AMENDMENTS 31
SECTION 11.9. HEADINGS 31
SECTION 11.10. COMMON SHARES LEGEND 31
SECTION 11.11. THIRD PARTY BENEFICIARIES 33
SECTION 11.12. TERMINATION 33
SECTION 11.13. GOVERNING LAW 33
EXHIBIT A FORM OF WARRANT CERTIFICATE
EXHIBIT B-1 FORM OF CERTIFICATE TO BE DELIVERED BY TRANSFEROR IN
CONNECTION WITH TRANSFERS TO PERSONS OTHER THAN QIBs
EXHIBIT B-2 FORM OF CERTIFICATE TO BE DELIVERED BY TRANSFEREES IN
CONNECTION WITH TRANSFERS TO PERSONS OTHER THAN QIBs
EXHIBIT C FORM OF SPRINGING NOTICE
EXHIBIT D FORM OF COUNTERPART TO SIGNATURE PAGE
APPENDIX A LIST OF FINANCIAL EXPERTS
WARRANT REGISTRATION RIGHTS AGREEMENT
between
KMC TELECOM HOLDINGS, INC.
and
NEWCOURT COMMERCIAL FINANCE CORPORATION
and
LUCENT TECHNOLOGIES INC.
and
ANY ADDITIONAL PURCHASER
Dated as of February 4, 1999
<PAGE>
WARRANT REGISTRATION RIGHTS AGREEMENT
WARRANT REGISTRATION RIGHTS AGREEMENT, dated as of February 4, 1999
(this "AGREEMENT"), among KMC TELECOM HOLDINGS, INC., a Delaware corporation
(the "COMPANY"), and Newcourt Commercial Finance Corporation, a Delaware
corporation ("NEWCOURT"), Lucent Technologies Inc., a Delaware corporation,
("LUCENT") and any other Person (as defined herein) who becomes a party to this
Agreement after the date hereof in accordance with the provisions of Section
10(m) hereof (each an "ADDITIONAL PURCHASER" and together with Newcourt and
Lucent, the "PURCHASERS").
WHEREAS, in connection with the sale of shares of its preferred
stock from time to time, the Company intends to issue and sell warrants (each, a
"WARRANT" and collectively, the "WARRANTS") to be issued pursuant to a Warrant
Agreement of even date herewith (the "WARRANT AGREEMENT") among the Company, the
Purchasers and the Warrant Agent (as defined herein), each Warrant initially
entitling the holder thereof to purchase 0.471756 shares of Common Stock (as
defined below) of the Company at an exercise price of $.01 per Common Share (as
defined below);
WHEREAS, pursuant to the terms of a Securities Purchase Agreement of
even date herewith (the "PURCHASE AGREEMENT"), among the Company, Newcourt and
Lucent, the Company has agreed to issue and sell to (a) Newcourt a unit (the
"SERIES E & F UNIT"), consisting of 25,000 shares of the Company's Series E
Senior, Redeemable, Exchangeable PIK Preferred Stock (the "SERIES E PREFERRED
STOCK"), 10,000 shares of the Company's Series F Senior, Redeemable,
Exchangeable PIK Preferred Stock (the "SERIES E PREFERRED STOCK") and 38,636
Warrants and (b) to Lucent a unit (the "SERIES F UNIT" and together with the
Series E Unit, the "UNITS"), consisting of 30,000 shares of the Company's Series
F Preferred Stock and 13,636 Warrants;
WHEREAS, as described in Section 2.4 of the Warrant Agreement, the
holders of the Series E Preferred Stock and the Series F Preferred Stock have
the right to receive 227,273 Warrants, unless certain conditions are met; and
WHEREAS, in addition to the 38,636 Warrants that will be issued as
part of the Series E & F Unit, the 13,636 Warrants that will be issued as part
of the Series F Unit and the Warrants that may be issued to the holders of the
Series F Preferred Stock pursuant to Section 2.4 of the Warrant Agreement, the
Company may, from time to time, issue and sell additional Warrants pursuant to
the Warrant Agreement in connection with the sale to Additional Purchasers of
additional units, consisting of shares of the Company's Series E Preferred Stock
or Series F Preferred Stock and Warrants.
In consideration of the foregoing and of the mutual agreements
contained herein and in the Purchase Agreement, the Company and the Purchaser
hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Additional Purchasers" has the meaning specified in the recitals of
this Agreement.
"Auditors" means, at any time, the independent auditors of the
Company at such time.
"Board" means the board of directors of the Company from time to
time.
"Closing Date" means February 4, 1999.
"Comfort Letter" has the meaning specified in Section 3 hereof.
"Commission" means the United States Securities and Exchange
Commission.
"Common Shares" means the shares of the Common Stock of the Company.
"Common Stock" means the common stock, par value $.01 per share, of
the Company.
"Company" has the meaning specified in the recitals to this
Agreement.
"Company IPO Shares" has the meaning specified in Section 2 hereof.
"Cutback Notice" has the meaning specified in Section 2 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Holder" means the record holders of the Existing Warrants
and the holders of Common Shares (or other securities) received upon exercise
thereof.
"Existing Warrant Agreement" means the Warrant Agreement dated
January 29, 1998 between the Company and The Chase Manhattan Bank relating to
the Existing Warrants.
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<PAGE>
"Existing Warrant Registration Rights Agreement" means the Warrant
Registration Rights Agreement, dated January 26, 1998, between the Company and
Morgan Stanley & Co. Incorporated.
"Existing Warrants" means the 460,800 warrants that were issued
pursuant to the Existing Warrant Agreement, each such warrant initially
entitling the holder thereof to purchase 0.21785 shares of Common Stock of the
Company at an exercise price of $.01 per Common Share.
"Existing Warrant Shares" means the Common Shares issuable upon
exercise of an Existing Holder's Existing Warrants, such other securities as
shall be issuable upon the exercise of the Existing Warrants, or the Common
Shares or such other securities received upon the exercise thereof, pursuant to
the Existing Warrant Agreement, in each case to the extent that such Common
Shares or other securities would be (upon issuance) or are, as the case may be,
subject to restrictions on transfer.
"Expiration Date" means the second anniversary of the Closing Date,
except that in the event the Springing Warrants are issued as provided in
Section 2.3 of the Warrant Agreement, the Expiration Date, with respect to the
Springing Warrants only, shall be the second anniversary from the date of
issuance of the Springing Warrants.
"Holders" means the record holders of the Warrants and the holders
of Common Shares (or other securities) received upon exercise thereof.
"Includible Secondary Shares" has the meaning specified in Section 2
hereof.
"managing underwriter" has the meaning specified in Section 2
hereof.
"Opinion" has the meaning specified in Section 3 hereof.
"Other IPO Shares" has the meaning specified in Section 2 hereof.
"Piggy-back Registration Rights" has the meaning specified in
Section 2 hereof.
"Purchasers" has the meaning specified in the recitals to this
Agreement.
"Purchase Agreement" has the meaning specified in the recitals to
this Agreement.
"Registration Statement" has the meaning specified in Section 2
hereof.
"Resale Shelf" has the meaning specified in Section 3 hereof.
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"Securities Act" means the United States Securities Act of 1933, as
amended.
"Series E Preferred Stock" has the meaning specified in the recitals
to this Agreement.
"Series E & F Unit" has the meaning specified in the recitals to
this Agreement.
"Series F Preferred Stock" has the meaning specified in the recitals
to this Agreement.
"Series F Unit" has the meaning specified in the recitals to this
Agreement.
"Springing Warrants" has the meaning set forth in the Warrant
Agreement.
"Stockholders Agreement" means the Amended and Restated Stockholders
Agreement, dated as of October 31, 1997, among the Company, Nassau Capital
Partners L.P., NAS Partners I L.L.C., Harold N. Kamine, KMC Telecommunications
L.P., AT&T Credit Corporation, General Electric Capital Corporation, CoreStates
Bank, N.A. and CoreStates Holdings, Inc., as amended and supplemented from time
to time.
"Underlying Securities" means the Common Shares issuable upon
exercise of the Warrants or such other securities as shall be issuable upon the
exercise of the Warrants, pursuant to the Warrant Agreement.
"Units" has the meaning specified in the recitals to this Agreement.
"Warrants" has the meaning specified in the recitals to this
Agreement, including the Springing Warrants.
"Warrant Agent" means The Chase Manhattan Bank, in its capacity as
Warrant Agent under the Warrant Agreement.
"Warrant Agreement" has the meaning specified in the recitals to
this Agreement.
"Warrant Registration Statement" has the meaning specified in
Section 3 hereof.
"Warrant Shares" has the meaning specified in Section 2 hereof.
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2. PIGGY-BACK REGISTRATION RIGHTS.
(a) If, prior to the Expiration Date, the Company proposes to file
a Registration Statement with the Commission respecting an offering of any
shares of Common Stock (or other securities issuable upon exercise of the
Warrants) (other than (i) an offering registered solely on Form S-4 or S-8 or
any successor form thereto, or (ii) the initial public offering of shares of
Common Stock (or other securities issuable upon exercise of the Warrants) if no
shareholder of the Company participates therein), the Company shall give prompt
written notice to all the Holders of Warrants or Common Shares or such other
securities received upon exercise of Warrants, to the extent such Common Shares
or other securities would be (upon issuance) or are, as the case may be, subject
to restrictions on transfer, at least 30 days prior to the initial filing of the
registration statement relating to such offering (the "REGISTRATION STATEMENT").
Each such Holder shall have the right, within 20 days after delivery of such
notice, to request in writing that the Company include all or a portion of such
of the Common Shares issuable upon exercise of such Holder's Warrants, such
other securities as shall be issuable upon the exercise of the Warrants, or the
Common Shares or such other securities received upon the exercise thereof,
pursuant to the Warrant Agreement, in each case to the extent that such Common
Shares or other securities would be (upon issuance) or are, as the case may be,
subject to restrictions on transfer, ("WARRANT SHARES") in such Registration
Statement ("PIGGY-BACK REGISTRATION RIGHTS"). The Company shall include in the
public offering all of the Warrant Shares that a Holder has requested be
included, unless the underwriter for the public offering or the underwriter
managing the public offering (in either case, the "MANAGING UNDERWRITER")
delivers a notice (a "CUTBACK NOTICE") pursuant to Section 2(b) or 2(c) hereof.
The managing underwriter may deliver one or more Cutback Notices at any time
prior to the execution of the underwriting agreement for the public offering.
(b) If a proposed public offering includes both securities to be
offered for the account of the Company ("COMPANY IPO SHARES") and shares to be
sold by stockholders, the provisions of this Section 2(b) shall be applicable if
the managing underwriter delivers a Cutback Notice stating that, in its opinion,
the number of Common Shares (other than (a) Existing Warrant Shares to be sold
by any Existing Holders and (b) Warrant Shares to be sold by any Holders) that
selling stockholders propose to sell therein, whether or not such selling
stockholders have the right to include shares therein (the "OTHER IPO SHARES"),
plus the number of Existing Warrant Shares that the Existing Holders have
requested to be sold therein, plus the number of Warrant Shares that the Holders
have requested to be sold therein, plus the Company IPO Shares, exceeds the
maximum number of shares specified by the managing underwriter in such Cutback
Notice that may be distributed without adversely affecting the price, timing or
distribution of the Company IPO Shares. Such maximum number of shares that may
be so sold, excluding the Company IPO Shares, are referred to as the "INCLUDIBLE
SHARES."
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If the managing underwriter delivers such Cutback Notice, (i) the
Company shall be entitled to include all of the Company IPO Shares in the public
offering, (ii) each stockholder who has requested the inclusion of Other IPO
Shares in the public offering pursuant to Section 6.1 or 6.2 of the Stockholders
Agreement shall be entitled to include all of its Other IPO Shares and each
Existing Holder who has requested the inclusion of its Existing Warrant Shares
shall be entitled to include all of its Existing Warrant Shares, in each case,
in priority to the inclusion of any Warrant Shares requested to be included by
Holders and (iii) except as otherwise provided in the preceding clause (ii),
each requesting Holder shall be entitled to include in the public offering up to
its pro rata portion of the Includible Shares in priority to the inclusion
(except as otherwise provided in the preceding clause (ii)) of any Other IPO
Shares that are proposed to be sold in such public offering.
(c) If a proposed public offering is entirely a secondary offering,
the provisions of this Section 2(c) shall be applicable if the managing
underwriter delivers a Cutback Notice stating that, in its opinion, the
aggregate number of Existing Warrant Shares, Warrant Shares and Other IPO Shares
proposed to be sold therein exceeds the maximum number of shares (the
"INCLUDIBLE SECONDARY SHARES") specified by the managing underwriter in such
Cutback Notice that may be distributed without adversely affecting the price,
timing or distribution of the Common Shares being distributed. If the managing
underwriter delivers such Cutback Notice, (i) each stockholder who has requested
the inclusion of Other IPO Shares in the public offering pursuant to Section 6.1
or 6.2 of the Stockholders Agreement shall be entitled to include all of its
Other IPO Shares and each Existing Holder who has requested the inclusion of its
Existing Warrant Shares shall be entitled to include all of its Existing Warrant
Shares, in each case, in priority to the inclusion of any Warrant Shares
requested to be included by Holders and (ii) except as otherwise provided in the
preceding clause (i), each requesting Holder shall be entitled to include in the
public offering up to its pro rata portion of the Includible Secondary Shares in
priority to the inclusion (except as set forth in the preceding clause (i)) of
any Other IPO Shares that are proposed to be sold in such public offering.
(d) The underwriting agreement for such public offering shall
provide that each requesting Holder shall have the right to sell its Warrant
Shares (other than Warrant Shares excluded from such public offering pursuant to
a Cutback Notice and the terms of Section 2(b) or 2(c)) to the underwriters and
that the underwriters shall purchase the Warrant Shares at the price paid by the
underwriters for the Common Shares sold by the Company and/or other selling
stockholders, as the case may be.
3. SHELF REGISTRATION.
(a) If only the Company sells Common Shares in an initial public
offering or all of the Warrant Shares have not been sold in a public offering,
the Company shall use its reasonable best efforts to cause to be filed pursuant
to Rule 415 under the Securities Act a shelf registration statement on the
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appropriate form (the "WARRANT REGISTRATION STATEMENT") covering the issuance of
the Warrant Shares upon exercise of the Warrants and shall use its reasonable
best efforts to cause the Warrant Registration Statement to become effective
under the Securities Act within 180 days after the closing date of the initial
public offering; PROVIDED, HOWEVER, that (1) in no event may the Warrant
Registration Statement be declared effective prior to the first anniversary of
the Closing Date and (2) if the Commission shall request that the Company
register the resale of the Warrant Shares instead of the issuance thereof, the
Warrant Registration Statement shall register such resale as opposed to such
issuance. The Company shall use reasonable best efforts to keep the Warrant
Registration Statement continuously effective until the earlier of (i) such time
as all Warrants have been exercised or, in the case of clause (2), until such
time as all Warrant Shares have been resold or (ii) the Expiration Date. Prior
to filing the Warrant Registration Statement or any amendment thereto, the
Company shall provide a copy thereof to the Purchaser and its counsel and afford
them a reasonable time to comment thereon.
If the Company is unable to file or cause to be filed, or is unable
to maintain the effectiveness of a Warrant Registration Statement,
notwithstanding its reasonable best efforts to do so, the Company shall cause
such filing to take place, or shall cause such Warrant Registration Statement to
again become effective, after removal of the impediment to file or to maintain
the effectiveness of such Warrant Registration Statement.
(b) If the Warrant Registration Statement shall register the resale
of the Warrant Shares (a "RESALE SHELF") as provided in Section 3(a)(2) above,
the Company agrees to:
(i) make available for inspection by representatives of the Holders,
any underwriter participating in any disposition pursuant to such Resale
Shelf and attorneys and accountants designated by the Holders, at
reasonable times and in a reasonable manner, financial and other records,
documents and properties of the Company that are pertinent to the conduct
of due diligence customary for an underwritten offering, and cause the
officers, directors and employees of the Company to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with a Resale Shelf; PROVIDED, HOWEVER, that such
persons shall first agree in writing with the Company to use such
information only in connection with the transaction for which such
information was obtained and that any information that is reasonably and
in good faith designated by the Company in writing as confidential at the
time of delivery of such information shall be kept confidential by such
persons, unless and to the extent that disclosure of such information is
required by law or such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard such
information by such person;
(ii) use its reasonable best efforts to cause all Warrant Shares
sold under a Resale Shelf to be listed on any securities exchange or any
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<PAGE>
automated quotation system on which securities of the same class issued by
the Company are then listed if requested by the Holders of Warrant Shares
representing a majority of the Warrants originally issued, to the extent
such Warrant Shares satisfy applicable listing requirements;
(iii) provide as soon as practicable, a reasonable number of copies
of the Warrant Registration Statement, any pre-effective or post-effective
amendment thereto, and the prospectus (including each preliminary
prospectus and any amendment or supplements thereto) included in such
Resale Shelf to Holders that are selling Warrant Shares pursuant to such
Resale Shelf;
(iv) cause to be provided to the Warrant Agent, on behalf of the
Holders and beneficial owners of Warrant Shares, upon the effectiveness of
such Resale Shelf, a customary "10b-5" opinion of independent counsel (an
"OPINION") and a customary "cold comfort" letter of independent auditors
(a "COMFORT LETTER");
(v) cause to be provided to Holders and beneficial owners of Warrant
Shares an Opinion and Comfort Letter with respect to each Form 10-K and
Form 10-Q, including any amendments thereto, that is incorporated by
reference in such Resale Shelf; and
(vi) notify the Warrant Agent, for distribution to the Holders, (A)
when the Resale Shelf has become effective and when any post-effective
amendment thereto has been filed and becomes effective, (B) of any request
by the Commission or any state securities authority for amendments and
supplements to the Resale Shelf or of any material request by the
Commission or any state securities authority for additional information
after the Resale Shelf has become effective, (C) of the issuance by the
Commission or any state securities authority of any stop order suspending
the effectiveness of the Resale Shelf or the initiation of any proceedings
for that purpose, (D) if, between the effective date of the Resale Shelf
and the closing of any sale of Warrant Shares covered thereby, the
representations and warranties of the Company contained in any
underwriting agreement, securities sales agreement or other similar
agreement, including this Agreement, relating to disclosure cease to be
true and correct in any material respect or if the Company receives any
notification with respect to the suspension of the qualification of the
Warrant Shares for sale in any jurisdiction or the initiation of any
proceeding for such purpose, (E) of the happening of any event during the
period the Resale Shelf is effective such that such Resale Shelf or the
related prospectus contains an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary
to make statements therein not misleading and (F) of any determination by
the Company that a post-effective amendment to a Registration Statement
would be appropriate. The Holders hereby agree to suspend the use of the
prospectus contained in any Resale Shelf upon receipt of such notice under
8
<PAGE>
clause (C), (E) or (F) above until, in the case of clause (C), such stop
order is removed or rescinded or, in the case of clauses (E) and (F), the
Company has amended or supplemented such prospectus to correct such
misstatement or omission.
4. SUSPENSION.
Notwithstanding the foregoing, in addition to any suspension
contemplated by clauses (C), (E) or (F) of Section 3(b)(vi), during any
consecutive 365-day period, the Company shall have the privilege to suspend
availability of the Warrant Registration Statement and the related prospectus
for (i) up to two 30-consecutive-day periods, except for the 30 days immediately
prior to the Expiration Date, if the Board determines in good faith that there
is a valid purpose for such suspension and (ii) five additional, non-consecutive
three-day periods, except for the 30 days immediately prior to the Expiration
Date, if the Board determines in good faith that the Company cannot provide
adequate disclosure during such period due to circumstances beyond its control.
Notice of such suspension shall be given promptly to the Warrant Agent.
5. BLUE SKY.
The Company shall use its reasonable best efforts to register or
qualify the Underlying Securities proposed to be sold or issued pursuant to the
Registration Statement or the Warrant Registration Statement under all
applicable securities or "blue sky" laws of all jurisdictions in the United
States in which any Holder of Warrants may or may be deemed to purchase
Underlying Securities upon the exercise of Warrants or resale of the Warrant
Shares, as the case may be, and shall use its reasonable best efforts to
maintain such registration or qualification through the earlier of (A) in the
case of a Registration Statement, the date upon which all of the Warrant Shares
have been sold or such other sale as shall be required by applicable law, (B)
the date upon which all Warrants have been exercised or all Warrant Shares have
been resold, as the case may be, under the Warrant Shelf Registration Statement
and (C) the Expiration Date; PROVIDED, HOWEVER, that the Company shall not be
required to (i) qualify as a foreign corporation or as a broker or a dealer in
securities in any jurisdiction where it would not otherwise be required to
qualify but for this Section 5, (ii) file any general consent to service of
process or (iii) subject itself to taxation in any jurisdiction if it is not
otherwise so subject.
6. ACCURACY OF DISCLOSURE.
The Company (and its successors) represents and warrants to each
Holder (and each beneficial owner of a Warrant or Warrant Share) and agrees for
the benefit of each Holder (and each beneficial owner of a Warrant or Warrant
Share) that, except during any period in which the availability of the Warrant
Registration Statement has been suspended, (i) the Warrant Registration
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Statement and the documents incorporated by reference therein will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein not misleading; and (ii) the prospectus
delivered to such Holder upon its exercise of Warrants or pursuant to which such
Holder sells its Warrant Shares, as the case may be, and the documents
incorporated by reference therein will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that representations, warranties and agreements
set forth in this Section 6 do not apply to statements or omissions in the
Warrant Registration Statement or any such prospectus based upon information
relating to any Holder furnished to the Company (or its successors) in writing
by such Holder expressly for use therein.
7. INDEMNITY.
The Company hereby agrees to indemnify each beneficial owner of a
Warrant and each person, if any, who controls any beneficial owner of a Warrant
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, or is under common control with, or is controlled by, any
beneficial owner of a Warrant (whether or not it is, at the time the indemnity
provided for in this Section 7 is sought, such a beneficial owner), from and
against all losses, damages or liabilities which such beneficial owner or any
such controlling or affiliated person suffers as a result of any breach, on the
date of any exercise of a Warrant by such beneficial owner or the resale of any
Warrant Share by such Holder, in either case pursuant to the Warrant
Registration Statement, of the representations, warranties or agreements
contained in Section 6 hereof. Each beneficial owner of a Warrant Share sold
pursuant to a Resale Shelf, by accepting its beneficial ownership of a Warrant,
hereby (i) agrees to provide the Company with information with respect to it
that the Company reasonably requests in connection with any Resale Shelf and
(ii) agrees, severally and not jointly, to indemnify the Company, its directors
and officers and each person, if any, who controls the Company within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act against any liability incurred by it or such controlling person as a result
of any misstatement of information provided by such beneficial owner to the
Company in writing expressly for inclusion in the Resale Shelf or any omission
of a material fact from any such information provided by such beneficial owner
to the Company.
8. EXPENSES.
All expenses incident to the Company's performance of or compliance
with its obligations under this Agreement will be borne by the Company,
regardless of whether a Registration Statement or Warrant Registration Statement
becomes effective, including without limitation (i) all Commission or National
Association of Securities Dealers, Inc. registration and filing fees, (ii) all
reasonable fees and expenses incurred in connection with compliance with state
securities or "blue sky" laws, (iii) all reasonable expenses of any persons
10
<PAGE>
incurred by or on behalf of the Company in preparing or assisting in preparing,
word processing, printing and distributing any registration statement, any
prospectus, any amendments or supplements thereto and other documents relating
to the performance of and compliance with this Agreement, (iv) the reasonable
fees (including reasonable legal fees and expenses) and disbursements of the
Warrant Agent, (v) the reasonable fees and disbursements of counsel for the
Company and (vi) the fees and disbursements, if any, of the Auditors; but
excluding any and all fees, expenses and disbursements of the Holders (not
specifically included above), including, without limitation, (x) fees and
disbursements of counsel retained by the participating Holders and (y) the
Holder's share of underwriting discounts and commissions.
9. COVENANTS OF THE COMPANY.
The Company hereby agrees and covenants as follows:
(a) After any initial public offering of its equity securities, the
Company shall file as and when applicable, on a timely basis, all reports
required to be filed by it under the Exchange Act, and take such further
reasonable action as may be required from time to time and as may be within the
reasonable control of the Company, to enable the Holders to transfer the Warrant
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 under the Securities Act or any similar rule
or regulation hereafter adopted by the Commission.
(b) The Company shall not, directly or indirectly, (i) enter into
any merger, consolidation or reorganization in which the Company shall not be
the surviving corporation or (ii) transfer or agree to transfer all or
substantially all the Company's assets, unless prior to such merger,
consolidation, reorganization or asset transfer, the surviving corporation or
the transferee, respectively, shall have agreed in writing to assume the
obligations of the Company under this Agreement, and for that purpose references
hereunder to "Warrant Shares" shall be deemed to include the securities which
the Holders of Warrant Shares would be entitled to receive in exchange for
Warrant Shares pursuant to any such merger, consolidation or reorganization.
(c) The Company shall not grant to any Person (other than a Holder
of Warrant Shares) any registration rights with respect to securities of the
Company, or enter into any agreement, that would be inconsistent with the
registration rights granted to Holders of Warrants herein.
10. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. Each of the Company and the
Purchaser represent to the other that it has not entered into, and agrees that
on or after the date of this Agreement it will not enter into, any agreement
11
<PAGE>
which is materially inconsistent with the rights granted to the Holders of
Warrants or Warrant Shares in this Agreement or otherwise materially conflicts
with the provisions hereof. The Company represents that the rights granted to
the Holders hereunder do not in any material way conflict with and are not
materially inconsistent with the rights granted to the holders of the Company's
other issued and outstanding securities under any agreements.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company and the Warrant Agent have obtained the
written consent of Holders of at least a majority of the outstanding Warrants
affected by such amendment, modification, supplement, waiver or consent;
PROVIDED that (i) any amendment, modification or supplement to this Agreement
which, in the good faith opinion of the Board (and evidenced by a resolution of
such board), does not adversely affect any Holder, shall not be subject to such
requirement for written consent; and (ii) any amendment shall not be effective
unless the Warrant Agent shall have received an opinion of counsel, reasonably
satisfactory to it, that such amendment complies with the requirements hereof.
(c) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 10(c); (ii) if to the Company, initially at the Company's address set
forth in the Purchase Agreement and thereafter at such other address, notice of
which is given in accordance with the provisions of this Section 10(c); and
(iii) if to the Purchaser, initially at the Purchaser's address set forth in the
Purchase Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 10(c).
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
12
<PAGE>
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation, subsequent Holders; PROVIDED that
nothing herein shall be deemed to permit any assignment, transfer or other
disposition of Warrants in violation of the terms of the Purchase Agreement or
the Warrant Agreement. If any transferee of any Holder shall acquire Warrants,
in any manner, whether by operation of law or otherwise, such Warrants shall be
held subject to all of the terms of this Agreement and the Warrant Agreement,
and by taking and holding such Warrants such person shall be conclusively deemed
to have agreed to be bound by and to perform all of the terms and provisions of
this Agreement and the Warrant Agreement and such person shall be entitled to
receive the benefits hereof.
(e) PURCHASES AND SALES OF WARRANTS. The Company shall not, and
shall use its reasonable best efforts to cause its affiliates (as defined in
Rule 405 under the Securities Act) not to, purchase and then resell or otherwise
transfer any Warrants other than Warrants acquired and cancelled.
(f) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Purchaser, and each Holder shall have the right to enforce such agreements
directly to the extent it deems such enforcement necessary or advisable to
protect its rights or the rights of Holders hereunder.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. This Agreement shall be governed by the laws of
the State of New York.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) WAIVER OF IMMUNITY. To the extent that the Company has or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether through service of notice, attachment prior to judgement,
13
<PAGE>
attachment in aid of execution, execution or otherwise) with respect to itself
or its property, it hereby irrevocably waives such immunity in respect of its
obligations under this Agreement to the fullest extent permitted by law.
(l) INITIAL PUBLIC OFFERING. Notwithstanding anything to the
contrary herein contained, if the Company conducts an initial public offering of
equity securities (other than nonconvertible preferred shares), the Company will
give the Holders the opportunity to convert such Warrants into warrants to
purchase such equity securities (other than nonconvertible preferred shares) and
such Warrant Shares into such equity securities (other than nonconvertible
preferred shares). Such conversion opportunity will be on terms and conditions
determined to be fair and reasonable by the Company's Board.
(m) ADDITIONAL PURCHASERS. From time to time the Company may issue
and sell additional Warrants to be issued under the Warrant Agreement, together
with shares of Series E Preferred Stock or Series F Preferred Stock, to
Additional Purchasers; PROVIDED THAT, any such Additional Purchaser shall agree
to all of the terms and conditions of, and assume all of the rights and
obligations of a "Purchaser" under, this Agreement and the Warrant Agreement,
such action to be evidenced by such Additional Purchaser executing and
delivering to the Company a counterpart to the signature page of this Agreement
(in the form attached hereto as Exhibit A) and the Warrant Agreement (in the
form set forth therein). Other than such Additional Purchaser, the Company and
the Warrant Agent with respect to the Warrant Agreement, and the Company and
such Additional Purchaser with respect to this Agreement, no other party need
execute such counterparts in order for them to be effective.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
KMC TELECOM HOLDINGS, INC.
By /s/ Cynthia Worthman
--------------------------------------
Name: Cynthia Worthman
Title: Vice President, Chief Financial
Officer
14
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NEWCOURT COMMERCIAL FINANCE
CORPORATION
By /s/ John P. Sirico, III
--------------------------------------
Name:
Title:
LUCENT TECHNOLOGIES INC.
By /s/ Leslie L. Rogers
--------------------------------------
Name:
Title:
15
<PAGE>
EXHIBIT A
IN WITNESS WHEREOF, the undersigned hereby agrees to the terms and
conditions of, and agrees to be bound by the provisions of, the Warrant
Registration Rights Agreement dated as of February __, 1999, as if the
undersigned was a party thereto as of such date, and has caused this signature
page thereto to be duly executed as of the day and year set forth below.
Date:__________________ [ NAME OF ADDITIONAL OF PURCHASER ]
By:______________________________
Name:
Title:
Acknowledged and consented to:
KMC TELECOM HOLDINGS, INC.
By:______________________________
Name:
Title:
- -----------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
DATED AS OF FEBRUARY 4, 1999
AMONG
KMC TELECOM III, INC.
AND
KMC TELECOM LEASING III LLC
AS BORROWERS,
THE FINANCIAL INSTITUTIONS FROM TIME TO
TIME PARTIES HERETO,
AS LENDERS,
AND
LUCENT TECHNOLOGIES INC.
AS AGENT FOR THE LENDERS
and
STATE STREET BANK AND TRUST COMPANY
AS COLLATERAL AGENT FOR THE LENDERS
- -----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS......................................................1
SECTION 1.01. DEFINITIONS.............................................1
SECTION 1.02. ACCOUNTING TERMS.......................................22
SECTION 1.03. OTHERS DEFINED IN NEW YORK UNIFORM COMMERCIAL CODE.....22
ARTICLE II LOANS...........................................................22
SECTION 2.01. AGREEMENT TO LEND......................................22
SECTION 2.02. LOANS..................................................23
SECTION 2.03. PROCEDURE FOR LOAN REQUEST AND BORROWING COMMITMENT....24
SECTION 2.04. THE NOTES..............................................26
SECTION 2.05. INTEREST ON LOANS......................................26
SECTION 2.06. CONVERSION OR CONTINUATION.............................27
SECTION 2.07. SPECIAL PROVISIONS GOVERNING LIBOR LOANS...............28
SECTION 2.08. PAYMENTS...............................................30
SECTION 2.09. OPTIONAL AND MANDATORY PREPAYMENT OF LOANS; OPTIONAL
AND MANDATORY REDUCTION OF COMMITMENT AMOUNT...........31
SECTION 2.10. FEES...................................................32
SECTION 2.11. MANNER OF PAYMENT; SPECIAL TAX CONSIDERATIONS..........33
SECTION 2.12. MAXIMUM LAWFUL INTEREST RATE...........................38
SECTION 2.13. FUNDING ISSUES.........................................38
ARTICLE III REPRESENTATIONS AND WARRANTIES..................................40
SECTION 3.01. ORGANIZATION; POWERS...................................40
SECTION 3.02. CORPORATE AUTHORIZATION................................40
SECTION 3.03. FINANCIAL STATEMENTS...................................41
SECTION 3.04. NO MATERIAL ADVERSE CHANGE.............................41
SECTION 3.05. LITIGATION.............................................41
SECTION 3.06. TAX RETURNS............................................41
SECTION 3.07. NO DEFAULTS............................................41
SECTION 3.08. PROPERTIES.............................................42
SECTION 3.09. LICENSES, MATERIAL AGREEMENTS, INTELLECTUAL PROPERTY...42
SECTION 3.10. COMPLIANCE WITH LAWS...................................42
SECTION 3.11. ERISA..................................................43
SECTION 3.12. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING
COMPANY ACT............................................43
SECTION 3.13. FEDERAL RESERVE REGULATIONS............................44
SECTION 3.14. COLLATERAL.............................................44
SECTION 3.15. CHIEF PLACE OF BUSINESS................................44
SECTION 3.16. OTHER CORPORATE NAMES..................................44
SECTION 3.17. INSURANCE..............................................44
SECTION 3.18. KMC III TIER III PLAN..................................44
SECTION 3.19. CAPITALIZATION AND SUBSIDIARIES........................45
SECTION 3.20. REAL PROPERTY, LEASES AND EASEMENTS....................45
SECTION 3.21. SOLVENCY...............................................45
SECTION 3.22. BROKERS, ETC...........................................45
SECTION 3.23. NO MATERIAL MISSTATEMENTS..............................46
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SECTION 3.24. YEAR 2000 PROBLEMS.....................................46
ARTICLE IV CONDITIONS FOR LOANS............................................46
SECTION 4.01. CONDITIONS PRECEDENT TO INITIAL LOANS..................46
SECTION 4.02. CONDITIONS PRECEDENT TO ALL LOANS......................51
SECTION 4.03. CONDITIONS PRECEDENT TO LOANS IN
EXCESS OF THE LEVEL 1 LENDING......................... 52
SECTION 4.04. CONDITIONS PRECEDENT TO LOANS IN
EXCESS OF THE LEVEL 2 LENDING LIMIT................... 52
ARTICLE V AFFIRMATIVE COVENANTS...........................................53
SECTION 5.01. CORPORATE AND FRANCHISE EXISTENCE......................53
SECTION 5.02. COMPLIANCE WITH LAWS, ETC..............................53
SECTION 5.03. MAINTENANCE OF PROPERTIES..............................54
SECTION 5.04. INSURANCE..............................................54
SECTION 5.05. OBLIGATIONS AND TAXES..................................59
SECTION 5.06. FINANCIAL STATEMENTS, REPORTS, ETC.....................60
SECTION 5.07. LITIGATION AND OTHER NOTICES...........................62
SECTION 5.08. MORTGAGES; LANDLORD CONSENTS;
LICENSES AND OTHER AGREEMENTS..........................62
SECTION 5.09. ERISA..................................................63
SECTION 5.10. ACCESS TO PREMISES AND RECORDS.........................63
SECTION 5.11. DESIGN AND CONSTRUCTION................................64
SECTION 5.12. ENVIRONMENTAL NOTICES..................................64
SECTION 5.13. AMENDMENT OF ORGANIZATIONAL DOCUMENTS..................64
SECTION 5.14. THIRD PARTY AGREEMENTS AND DELIVERY
AND ACCEPTANCE CERTIFICATES............................64
SECTION 5.15. ACCOUNTS PAYABLE.......................................65
SECTION 5.16. INTELLECTUAL PROPERTY..................................65
SECTION 5.17. FISCAL YEAR............................................65
SECTION 5.18. COMPLETED SYSTEMS......................................65
SECTION 5.19. YEAR 2000 PROBLEMS.....................................65
SECTION 5.20. SUBSIDIARY GUARANTEES AND PLEDGES......................65
SECTION 5.21. ACCOUNTING.............................................66
SECTION 5.22. FURTHER ASSURANCES.....................................66
ARTICLE VI NEGATIVE COVENANTS..............................................66
SECTION 6.01. LIENS, ETC.............................................66
SECTION 6.02. USE OF PROCEEDS........................................67
SECTION 6.03. SALE OF ASSETS, CONSOLIDATION, MERGER, ETC.............67
SECTION 6.04. DIVIDENDS AND DISTRIBUTIONS; SALE OF EQUITY INTERESTS..67
SECTION 6.05. MANAGEMENT FEES AND PERMITTED CORPORATE OVERHEAD.......68
SECTION 6.06. GUARANTEES; THIRD PARTY SALES AND LEASES...............68
SECTION 6.07. INVESTMENTS............................................68
SECTION 6.08. SUBSIDIARIES...........................................68
SECTION 6.09. PERMITTED ACTIVITIES...................................69
SECTION 6.10. DISPOSITION OF LICENSES, ETC...........................69
SECTION 6.11. TRANSACTIONS WITH AFFILIATES...........................69
SECTION 6.12. ERISA..................................................69
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SECTION 6.13. INDEBTEDNESS...........................................70
SECTION 6.14. PREPAYMENT AND DEBT DOCUMENTS..........................70
SECTION 6.15. SALE AND LEASEBACK TRANSACTIONS........................71
SECTION 6.16. MARGIN REGULATION......................................71
SECTION 6.17. MANAGEMENT AND TAX SHARING AGREEMENTS..................71
ARTICLE VII FINANCIAL COVENANTS...........................................71
SECTION 7.01. FINANCIAL COVENANTS PRIOR TO ACHIEVING POSITIVE EBITDA.71
SECTION 7.02. FINANCIAL COVENANTS AFTER ACHIEVING POSITIVE EBITDA....72
ARTICLE VIII COLLATERAL SECURITY...........................................74
SECTION 8.02. PRESERVATION OF COLLATERAL AND PERFECTION
OF SECURITY INTERESTS THEREIN..........................75
SECTION 8.03. APPOINTMENT OF THE COLLATERAL AGENT AS THE
BORROWERS' ATTORNEY-IN-FACT............................76
SECTION 8.04. COLLECTION OF ACCOUNTS AND RESTRICTED
ACCOUNT ARRANGEMENTS...................................76
SECTION 8.05. CURE RIGHTS............................................77
ARTICLE IX EVENTS OF DEFAULT; REMEDIES.....................................77
SECTION 9.01. EVENTS OF DEFAULT......................................77
SECTION 9.02. TERMINATION OF COMMITMENT; ACCELERATION................81
SECTION 9.03. WAIVERS................................................81
SECTION 9.04. RIGHTS AND REMEDIES GENERALLY..........................81
SECTION 9.05. ENTRY UPON PREMISES AND ACCESS TO INFORMATION..........82
SECTION 9.06. SALE OR OTHER DISPOSITION OF COLLATERAL BY THE AGENT...82
SECTION 9.07. GOVERNMENTAL APPROVALS.................................82
SECTION 9.08. APPOINTMENT OF RECEIVER OR TRUSTEE.....................83
SECTION 9.09. RIGHT OF SETOFF........................................84
ARTICLE X THE AGENT AND THE COLLATERAL AGENT..............................84
SECTION 10.01. APPOINTMENT OF AGENT..................................84
SECTION 10.02. AGENT'S RELIANCE, ETC.................................85
SECTION 10.03. LUCENT AND AFFILIATES.................................86
SECTION 10.04. LENDER CREDIT DECISION................................86
SECTION 10.05. INDEMNIFICATION.......................................87
SECTION 10.06. SUCCESSOR AGENT.......................................87
SECTION 10.07. PAYMENTS; NON-FUNDING LENDERS;
INFORMATION; ACTIONS IN CONCERT.......................88
SECTION 10.08. COLLATERAL MATTERS....................................89
SECTION 10.09. AGENCY FOR PERFECTION.................................90
SECTION 10.10. CONCERNING THE COLLATERAL AND THE RELATED
LOAN DOCUMENTS AND THE COLLATERAL AGENT...............91
ARTICLE XI MISCELLANEOUS...................................................91
SECTION 11.01. NOTICES; ACTION ON NOTICES, ETC.......................91
SECTION 11.02. NO WAIVERS; AMENDMENTS................................92
SECTION 11.03. GOVERNING LAW AND JURISDICTION........................93
SECTION 11.04. EXPENSES..............................................93
SECTION 11.05. EQUITABLE RELIEF......................................93
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SECTION 11.06. INDEMNIFICATION; LIMITATION OF LIABILITY..............94
SECTION 11.07. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC.......95
SECTION 11.08. SUCCESSORS AND ASSIGNS; ASSIGNMENTS; PARTICIPATIONS...95
SECTION 11.09. SEVERABILITY..........................................98
SECTION 11.10. COVER PAGE, TABLE OF CONTENTS AND SECTION HEADINGS....98
SECTION 11.11. COUNTERPARTS..........................................98
SECTION 11.12. APPLICATION OF PAYMENTS...............................98
SECTION 11.13. MARSHALLING; PAYMENTS SET ASIDE.......................98
SECTION 11.14. SERVICE OF PROCESS....................................99
SECTION 11.15. WAIVER OF JURY TRIAL, ETC.............................99
SECTION 11.16. CONFIDENTIALITY.......................................99
SECTION 11.17. ENTIRE AGREEMENT, ETC................................100
SECTION 11.18. NO STRICT CONSTRUCTION...............................100
EXHIBITS
EXHIBIT A KMC III Tier III Plan
EXHIBIT B Form of Collateral Assignment of Leases
EXHIBIT C Form of Collateral Assignment of Licenses
EXHIBIT D Form of Landlord Waiver
EXHIBIT E Form of Note
EXHIBIT F Form of Periodic Reporting Certificate
EXHIBIT G-1 Form of Guaranty of KMC Holdings
EXHIBIT G-2 Form of Guaranty of KMC IHC
EXHIBIT H-1 Form of Notice of Borrowing
EXHIBIT H-2 Form of Notice of Continuation/Conversion
EXHIBIT I Financials
EXHIBIT J-1 Form of Secretary's Certificate of Borrower
EXHIBIT J-2 Form of Secretary's Certificate of KMC Holdings
EXHIBIT J-3 Form of Secretary's Certificate of KMC IHC
EXHIBIT K-1 Form of Opinion of Borrowers' Special Counsel
EXHIBIT K-2 Form of Opinion of Borrowers' Regulatory Counsel
EXHIBIT K-3 Form of Opinion of Borrowers' Local Counsel
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EXHIBIT L Form of Pledge Agreement
EXHIBIT M Form of Loss Payable Endorsement
EXHIBIT N Form of Restricted Account Agreement
EXHIBIT O Form of Assignment Agreement
EXHIBIT P Form of Delivery and Acceptance Certificate
EXHIBIT Q Form of Trademark Security Agreement
EXHIBIT R Form of Contribution Agreement
v
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SCHEDULES
SCHEDULE 1.01(a) Services
SCHEDULE 3.02 Consents
SCHEDULE 3.05 Litigation
SCHEDULE 3.09(a) Governmental Authorizations and Approvals
SCHEDULE 3.09(b) Material Agreements
SCHEDULE 3.09(c) Intellectual Property
SCHEDULE 3.10 Environmental Matters
SCHEDULE 3.11 Plans
SCHEDULE 3.14 Filing Offices
SCHEDULE 3.16 Corporate and Fictitious Names
SCHEDULE 3.17 Insurance
SCHEDULE 3.19 Capitalization and Subsidiaries
SCHEDULE 3.20 Real Property, Leased Real Property and Easements
SCHEDULE 3.22 Fees
SCHEDULE 6.11 Transactions With Affiliates
SCHEDULE 8.04 Collection Accounts
ANNEXES
ANNEX A - Commitment Amounts
ANNEX B - Financial Covenant Information
ANNEX C - Amortization Schedule
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LOAN AND SECURITY AGREEMENT ("AGREEMENT") dated as of February 4, 1999
among KMC TELECOM III, INC., a Delaware corporation ("KMC III"), KMC TELECOM
LEASING III LLC, a Delaware limited liability company ("KMC LEASING III" and
together with KMC III the "BORROWERS"), the financial institutions signatory
hereto from time to time, as lenders (the "LENDERS"), Lucent Technologies Inc.,
as agent for the Lenders (in such capacity, the "AGENT") and State Street Bank
and Trust Company, as collateral agent for the Lenders (in such capacity, the
"COLLATERAL AGENT").
WHEREAS, the Borrowers have requested the Lenders to extend credit to the
Borrowers;
WHEREAS, the Lenders are willing to extend such credit to the Borrowers
subject to, and on the terms and conditions of, this Agreement;
Accordingly, in consideration of the mutual promises contained herein, the
Borrowers, the Agent, the Collateral Agent and the Lenders agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. As used in this Agreement, the following words
and terms shall have the meanings specified below:
"ACCESS LINES" shall mean the total number of installed business lines that
provide service to a business customer of a Borrower including "resale",
"on-net" and "unbundled network element"; PROVIDED, that resale shall constitute
no more than twenty-five percent (25%) of the total Access Lines.
"ACCOUNTS" shall mean all present and future rights of any Borrower to
payment for goods sold or leased or for services rendered which are not
evidenced by instruments or chattel paper, and whether or not they have been
earned by performance.
"ADDITIONAL PURCHASE AGREEMENT" shall mean a purchase agreement between any
Borrower and an Additional Vendor relating to the purchase of Telecommunications
Equipment on terms and conditions reasonably satisfactory to the Agents, if such
purchase agreement contemplates Telecommunications Equipment purchases in excess
of $5,000,000 in any one year or $15,000,000 in the aggregate, otherwise on the
terms and conditions reasonably satisfactory to the Collateral Agent.
"ADDITIONAL VENDOR" shall mean a vendor of Telecommunications Equipment
other than Lucent, which Additional Vendor shall be reasonably satisfactory to
the Agent if the Additional Purchase Agreement the Additional Vendor is a party
<PAGE>
to contemplates Telecommunications Equipment purchases in excess of $5,000,000
in any one year or $15,000,000 in the aggregate, otherwise on the terms and
conditions reasonably satisfactory to the Collateral Agent.
"AFFILIATE" shall mean any Person other than any Lender directly or
indirectly controlling, controlled by or under common control with any Borrower
and any officer or shareholder of such Person or any Borrower, which shareholder
beneficially owns at least ten percent (10%) of the Equity Interests of such
Person or any Borrower. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by",
and "under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED, that
beneficial ownership of at least 10% of the Equity Interests of a Person shall
be deemed to constitute control.
"AGED EQUIPMENT" shall mean Telecommunications Equipment, which has been in
commercial operation for more than twelve months.
"AGENTS" shall mean collectively, the Agent and the Collateral Agent.
"APPLICABLE MARGIN" shall mean with respect to each Loan bearing interest
based upon the Base Rate and each Loan bearing interest based upon the LIBO
Rate, the rate per annum set forth under the relevant column headings opposite
the applicable Total Leverage Ratio.
<TABLE>
<CAPTION>
APPLICABLE MARGIN
- --------------------------------------------------------------------------------
BEFORE THE STEP DOWN DATE AFTER THE STEP DOWN DATE
Applicable Applicable Applicable Applicable
Total Leverage Margin for Margin for Margin for Margin for
Ratio Base Rate LIBOR Loans Base Rate LIBOR Loans
Loans Loans
- --------------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Greater than 3.25% 4.25% 2.75% 3.75%
or equal to
12.0 to 1.0
Less than 12.0 3.00% 4.00% 2.50% 3.50%
but greater
than or equal
to 10.0 to 1.0
Less than 10.0 2.75% 3.75% 2.25% 3.25%
but greater
than or equal
to 8.0 to 1.0
Less than 8.0 2.50% 3.50% 2.00% 3.00%
but greater
than or equal
to 6.0 to 1.0
Less than 6.0 2.25% 3.25% 1.75% 2.75%
to 1.0
</TABLE>
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<PAGE>
The Total Leverage Ratio on the Initial Funding Date shall be greater than 12.0
to 1.0. Thereafter such Ratio shall be determined on the notes of the financial
statements provided pursuant to SECTION 5.06; PROVIDED that if the Borrower
fails thereby to deliver such financial statements, without otherwise limiting
the rights of the Lenders under the Agreement, the Total Leverage Ratio shall be
deemed greater than 12.0 to 1.0 until such time as such financial statements are
delivered. Any change in the Applicable Margin shall be effective as of the
fifth Business Day following the Agent's receipt of such financial statements.
"ASSIGNMENT AGREEMENT" shall mean an assignment agreement entered into in
connection with an assignment pursuant to SECTION 11.08 substantially in the
form of EXHIBIT O hereof.
"BASE LIBO RATE" shall mean, during any Interest Period, the rate of
interest per annum (rounded upward to the nearest whole multiple of 1/16 of
1.0%, if such rate is not such a multiple) equal to the rate of interest
notified to the Agent by the Reference Bank at which Dollar deposits in the
approximate amount of the Loans to be made or continued as, or converted into,
LIBOR Loans for such Interest Period and having a maturity comparable to such
Interest Period would be offered by the London lending office of the Reference
Bank in the London interbank market at approximately 11:00 a.m. (London time)
two (2) Business Days prior to the commencement of such Interest Period.
"BASE RATE" shall mean the higher of (i) a rate per annum equal to the
corporate base rate, prime rate or base rate of interest, as applicable,
announced by the Reference Bank from time to time, changing when and as such
rate changes, it being understood that such rate of interest is not necessarily
the lowest or best rate charged by the Reference Bank to its customers, and (ii)
the sum of the Federal Funds Effective Rate plus one-half percent (0.50%) per
annum.
"BASE RATE LOAN" shall mean a Loan, or portion thereof, during any period
in which it bears interest at a rate based upon the Base Rate.
"BENEFIT PLAN" shall mean a defined benefit plan as defined in Section
3(35) of ERISA (other than a Multiemployer Plan) in respect of which any
Borrower or any ERISA Affiliate is, or within the immediately preceding six (6)
years was, an "employer" as defined in Section 3(5) of ERISA.
"BORROWER" shall mean either KMC III or KMC Leasing III.
"BUSINESS" shall mean with respect to (i) KMC III, the business of
designing, developing, constructing, operating and maintaining the Systems owned
by it, all equipment used and useful in connection therewith including but not
limited to Switch Equipment and (ii) KMC Leasing III, the business of owning and
leasing Telecommunications Equipment.
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<PAGE>
"BUSINESS DAY" shall mean (a) any day not a Saturday, Sunday or legal
holiday in the State of New York or New Jersey, on which banks are open for
business in New York and New Jersey and (b) with respect to all notices,
determinations, fundings and payments in connection with the LIBO Rate or LIBOR
Loans, any day that is a Business Day pursuant to CLAUSE (A) above and that is
also a day on which trading is carried on by and between banks in the London
interbank market.
"CAPITALIZATION" shall mean funded equity capitalization of KMC Holdings.
"CAPITALIZED LEASE OBLIGATIONS" shall mean Debt represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP, and the amount of such Debt shall be the
capitalized amount of such obligations determined in accordance with GAAP.
"CASH ADVANCE" shall have the meaning set forth in SECTION 2.03(A).
"CHANGE OF CONTROL" shall mean (A) Harold N. Kamine ceases to have senior
management responsibilities with respect to the Borrowers or KMC Holdings, (B)
KMC Holdings no longer beneficially owns all the outstanding Equity Interests of
KMC IHC, the Borrowers and their respective subsidiaries, if any, (C) 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
KMC Holdings on a fully diluted basis and such ownership represents a greater
percentage of the total voting power of the Voting Stock of KMC Holdings, on a
fully diluted basis, than is held by the Existing Stockholders on such date, or
(D) 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 KMC Holdings'
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" shall mean the date on which this Agreement is executed and
delivered by the parties hereto.
"COLLATERAL" shall mean, all property and interests in property now owned
or hereafter acquired by any Borrower in or upon which a security interest, lien
or mortgage is granted to the Collateral Agent by any Borrower, whether under
this Agreement or the other Loan Documents.
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<PAGE>
"COLLATERAL ASSIGNMENT OF LEASES" shall mean the Collateral Assignment of
Leases in the form of EXHIBIT B attached hereto, to be executed and delivered
pursuant to SECTION 4.01.
"COLLATERAL ASSIGNMENT OF LICENSES" shall mean the Collateral Assignment of
Licenses in the form of EXHIBIT C attached hereto, to be executed and delivered
pursuant to SECTION 4.01.
"COLLECTION ACCOUNTS" AND "COLLECTION AGENT" shall have the meanings given
to such terms in SECTION 8.04.
"COMMITMENT" shall mean Lenders' commitment to make Loans as set forth in
SECTION 2.01.
"COMMITMENT AMOUNT" shall mean (a) as to any Lender, such Lender's
Commitment Amount as set forth opposite such Lender's name on ANNEX A to this
Agreement or in the most recent Assignment Agreement executed by such Lender and
(b) as to all Lenders, the aggregate of all Lenders' Commitment Amounts, which
aggregate commitment shall be Six Hundred Million Dollars ($600,000,000) on the
Closing Date, as such amount may be adjusted from time to time in accordance
with this Agreement.
"COMMITMENT TERMINATION DATE" shall mean February 1, 2002.
"COMMON STOCK" shall mean with respect to any Person, all Equity Interests
of such Person that are generally entitled to (i) vote in the election of
directors of such Person or (ii) if such Person is not a corporation, vote or
otherwise participate in the selection of the governing body, partners, managers
or others that will control the management and policies of such Person.
"COMPLETED SYSTEM" shall mean any System which is fully operational, which
if contemplated by the KMC III Tier III Plan, shall have a Lucent 5-ESS Switch
Equipment or other comparable Switch Equipment manufactured by Lucent deployed,
which shall be switching paid traffic on its owned Telecommunications Equipment,
and which shall have sales, customer service and billing systems operational to
the satisfaction of the Agent and the Requisite Lenders and consistent with the
then current operating Systems of any Borrower or any Subsidiary of KMC Holdings
(without regard to installation of fiber), with switching capabilities, and with
respect to which all Governmental Approvals have been obtained and connectivity
to at least one major interexchange carrier point-of-presence has been achieved.
"CONSOLIDATED" or "cONSOLIDATED" refers, with respect to any Person, to the
consolidation of the accounts of such Person and its Subsidiaries, if any, in
accordance with GAAP; PROVIDED that with respect to KMC Holdings, unless
otherwise indicated, its Subsidiaries shall not include any Excluded
Subsidiaries.
"CONSOLIDATED DEBT" shall mean, with respect to KMC Holdings on a
consolidated basis, at any date, the sum of the following determined on a
consolidated basis, without duplication, in accordance with GAAP: (a) all
liabilities, obligations and indebtedness for borrowed money, including, but not
limited to, obligations evidenced by bonds, debentures, notes or other similar
instruments of any Borrower, KMC Holdings or KMC IHC, (b) all obligations to pay
the deferred purchase price of property or services of any Borrower, KMC
Holdings or KMC IHC (exclusive of rent for real property under leases that would
not be capitalized in accordance with GAAP), including, but not limited to, all
obligations under noncompetition agreements, except trade payables arising in
the ordinary course of business not more than ninety (90) days past due, (c) all
obligations of any Borrower, KMC Holdings or KMC IHC as lessee under capital
leases (exclusive of the interest component thereof), (d) all Debt of any other
Person secured by a Lien on any asset of any Borrower, KMC Holdings or KMC IHC,
(e) all guaranty obligations of any Borrower, KMC Holdings or KMC IHC, (f) all
obligations, contingent or otherwise, of any Borrower, KMC Holdings or KMC IHC
relative to the face amount of letters of credit, whether or not drawn, and
banker's acceptances issued for the account of any Borrower or KMC Holdings, (g)
all obligations to redeem, repurchase, exchange, defease or otherwise make
payments in respect of capital stock or other securities of any Borrower, KMC
Holdings or KMC IHC at any time prior to the third annual anniversary of the
Termination Date, and (h) all termination payments which would be due and
payable by any Borrower or KMC Holdings pursuant to any hedging agreement.
"Consolidated Debt" shall not include any intercompany Debt between the Borrower
and KMC IHC, between KMC Holdings and KMC IHC or between any Borrower and KMC
Holdings.
"CONTAMINANT" shall mean any pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum derived
substance or waste, or any constituent of any such substance or waste.
"CONTRIBUTED CAPITAL" shall mean, with respect to the Borrowers, at any
date of determination, all contributed capital to such Borrowers including all
funded equity (other than Disqualified Stock) and all Qualified Intercompany
Loans.
"CONTRIBUTION AGREEMENT" shall mean the Contribution Agreement among the
Borrowers of even date herewith substantially in the form of Exhibit R.
"CREDIT ADVANCE" shall have the meaning set forth in SECTION 2.03(A).
"DEBT" shall mean, with respect to any Person, (i) indebtedness for
borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other
similar instruments, (iii) obligations which have been incurred in connection
with the acquisition of property or services (including, without limitation,
obligations to pay the deferred purchase price of property or services),
excluding trade payables and accrued expenses incurred in the ordinary course of
5
<PAGE>
business, (iv) obligations as lessee under leases which shall have been or
should be, in accordance with GAAP, recorded as capital or operating leases, (v)
all Guarantees of such Person, including without limitation, all debt of any
other Person which is secured by a Lien on property of such Person, (vi) all
reimbursement obligations, contingent or otherwise, with respect to letters of
credit or banker's acceptances issued for the account of any Borrower, and (vii)
all indebtedness, obligations or other liabilities in respect of any Interest
Rate Agreement, PROVIDED that Debt shall not include any liability for Federal,
state, local or other taxes, and PROVIDED, FURTHER, that the amount outstanding
at any time of any Debt issued with original issue discount is the principal
amount of such Debt less the remaining unamortized portion of the original issue
discount of such Debt at such time as determined in conformity with GAAP, and
that with respect to any high-yield Debt, the amount thereof shall not include
fees incurred in raising such Debt or overfunded amounts set aside solely to pay
interest. Notwithstanding any other provision of the foregoing definition, any
trade payable arising from the purchase of goods or materials or for services
obtained in the ordinary course of business not more than 90 days past due and
not in dispute (and for which such Borrower has adequate reserves in accordance
with GAAP) shall not be deemed to be "Debt" of any Borrower for purposes of this
definition. Furthermore, guarantees of (or obligations with respect to letters
of credit supporting) Debt otherwise included in the determination of such
amount shall not be included.
"DEFAULT" shall mean any event which but for the passage of time or giving
of notice, or both, would constitute an Event of Default.
"DISQUALIFIED STOCK" shall mean any Equity Interest of a Person, to the
extent that it is (i) redeemable, payable or required to be purchased or
otherwise retired or extinguished or convertible into Debt or other liability,
obligation, covenant or duty of or binding upon, or any term or condition to be
observed by or binding upon such Person or any of its assets, (1) at a fixed or
determinable date, whether by operation of a sinking fund or otherwise, (2) at
the option of any other Person or (3) upon the occurrence of a condition not
solely within the control of such Person such as a redemption required to be
made utilizing future earnings, in each case prior to the third anniversary
after the Termination Date or (ii) convertible into Equity Interests which have
the features set forth in clause (i).
"DOLLARS" or "$" shall mean lawful money of the United States of America.
"EASEMENTS" shall have the meaning given to such term in SECTION 3.20.
"EBITDA" shall mean, with respect to any Person, for any period, an amount
equal to (i) Net Income PLUS (ii) the sum of the following, to the extent
deducted in determining Net Income: (A) income and franchise taxes, (B) interest
expense, (C) amortization, depreciation and other non-cash charges, MINUS (iii)
the sum of interest income plus extraordinary gains, as determined in accordance
with GAAP as calculated at the end of such period.
"ENVIRONMENTAL LAWS" shall mean all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidance, orders and consent decrees
6
<PAGE>
or other binding determination of any Governmental Authority relating to
protection of the environment, the handling, disposal or Release of Contaminants
and occupational safety and health. Such laws and regulations include but are
not limited to the Resource Conservation and Recovery Act, 33 U.S.C. ss. 6901 eT
SEq., as amended; the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss. 9601 eT SEq., as amended; the Toxic Substances
Control Act, 15 U.S.C. ss. 2601 eT SEq., as amended; the Clean Water Act, 33
U.S.C. ss. 1251 eT SEq., as amended; the Clean Air Act, 42 U.S.C. ss. 7401 ET
seq., as amended; state and federal environmental lien and environmental cleanup
programs; the Occupational Safety and Health Act, 29 U.S.C. ss. 651 eT Seq.; and
U.S. Department of Transportation regulations related to the transportation of
hazardous materials, each as from time to time hereafter in effect.
"EQUITY AFFILIATE" shall mean, 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.
"EQUITY INTEREST" shall mean, with respect to any Person, any and all
shares or other equivalents (however designated) of capital stock, membership
units, partnership interests or any other participation right or other interest
in the nature of an equity interest in such Person or any option, warrant or
other security convertible into any of the foregoing.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA AFFILIATE" shall mean (i) any corporation which is a member of the
same controlled group of corporations (within the meaning of Section 414(b) of
the IRC) as any Borrower, (ii) any partnership or other trade or business
(whether or not incorporated) under common control (within the meaning of
Section 414(c) of the IRC) with any Borrower and (iii) any member of the same
affiliated service group (within the meaning of Section 414(m) of the IRC) as
any Borrower, any corporation described in CLAUSE (I) above or any partnership
or trade or business described in CLAUSE (II) above.
"EUROCURRENCY LIABILITIES" shall have the meaning assigned to that term in
Regulation D of the Federal Reserve Board, as in effect from time to time.
"EVENT OF DEFAULT" shall have the meaning given to such term in ARTICLE IX.
"EVENT OF LOSS" shall mean, with respect to any item of Collateral, the
actual or constructive loss of such item of Collateral or the use thereof, due
to theft, destruction, damage beyond repair or damage from any reason whatsoever
which is not reimbursable by insurance, to an extent which makes repair
7
<PAGE>
uneconomical, or rendition thereof unfit for normal use, or the condemnation,
confiscation or seizure of, or requisition of title to or use of, such item of
Collateral by any Governmental Authority or any other Person, acting under or
deemed to be acting under color of any Governmental Authority.
"EXCESS OPERATING CASH FLOW" in respect of the Borrowers for any fiscal
quarter shall mean Net Income of the Borrowers plus non-cash interest expense,
depreciation and amortization and any other non-cash items of the Borrowers,
MINUS scheduled principal payments on the Loans, lease payments and capital
expenditures PLUS OR MINUS changes in working capital of the Borrowers, as
appropriate.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934.
"EXCLUDED SUBSIDIARY" shall mean (a) any Subsidiary of KMC Holdings other
than a Borrower or a Person which directly or indirectly beneficially owns
Equity Interests in any Borrower; PROVIDED that (i) at the time such other
Subsidiary was created or acquired, no Default or Event of Default shall have
occurred and be continuing before or after giving effect to the creation or
acquisition of such Subsidiary, and (ii) no portion of the Required
Contributions or the Commitment Amount shall have been or shall be used to fund
the acquisition or operations of such Subsidiary, and KMC Holdings has external
sources of funding (other than the Required Contributions and the Commitment
Amount) to finance the acquisition and operations of such Subsidiary, or (b) any
other Subsidiary of KMC Holdings which KMC Holdings or any Borrower requests the
Lenders to designate as such, and which designation is agreed to by the
Requisite Lenders.
"EXISTING STOCKHOLDERS" shall mean Harold N. Kamine, his Equity Affiliates,
Nassau Capital Partners L.P., NAS Partners I L.L.C. or their respective
successors, and their Equity Affiliates.
"FCC" shall mean the Federal Communications Commission or any successor
commission or agency of the United States of America having jurisdiction over
any Borrower or any System.
"FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any period, a fluctuating
interest rate per annum equal for each day during such period to (a) the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or if such day is not a Business Day, for the preceding
Business Day) by the Federal Reserve Bank of New York in the Composite Closing
Quotations for U.S. Government Securities; or (b) if such rate is not so
published for any day which is a Business Day, the average of the quotations at
approximately 10:30 a.m. (New York time) for such day on such transactions
received by the Reference Bank from three federal funds brokers of recognized
standing selected by it.
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<PAGE>
"FEDERAL RESERVE BOARD" shall mean the Board of Governors of the Federal
Reserve System or any successor thereto.
"FEE LETTER" shall mean the letter agreement dated as of February 3, 1999
among the Borrowers, KMC Holdings, KMC IHC, the Agent and the Collateral Agent.
"FINANCIALS" shall have the meaning given to such term in SECTION 3.03.
"FIXED CHARGES" shall mean, with respect to any period for the Borrowers on
a combined basis, the sum of the following amounts calculated at the end of such
period with respect to such period without duplication and in accordance with
GAAP:
(i) the product of two multiplied by scheduled principal and interest
payments with respect to Debt for the six month period then ending, (ii)
capital expenditures for the four quarter period then ending, (iii) the
product of two multiplied by income tax payments for the six month period
then ending, and (iv) the product of two multiplied by cash dividend
payments for the six month period then ending.
"FIXED CHARGE COVERAGE RATIO" shall have the meaning assigned to such term
in SECTION 7.02(C).
"FUNDING DATE" shall mean any date after the Initial Funding Date but prior
to the Commitment Termination Date upon which Loans are made, in each case,
subject to the satisfaction of all conditions precedent contained in SECTION
4.02 and, (i) if the aggregate principal amount of Loans outstanding exceeds the
Level 1 Lending Limit, SECTION 4.03 and (ii) if the aggregate principal amount
of Loans outstanding exceeds the Level 2 Lending Limit, SECTION 4.04.
"GOVERNMENTAL APPROVAL" shall mean, with respect to any Borrower, any
license, permit, franchise or certificate of public convenience and necessity
issued to any Borrower by the FCC, any PUC or any other Governmental Authority
in connection with any System.
"GOVERNMENTAL AUTHORITY" shall mean any federal, state, local or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"GUARANTEE" shall mean any obligation, contingent or otherwise, of any
Person guaranteeing any indebtedness of any other Person (the "Primary Obligor")
in any manner, whether directly or indirectly, and including any obligation of
such Person, direct or indirect, (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such indebtedness or to purchase (or to
advance or supply funds for the purchase of) any security for the payment of
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<PAGE>
such indebtedness; (ii) to purchase property, securities or services for the
purpose of assuring the owner of such indebtedness of the payment of such
indebtedness; or (iii) to maintain working capital, equity capital, net worth,
liquidity or other financial statement condition of the Primary Obligor so as to
enable the Primary Obligor to pay such indebtedness.
"HIGH YIELD DEBT" shall mean any Debt issued by KMC Holdings which by its
terms is unsecured, is issued either in a registered public offering or a
private placement of notes, bonds or other securities, has a maturity date not
earlier than 367 days after the Termination Date, does not restrict the payment
of Obligations and the proceeds of which are made available to KMC III as a
capital contribution (other than Disqualified Stock) or as Qualified
Intercompany Loans.
"INDENTURE" shall mean the Indenture dated as of January 29, 1998 between
KMC Holdings, as Issuer and The Chase Manhattan Bank, as Trustee, relating to
KMC Holdings' 12 1/2% Senior Discount Notes due 2008.
"INITIAL FUNDING DATE" shall mean the date upon which, subject to the
satisfaction of all conditions precedent contained in SECTIONS 4.01 and 4.02, or
the waiver thereof by the Agent and the Requisite Lenders, the initial Loans are
made.
"INTELLECTUAL PROPERTY DOCUMENTS" shall mean (i) the Trademark Security
Agreement of even date herewith, in the form of EXHIBIT Q attached hereto,
executed by the Borrowers in favor of the Collateral Agent for the benefit of
the Agents and the Lenders, as amended, restated or otherwise modified from time
to time and (ii) any other trademark, patent or copyright security agreement
executed pursuant to SECTION 5.16 by any Borrower.
"INTEREST EXPENSE" shall mean for any period, the total interest expense
(including, without limitation, interest expense attributable to capital leases)
determined on a combined basis, without duplication, for the Borrowers in
accordance with GAAP.
"INTEREST PERIOD" shall mean, with respect to each LIBOR Loan, the interest
period applicable to such LIBOR Loan as set forth in the applicable Notice of
Borrowing or Notice of Conversion or Continuation.
"INTEREST RATE AGREEMENT" shall mean for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"INVESTMENT" shall mean, as applied to any Person, any direct or indirect
purchase or other acquisition by that Person of securities, or of a beneficial
interest in securities, of any other Person, and any direct or indirect loan,
advance (other than deposits with financial institutions available for
withdrawal on demand, prepaid expenses, advances to employees, officers and
directors and similar items, each made or incurred in the ordinary course of
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business), or capital contribution by that Person to any other Person, including
all Debt of such other Person to that Person, but excluding accounts owed by
that other Person in the ordinary course of business. Investments shall exclude
(i) extensions of trade credit on commercially reasonable terms in accordance
with normal trade practices and (ii) the repurchase of securities of any Person
by such Person. The amount of any Investment shall be determined in conformity
with GAAP.
"IRC" shall mean the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder, and any successor
statutes or rules and regulations.
"IRS" shall mean the Internal Revenue Service or any successor agency.
"KMC HOLDINGS" shall mean KMC Telecom Holdings, Inc., a Delaware
corporation.
"KMC HOLDINGS GUARANTY" shall mean the unlimited guaranty of KMC Holdings
in the form of EXHIBIT G-1 attached hereto.
"KMC IHC" shall mean KMC Telecom III Holding, Inc., a Delaware corporation.
"KMC IHC GUARANTY" shall mean the unlimited guaranty of KMC IHC in the form
of EXHIBIT G-2 attached hereto.
"KMC TIER III - TIER IV PLAN" shall mean a business plan in form and
substance satisfactory to the Agent and the Lenders setting forth among other
things the projected sources, uses and schedule for the design, development and
construction by KMC III of an agreed upon number of Tier III Cities and Tier IV
Cities.
"KMC III" shall mean KMC Telecom III, Inc., a Delaware corporation.
"KMC III TIER III PLAN" shall mean the business plan of KMC III attached as
EXHIBIT A hereto together with the information contained on a computer diskette
entitled "KMC III 27 Tier III City Plan" which diskette has previously been
delivered to the Agent, as such KMC III Tier III Plan may be amended from time
to time with the prior written consent of the Requisite Lenders.
"KMC LEASING III" shall mean KMC Telecom Leasing III LLC, a Delaware
limited liability company.
"LENDERS" shall have the meaning given to such term in the heading.
"LENDING OFFICE" shall mean, with respect to a Lender or Agent, any office,
branch, subsidiary or affiliate of such Lender or Agent.
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"LEVEL 1 LENDING LIMIT" shall mean Loans in an aggregate principal amount
of $125,000,000.
"LEVEL 2 LENDING LIMIT" shall mean Loans in an aggregate principal amount
of $250,000,000.
"LIBO RATE" shall mean, for any Interest Period with respect to LIBOR Loans
comprising part of the same borrowing, the rate of interest per annum equal to
the per annum rate of interest displayed on the Dow Jones Market Screen Page
3750, as being the one-month, two-month, three-month or six-month, as
applicable, reserve adjusted "London Interbank Offered Rate", PROVIDED, that if
such rate is not displayed or published, then the rate of interest per annum
(rounded upward to the nearest whole multiple of 1/16 of 1.0%, if such rate is
not such a multiple) shall be determined by the Agent as follows:
LIBO Rate = Base LIBO rate
---------------------------------------
1.00 - LIBOR Reserve Percentage
"LIBOR INTEREST PAYMENT DATE" shall mean, with respect to a LIBOR Loan, the
last day of each Interest Period applicable to such Loan, and, if such Interest
Period has a duration of more than three months, on each day which occurs during
such Interest Period every three months from the first day of such Interest
Period.
"LIBOR INTEREST RATE DETERMINATION DATE" shall mean each date of
calculating the LIBO Rate for purposes of determining the interest rate with
respect to an Interest Period. The LIBOR Interest Rate Determination Date for
any LIBOR Loan shall be the second Business Day prior to the first day of the
related Interest Period for such LIBOR Loan.
"LIBOR LOAN" shall mean a Loan, or portion thereof, during any period in
which it bears interest at a rate based upon the LIBO Rate.
"LIBOR RESERVE PERCENTAGE" shall mean for any day for any Interest
Period the maximum reserve percentage (expressed as a decimal, rounded upward to
the next 1/100th of 1.0%) in effect on such day (whether or not applicable to
any Lender) for United States domestic banks under regulations issued from time
to time by the Federal Reserve Board for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal reserve
requirement) with respect to Eurocurrency Liabilities having a term comparable
to such Interest Period.
"LIEN" shall mean any mortgage, pledge, deed of trust, assignment, lien,
charge, encumbrance or security interest of any kind, or the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement, but excluding easements, rights of way or similar
encumbrances on real property which are in the ordinary course and which do not
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materially affect the value, use and insurability of title of such real
property.
"LOAN" shall mean any loan made to any Borrower pursuant to Section
2.01(a).
"LOAN DOCUMENTS" shall mean all agreements, instruments and documents,
including, without limitation, security agreements, loan agreements, notes,
guarantees, mortgages, deeds of trust, subordination agreements, pledges, powers
of attorney, consents, assignments, contracts, notices, leases, financing
statements, Interest Rate Agreements between any Borrower, KMC Holdings or KMC
IHC and the Agent, the Collateral Agent or the Lenders and all other written
matter whether heretofore, now, or hereafter executed by or on behalf of any
Borrower or any other Person in connection with the transactions contemplated
hereby and delivered to the Agent, the Collateral Agent or the Lenders, together
with all agreements and documents referred to therein or contemplated thereby;
PROVIDED, that the documents executed in connection with the purchase by the
Agent or any Lender of Equity Interests in KMC Holdings shall not constitute
Loan Documents.
"LUCENT" shall mean Lucent Technologies Inc., a Delaware corporation.
"LUCENT PURCHASE AGREEMENT" shall mean General Agreement as amended dated
as of December 22, 1998 among KMC III and certain KMC III Affiliates and Lucent
for the purchase of Telecommunications Equipment, as such Agreement may be
modified or amended from time to time.
"MANAGEMENT AGREEMENT" shall mean the Management Agreement dated as of
December 18, 1998, as amended as of January 29, 1999, among KMC Holdings, KMC
III, KMC Leasing III, KMC Telecom International, Inc., KMC Telecom II, Inc., KMC
Telecom of Virginia, Inc., KMC Telecom Leasing I LLC, KMC Telecom Leasing II LLC
and KMC IHC.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to any Person, a
material adverse effect upon the condition (financial or otherwise), operations
or properties of such Person, or upon the ability of such Person to perform
under the Loan Documents.
"MAXIMUM RATE" shall have the meaning given to such term in SECTION 2.12.
"MORTGAGES" shall mean mortgages or deeds of trust in favor of the
Collateral Agent, with respect to any Borrower's (i) owned Real Property and
(ii) other interests in those items of real property and Easements, as specified
by the Collateral Agent, which mortgages and deeds of trust shall be in form and
substance satisfactory to the Agents.
"MULTIEMPLOYER PLAN" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA which is, or within the immediately preceding six
(6) years was, contributed to by any Borrower or an ERISA Affiliate.
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"NET INCOME" shall mean, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"NOTE" shall mean a promissory note of the Borrowers substantially in the
form of Exhibit E attached hereto.
"NOTICE OF BORROWING" shall mean a notice substantially in the form of
EXHIBIT H-1 attached hereto.
"NOTICE OF CONVERSION/CONTINUATION" shall have the meaning given to such
term in SECTION 2.06(B).
"OBLIGATIONS" shall mean all the obligations of any Borrower now or
hereafter existing under this Agreement or any other Loan Document to which any
Borrower is a party, whether for principal, interest, fees, expenses,
reimbursement, indemnification or otherwise. Obligations shall include, without
limitation, all interest, charges, expenses, fees, attorneys' fees and
disbursements, and paralegals' fees which accrue after the commencement of any
case or proceeding in bankruptcy after the insolvency of, or for the
reorganization of any Borrower, in each case, whether or not allowed in such
proceeding.
"PARTICIPANTS" shall have the meaning given to such term in SECTION
11.08(B).
"PAYMENT ACCOUNT" shall mean an account of the Agent as designated from
time to time by the Agent by notice to the Borrowers and the Lenders.
"PAYMENT DATE" shall mean the first day of January, April, July and October
in each calendar year, but if any such date is not a Business Day, the next
succeeding Business Day, commencing April 1, 1999.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and
defined in ERISA.
"PERIODIC REPORTING CERTIFICATE" shall mean a periodic reporting
certificate in the form of EXHIBIT F attached hereto.
"PERMITTED LIENS" shall have the meaning given to such term in SECTION
6.01.
"PERSON" shall mean any natural person, corporation, division of a
corporation, business trust, joint venture, association, company, partnership,
unincorporated organization or other legal entity, or a government or any agency
or political subdivision thereof.
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"PLAN" shall mean any employee benefit plan as defined in Section 3(3) of
ERISA (other than a Multiemployer Plan) in respect of which any Borrower or any
ERISA Affiliate is, or within the immediately preceding six (6) years was, an
"employer" as defined in Section 3(5) of ERISA.
"PLEDGE AGREEMENT" shall mean a pledge agreement substantially in the form
of EXHIBIT L attached hereto.
"PREPAYMENT PREMIUM" shall mean(a) with respect to the period commencing on
the Initial Funding Date and ending on the first annual anniversary thereof,
three percent (3.0%) of the amount prepaid, (b) with respect to the period
commencing thereafter and ending on the second annual anniversary of the Initial
Funding Date, two percent (2.0%) of the amount prepaid, (c) with respect to the
period commencing thereafter and ending on the third annual anniversary of the
Initial Funding Date, one percent (1.0%) of the amount prepaid, and (d) at all
times thereafter, $0.
"PRINCIPAL PAYMENTS" shall mean, for any period, total required Debt
amortization (including, without limitation, the principal payments attributable
to capital leases) determined on a combined basis, without duplication, for the
Borrowers in accordance with GAAP.
"PRO RATA SHARE" shall mean with respect to all matters relating to any
Lender the percentage obtained by dividing (1) at any time prior to the date on
which the Loans are funded, the Commitment Amount of such Lender by the
Commitment Amount of all Lenders, and (2) on and after the date on which the
Loans are funded, the aggregate outstanding principal balance of the Loans held
by such Lender, by the aggregate outstanding principal balance of the Loans held
by all Lenders.
"PUC" shall mean any state Governmental Authority having utility or
telecommunications regulatory authority over any Borrower or any System.
"PURCHASE DEBT" shall have the meaning given to such term in SECTION
6.13(IV).
"QUALIFIED INTERCOMPANY LOAN" shall mean a loan to a Borrower from KMC
Holdings or KMC IHC, which loan is expressly subordinated to the Obligations on
terms and conditions satisfactory to the Agent, has a maturity date occurring on
or after the third annual anniversary of the Termination Date, and requires no
cash payment of principal or interest prior to the scheduled maturity date of
such loan.
"REAL PROPERTY" shall have the meaning given to such term in SECTION 3.20.
"REFERENCE BANK" shall mean (i) if Lucent is the Agent, First Union
National Bank and (ii) if Lucent is no longer the Agent, such financial
institution as the Agent may designate (and which may be the Agent or any
Affiliate of the Agent), PROVIDED, that such financial institution shall be a
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commercial banking institution organized under the laws of the United States (or
any state thereof) or a United States branch or agency of a foreign commercial
banking institution, and, in each case, has combined capital and surplus of at
least $250,000,000.
"REGISTER" shall have the meaning given to such term in SECTION
11.08(C)(III).
"RELEASE" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the environment or into or out of any property, including the movement of
Contaminants through or in the air, soil, surface water, groundwater or
property.
"REMEDIAL ACTION" shall mean actions required to (1) clean up, remove,
treat or in any other way address Contaminants in the environment; (2) prevent
the Release or threat of Release or prevent or minimize the further Release of
Contaminants so they do not migrate or endanger or threaten to endanger public
health or welfare or the environment; or (3) perform preremedial studies and
investigations and postremedial monitoring and care.
"REPORTABLE EVENT" shall mean any reportable event as defined in Section
4043 of ERISA unless the reporting requirement with respect to such reportable
event has been waived by the PBGC or other appropriate Governmental Authority.
"REQUIRED CONTRIBUTION" shall have the meaning assigned to such term in the
KMC Holdings Guaranty.
"REQUISITE LENDERS" shall mean (i) so long as Lucent shall hold not less
than 66 2/3% of the Loans and Commitments, Lucent and Lenders holding a majority
of the remaining Loans and Commitments and (ii) if Lucent shall no longer hold
at least 66 2/3% of the Loans and Commitments, Lenders holding at least 66 2/3
of the Loans and Commitments.
"SOLVENT" shall mean, at any time of determination, with respect to any
Person:
(i) the assets of such Person, at a fair valuation, are in excess of
the total amount of its debts (including, without limitation, contingent
liabilities); and
(ii) the present fair saleable value of its assets is greater than its
probable liability on its existing debts as such debts become absolute and
matured; and
(iii) it is then able and expects to be able to pay its debts
(including, without limitation, contingent debts and other commitments) as
they mature; and
(iv) it has capital sufficient to carry on its business as conducted.
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For purposes of determining whether a Person is Solvent, the amount of any
contingent liability shall be computed as the amount that, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or mature liability.
"STEP DOWN DATE" shall mean the date on which the Borrower has
completed Systems in 18 of 27 Tier 3 III cities.
"SUBSIDIARY" shall mean, with respect to any Person, any corporation,
partnership, joint venture, association or other business entity, whether now
existing or hereafter organized or acquired, (i) in the case of a corporation,
of which more than 50% of the total voting power of the Equity Interests
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, officers or trustees thereof is held by such Person or
any of its Subsidiaries; or (ii) in the case of a partnership, joint venture,
association or other business entity, with respect to which such Person or any
of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise or if in
accordance with GAAP such entity is consolidated with the such Person for
financial statement purposes.
"SWITCH EQUIPMENT" shall mean telecommunications switches and associated
electronics.
"SYSTEM" shall mean each telephone, telecommunications or information
system (including, without limitation, any voice, video transmission, data or
Internet services) and any related, ancillary or complementary services, as
described in the KMC III Tier III Plan or the KMC III Tier III-Tier IV Plan, and
all replacements, enhancements or additions thereto.
"TAX SHARING AGREEMENT" shall mean that certain Tax Allocation Agreement
dated as of December 18, 1998, amended as of January 29, 1999, among KMC
Holdings, KMC III, KMC Telecom International, Inc., KMC Telecom II, Inc., KMC
Telecom Inc., KMC Telecom of Virginia, Inc., KMC Telecom Leasing I LLC, KMC
Telecom Leasing II LLC, KMC Leasing III and KMC IHC.
"TAXES" shall mean any and all license, documentation, recording and
registration fees, and all taxes, including, without limitation, income (other
than net income taxes, franchise taxes and capital taxes imposed on the Lenders,
the Agent or the Collateral Agent other than by withholding), gross receipts,
sales, value-added, use, excise, personal property (tangible and intangible),
real estate and stamp, documentary, transfer or recording taxes, levies,
imposts, deductions, duties, assessments, fees, charges, and withholdings of any
nature whatsoever, whether or not presently in existence, together with any
penalties, fines, additions to tax, or interest thereon, imposed by any taxing
authority or other Governmental Authority.
"TELECOMMUNICATIONS EQUIPMENT" shall mean fiber optic cable, Lucent 5-ESS
Switch Equipment or other comparable Switch Equipment manufactured by Lucent,
transmission equipment and other ancillary equipment necessary for the
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installation and operation of a switch room or central office and co-location
with other telecommunications providers that will enable a Borrower to offer
telephony services, including voice, data and video, as well as all software and
hardware associated with the network operating center and back office systems
(including operations support systems, billing systems and data services),
together with all related support, construction and installation costs
associated with an operational system and services set forth in SCHEDULE 1.01(A)
connected therewith, provided that such costs (other than the cost of any
services set forth on SCHEDULE 1.01(A)) are capitalized in accordance with GAAP.
"TEMPORARY CASH INVESTMENTS" shall mean (i) Investments in marketable,
direct obligations issued or guaranteed by the United States of America, or of
any governmental agency or political subdivision thereof, maturing within 365
days of the date of purchase; (ii) Investments in certificates of deposit issued
by a bank organized under the laws of the United States of America or any state
thereof or the District of Columbia, in each case having capital, surplus and
undivided profits totaling more than $500,000,000 and rated at least A by
Standard & Poor's Ratings Service and A-2 by Moody's Investors Service, Inc.
maturing within 365 days of purchase; or (iii) Investments not exceeding 365
days in duration in money market funds that invest substantially all of such
funds' assets in the Investments described in the preceding CLAUSES (I) and
(II).
"TERMINATION DATE" shall mean January 1, 2007.
"TERMINATION EVENT" shall mean (i) a Reportable Event with respect to a
Benefit Plan; (ii) the withdrawal of any Borrower or any ERISA Affiliate from a
Benefit Plan during a plan year in which any Borrower or such ERISA Affiliate
was a "substantial employer" as defined in Section 4001(a)(2) of ERISA; (iii)
the imposition of an obligation on any Borrower or any ERISA Affiliate under
Section 4041 of ERISA to provide affected parties written notice of intent to
terminate a Benefit Plan in a distress termination described in Section 4041(c)
of ERISA; (iv) the institution by the PBGC of proceedings to terminate a Benefit
Plan; (v) any event or condition which might constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan; or (vi) the partial or complete withdrawal of any
Borrower or any ERISA Affiliate from a Multiemployer Plan.
"THIRD PARTY INTERACTIVES" shall mean all Persons with whom any Borrower
exchanges data electronically in the ordinary course of business, including,
without limitation, customers, suppliers, third-party vendors, subcontractors,
processors-converters, shippers and warehousemen.
"TIER III CITIES" shall mean cities each with a population between 100,000
and 750,000 in which KMC III shall operate a System.
"TIER IV CITIES" shall mean cities served out of a KMC III Tier III
City.
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"TOTAL DEBT" shall mean, with respect to the Borrowers, at any date, the
sum of the following, determined on a combined basis without duplication: (a)
all liabilities, obligations and indebtedness for borrowed money, including, but
not limited to, obligations evidenced by bonds, debentures, notes or other
similar instruments, (b) all obligations to pay the deferred purchase price of
property or services (exclusive of any rent for real property pursuant to a
lease that would not be capitalized in accordance with GAAP), including, but not
limited to, all obligations under non-competition agreements, except trade
payables arising in the ordinary course of business not more than ninety (90)
days past due, (c) all obligations as lessee under capital leases (exclusive of
the interest component thereof that is not capitalized) (d) all Debt of any
other Person secured by a Lien on any asset of any Borrower, (e) all guaranty
obligations, (f) all obligations, contingent or otherwise, relative to the face
amount of letters of credit, whether or not drawn and banker's acceptances
issued for the account of any Borrower, (g) all obligations to redeem,
repurchase, exchange, defease or otherwise make payments in respect of capital
stock or other securities at any time prior to the third annual anniversary of
the Termination Date, and (h) all termination payments which would be due and
payable by any Borrower thereof pursuant to any Interest Rate Agreement or
hedging agreement. "Total Debt" shall not include any intercompany Debt between
the Borrowers, or any Borrower and KMC Holdings or any Borrower and KMC IHC.
"TOTAL LEVERAGE RATIO" shall mean the ratio of (i) Total Debt as of the
last day of any fiscal quarter, to (ii) the product of (A) two multiplied by (B)
EBITDA of the Borrowers on a combined basis for the most recently ended six
month period.
"TRIGGER DATE" shall mean the date on which KMC III shall have fourteen
(14) Completed Systems.
"VOTING STOCK" shall mean securities of any class or classes of a
corporation, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions).
"YEAR 2000 CORRECTIVE ACTIONS" shall mean, as to each Borrower, all actions
necessary to eliminate such Borrower's Year 2000 Problems, including, without
limitation, computer code enhancements and revisions, upgrades and replacements
of Year 2000 Date-Sensitive Systems/Components, and coordination of such
enhancements, revisions, upgrades and replacements with Third Party
Interactives.
"YEAR 2000 CORRECTIVE PLAN" shall mean, with respect to each Borrower, a
comprehensive plan to eliminate all of its Year 2000 Problems on or before
September 30, 1999, including without limitations (i) computer code enhancements
or revisions, (ii) upgrades or replacements of Year 2000 Date-Sensitive
Systems/Components, (iii) test and validation procedures, (iv) an implementation
time line and budget and (v) designation of specific employees who will be
responsible for planning, coordinating and implementing each phase or subpart of
the Year 2000 Corrective Plan.
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"YEAR 2000 DATE-SENSITIVE SYSTEM/COMPONENT" shall mean any system software,
network software, applications software, database, computer file, embedded
microchip, firmware or hardware that accepts, creates, manipulates, sorts,
sequences, calculates, compares or outputs calendar-related data accurately;
such systems and components shall include, without limitation, mainframe
computers, file server/client system, computer workstations, routers, hubs,
other network-related hardware, and other computer-related software, firmware or
hardware and information processing and delivery systems of any kind and
telecommunications systems and other communications processors, security
systems, alarms, elevators and HVAC systems.
"YEAR 2000 IMPLEMENTATION TESTING" shall mean, as to each Borrower, (i) the
performance of test and validation procedures regarding Year 2000 Corrective
Actions on a unit basis and a system wide basis, (ii) the performance of test
and validation procedures regarding data exchanges among the Borrowers' Year
2000 Date-Sensitive Systems/Components and data exchanges with Third Party
Interactives, and (iii) the design and implementation of additional Corrective
Actions, the need for which has been demonstrated by test and validation
procedures.
"YEAR 2000 PROBLEMS" shall mean with respect to each Borrower limitations
on the capacity or readiness of any such Borrower's Year 2000 Date-Sensitive
Systems/Components to accurately accept, create, manipulate, sort, sequence,
calculate, compare or output calendar date information with respect to calendar
year 1999 or any subsequent calendar year beginning on or after January 1, 2000
(including leap year computations), including, without limitation, exchanges of
information among Year 2000 Date-Sensitive Systems/Components of the Borrowers
and exchanges of information among the Borrowers and Year 2000 Date-Sensitive
Systems/Components of Third Party Interactives and functionality of peripheral
interfaces, firmware and embedded microchips.
SECTION 1.02. ACCOUNTING TERMS. Except as otherwise herein specifically
provided, each accounting term used herein shall have the meaning given to it
under generally accepted accounting principles ("GAAP") applied on a consistent
basis.
SECTION 1.03. OTHERS DEFINED IN NEW YORK UNIFORM COMMERCIAL CODE. All other
terms contained in this Agreement (and which are not otherwise specifically
defined herein) shall have the meanings provided by the Uniform Commercial Code
of the State of New York (the "CODE") to the extent the same are used or defined
therein.
ARTICLE II
LOANS
SECTION 2.01. AGREEMENT TO LEND. (a) Each Lender severally agrees, on the
terms and conditions hereinafter set forth, to make term loans to the Borrowers,
from time to time, on and after the Initial Funding Date and until but not
including the Commitment Termination Date in an aggregate amount not to exceed
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such Lender's Commitment Amount; PROVIDED that (i) until the Borrowers shall
have satisfied the condition in SECTION 4.03, the maximum amount of Loans that
may be borrowed from the Lenders shall not exceed $125,000,000 and (ii) until
the Borrowers shall have satisfied the conditions set forth in SECTION 4.04, the
maximum amount of Loans that may be borrowed from all Lenders shall not exceed
$250,000,000.
(b) Loans which are repaid or prepaid may not be reborrowed.
SECTION 2.02. LOANS. (a) The proceeds of the Loans made by Lucent under
this Agreement shall be used by the Borrowers solely to purchase
Telecommunications Equipment manufactured or produced by Lucent and to pay
transactions costs incurred in connection with the execution, delivery and
performance of the Loan Documents; PROVIDED that
(i) if the Borrower shall fail to raise, on or prior to the six
month anniversary of the Initial Funding Date, at least $200,000,000 of
additional funded equity (other than Disqualified Stock) or High Yield
Debt but shall have contributed any amounts so raised to KMC IHC and KMC
IHC shall have contributed such amounts to KMC III as either additional
funded equity or Qualified Intercompany Loans, the aggregate principal
amount of the Loans that the Borrower may use for Telecommunications
Equipment not manufactured or produced by Lucent shall not exceed the
lesser of
(x) the sum of (1) the aggregate amount of Commitments that
Lucent shall have syndicated to one or more financial
institutions without recourse to or credit support from Lucent
PLUS (2) $37,500,000 and
(y) 35% of the aggregate principal amount of the Loans
outstanding, or
(ii) if the Borrower shall have raised at least $200,000,000 of such
additional funded equity (other than Disqualified Stock) or High Yield Debt
the net proceeds of which shall have been contributed as set forth in
clause (i) above, the aggregate principal amount of the Loans that the
Borrower may use for Telecommunications Equipment not manufactured or
produced by Lucent shall not exceed the lesser of
(x ) the aggregate amount of Commitments that Lucent shall
have syndicated to one or more financial institutions without
recourse to or credit support from Lucent and
(y ) 35% of the aggregate principal amount of the Loans
outstanding.
Except as set forth in SCHEDULE 1.01(A), Loans with respect to
Telecommunications Equipment purchases may not be made to finance (1) soft costs
(including installation, delivery and engineering costs) in excess of fifteen
percent (15%) of the invoiced price for the related Switch Equipment or (2) any
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support or installation costs associated with an operational system that would
not be capitalized in accordance with GAAP.
(b) Each Base Rate Loan shall be in a minimum principal amount of
$1,000,000. Each LIBOR Loan shall be in a minimum principal amount of
$5,000,000.
(c) In any calendar month not more than one Loan may be requested.
SECTION 2.03. PROCEDURE FOR LOAN REQUEST AND BORROWING COMMITMENT. (a) A
Borrower requesting a Loan shall deliver to the Agent a Notice of Borrowing
substantially in the form of EXHIBIT H-1 attached hereto on or before 11:00 a.m.
(New York time) at least five (5) Business Days prior to the date on which such
Loan is requested to be made if such Loan is requested to be a LIBOR Loan and at
least three (3) Business Days prior to the date on which such Loan is requested
to be made if such Loan is requested to be a Base Rate Loan, which notice, once
given, shall be irrevocable; PROVIDED, that a Notice of Borrowing requesting a
Cash Advance (as hereinafter defined) must be received by the Agent at least
seven (7) Business Days prior to the date on which such Cash Advance is
requested to be made if the amount of the requested Cash Advance is greater than
$50,000,000 and PROVIDED, FURTHER, that in no event may the amount of any
requested Cash Advance exceed $100,000,000. The Loans may be made (i) in cash in
accordance with the provisions of SECTION 2.03(B) (a "Cash Advance") and/or (ii)
by means of a credit against amounts due to Lucent under the Lucent Purchase
Agreement (or other agreement with Lucent), in accordance with the provisions of
SECTION 2.03(C) (a "Credit Advance"). The Loans made on the Initial Funding Date
shall be Base Rate Loans and thereafter may be continued as Base Rate Loans or
converted into LIBOR Loans in the manner provided in SECTION 2.06 and subject to
the other conditions and limitations therein set forth and set forth in this
ARTICLE II. In the case of a Loan the proceeds of which will be used to purchase
or reimburse any Borrower for Telecommunications Equipment (including any
Telecommunications Equipment being purchased or reimbursed under the Lucent
Purchase Agreement), the Notice of Borrowing delivered to the Agent will include
a schedule supporting one hundred percent (100%) of Telecommunications Equipment
requested to be funded. To the extent any portion of the Loans are not used to
fund Telecommunications Equipment manufactured or produced by Lucent, such
schedule will detail all invoices for equipment, third party labor, permits,
other third party costs and all capitalized internal costs of the Borrowers with
respect to such Telecommunications Equipment permitted under GAAP. All invoices
over $25,000 will be attached to such schedule and delivered to the Agent and
when combined with the above-described capitalized internal costs will support
seventy percent (70%) of the total requested funding. In addition, if the
Telecommunications Equipment is being purchased or reimbursed under the Lucent
Purchase Agreement, and the Agent so requests, a certificate of delivery and
acceptance in the form of EXHIBIT P shall be attached to the Notice of
Borrowing. In the case of a Loan the proceeds of which will be used to pay or
reimburse any Borrower for transaction costs, the Notice of Borrowing will
include a copy of the invoice from the provider of the service or other
appropriate supporting documentation. The Notice of Borrowing shall, with
respect to any Loans requested, specify whether such requested Loans are to be
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made as Cash Advances or Credit Advances, are to bear interest as Base Rate
Loans or LIBOR Loans, and if such requested Loans are to be LIBOR Loans, the
requested Interest Period for such Loans.
(b) If any Notice of Borrowing requests that a Cash Advance be made on the
date specified therein to finance amounts theretofore paid by any Borrower
(other than with the proceeds of Loans) under invoices submitted to the
Borrower, such Notice of Borrowing shall identify such invoices pursuant to
SECTION 2.03(A), and, in accordance with SECTION 2.03(D), each Lender will make
available to the Agent such Lender's Pro Rata Share of such Cash Advance.
Notwithstanding the foregoing, Lucent shall have the right, upon giving the
Borrower not less than 30 days prior written notice, to require that the
Borrower request Cash Advances to finance amounts previously paid by the
Borrower (other than with the proceeds of Loans) under invoices submitted to the
Borrower by Lucent pursuant to the Lucent Purchase Agreement.
(c) If any Notice of Borrowing requests that a Credit Advance be made on
the date specified therein to finance amounts then due under invoices submitted
to a Borrower, such Borrowing Notice shall identify such invoices pursuant to
SECTION 2.03(A), and, in accordance with SECTION 2.03(D), each Lender (other
than Lucent) will make available to the Agent such Lender's Pro Rata Share of
such Credit Advance.
(d) The Agent agrees, promptly upon receipt of a Notice of Borrowing, to
notify each Lender of the date and amount of the Loan proposed thereunder and
the amount of such Lender's Pro Rata Share therein. So long as no Event of
Default has occurred and is continuing and upon fulfillment of the applicable
conditions set forth in ARTICLE IV, each such Lender (other than Lucent in the
case of a Credit Advance) severally agrees, on or before 12:00 P.M. (New York
time) on the date of each proposed Loan, to pay into the Payment Account, an
amount equal to such Lender's Pro Rata Share of such Loan in dollars and in same
day funds. After the Agent's receipt of such Lender's Loan proceeds, the Agent
shall make available such proceeds to the Borrower requesting the Loan (in the
case of a Cash Advance), Lucent (in the case of a Credit Advance) or the Person
entitled to payment thereof at the bank account(s) specified in the Notice of
Borrowing on the date specified in such Notice of Borrowing in Dollars in
immediately available funds, it being understood that Lucent shall have no
obligation to make available to the Agent any funds for any Loan in respect of a
Credit Advance.
(e) Unless the Agent has received written notice from a Lender prior to the
date of any proposed Loan that such Lender will not make available to the Agent
such Lender's Pro Rata Share of such Loan, the Agent may, but is not obligated
to, assume that such Lender has made its Pro Rata Share of such Loan available
to the Agent on the date of such Loan in accordance with PARAGRAPH (D) above,
and the Lenders may, in reliance upon such assumption, make available to the
Borrower on such date a corresponding amount. If such Pro Rata Share is not, in
fact, paid to Agent by such Lender when due, the Agent will be entitled to
recover such amount on demand from such Lender or the Borrower which received
the proceeds of such Loan without set-off, counterclaim or deduction of any
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kind, together with interest thereon, for each day from the date such amount is
made available to such Borrower until the date such amount is repaid to the
Agent either by such Borrower or such Lender, at, (1) in the case of such
Borrower, the interest rate applicable to such Loan, and (2) in the case of such
Lender, the Federal Funds Effective Rate. Nothing in this SECTION 2.03(E) or
elsewhere in this Agreement or the other Loan Documents shall be deemed to
require Agent to advance funds on behalf of any Lender or to relieve any Lender
from its obligation to fulfill its Commitment hereunder or to prejudice any
rights that the Borrower may have against any Lender as a result of any default
by such Lender hereunder. Without limiting the foregoing, with respect to any
Lender which for any reason fails to make timely payment to the Agent of its Pro
Rata Share of any Loan, the Agent, in addition to other rights and remedies
which it may have, shall be entitled to withhold or set off from any payments
due to such Lender hereunder, an amount equal to the Pro Rata Share required to
have been paid by such Lender plus interest as described above, and to withhold
from such Lender any right of consent provided to such Lender by ARTICLE V or VI
of this Agreement and to bring an action or suit against such Lender in a court
of competent jurisdiction to recover such Pro Rata Share thereof and any related
interest thereon. If such Lender shall repay to the Agent such corresponding
amount, such amount so repaid shall constitute such Lender's applicable Pro Rata
Share of such Loan for purposes of this Agreement. If both such Lender and such
Borrower shall have repaid the corresponding amount, the Agent shall promptly
return to such Borrower its corresponding amount.
SECTION 2.04. THE NOTES. Each Borrower shall execute and deliver to each
Lender a Note to evidence the Commitment of that Lender. Each Note shall be in
the principal amount of the Commitment Amount of the applicable Lender, dated
the Initial Funding Date, stated to mature on the Termination Date and
substantially in the form of EXHIBIT E. The Notes payable to a Lender shall
represent the obligation of the Borrower to pay the amount of each Lender's
Commitment Amount or, if less, the applicable Lender's Pro Rata Share of the
aggregate unpaid principal amount of all Loans to the Borrower together with
interest thereon as prescribed in SECTION 2.05. The aggregate principal amount
of all the Notes shall not exceed the aggregate Commitments of all the Lenders.
The Agent is hereby authorized by such Borrower to record in the Register the
date and amount of each Loan made to such Borrower, and to record therein the
date and amount of each payment on each Loan made to such Borrower, and such
recordation shall be conclusive evidence against such Borrower of the amounts
owing to the Lenders with respect to the Loans in the absence of manifest error;
PROVIDED, that the failure of the Agent to register any such information on such
schedule shall not in any manner affect the obligation of such Borrower to repay
the Loans made to such Borrower in accordance with the terms of this Agreement.
SECTION 2.05. INTEREST ON LOANS. (a) GENERAL. Subject to the provisions of
SECTIONS 2.05(B), 2.06 and 2.07, each Loan shall bear interest at the rate per
annum equal to (i) the Base Rate plus the Applicable Margin, computed on the
basis of a 365 or 366 day year, as applicable, or (ii) the LIBO Rate plus the
Applicable Margin, computed on the basis of a 360 day year, as selected by the
requesting Borrower in the Notice of Borrowing and the Notice of
Continuation/Conversion with respect to such Loan.
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(b) DEFAULT INTEREST. If any Borrower shall default in the payment of the
principal of or interest on any Loan or any other amount becoming due hereunder
on its due date and such default shall continue uncured for three days, then the
Borrowers shall, on demand, from the Agent, thereafter pay interest on all Loans
at a rate that is four percent (4.00%) per annum above the rates of interest
otherwise payable on all the Loans (assuming the Total Leverage Ratio is greater
than 12.0 to 1.0) from the date such payment is due to the date such payment
default is either cured or waived in writing by the Requisite Lenders. If any
other Event of Default shall occur and be continuing and shall be declared by
the Agent upon the direction of the Requisite Lenders, then the Borrowers shall,
on demand, thereafter pay interest on all the Loans at a rate that is two
percent (2.00%) per annum above the rates of interest otherwise payable on the
Loans (assuming the Total Leverage Ratio is greater than 12.0 to 1.0) from the
date of the occurrence of such Event of Default until the date such Event of
Default has been cured or waived in writing by the Requisite Lenders; PROVIDED
that if an Event of Default described in the first sentence of this CLAUSE (B)
shall occur at any time that an Event of Default described in this second
sentence has occurred and is continuing, then the rate of interest described in
the first sentence of this CLAUSE (B) shall apply. After the occurrence and
during the continuance of any Event of Default, the Borrowers shall be subject
to the limitations on borrowings of, conversions into and continuations as LIBOR
Loans set forth in SECTION 2.06(A).
SECTION 2.06. CONVERSION OR CONTINUATION. (a) Subject to the provisions of
SECTION 2.07, each Borrower shall have the option (i) to convert all or any part
of its outstanding Loans, in a minimum amount of $5,000,000 and integral
multiples of $1,000,000 in excess of that amount, from Loans that are Base Rate
Loans to LIBOR; (ii) to convert all or any part of its outstanding Loans from
LIBOR Loans to Base Rate Loans on the expiration of the Interest Period
applicable thereto; and (iii) upon the expiration of any Interest Period
applicable to its outstanding LIBOR Loan to continue all such LIBOR Loans as a
LIBOR Loan; PROVIDED that no outstanding Loans may be converted into, or
continued as, LIBOR Loans when any Default or Event of Default has occurred and
is continuing.
(b) Whenever a Borrower elects to convert or continue Loans under this
SECTION 2.06, such Borrower shall deliver to the Agent a written notice
substantially in the form of that attached hereto as EXHIBIT H-2 (a "NOTICE OF
CONVERSION/ CONTINUATION"), signed by an authorized officer of such Borrower (i)
no later than 10:00 a.m. (New York time) two (2) Business Days in advance of the
requested conversion date, in the case of a conversion into Base Rate Loans, and
(ii) no later than 10:00 a.m (New York time) three (3) Business Days in advance
of the requested conversion or continuation date, in the case of a conversion
into, or continuation of, LIBOR Loans. The Notice of Conversion/Continuation
shall specify (1) the conversion or continuation date (which shall be a Business
Day), (2) the amount and type of the Loans to be converted or continued, (3) the
nature of the requested conversion or continuation, and (4) in the case of a
conversion into, or continuation of, LIBOR Loans, the requested Interest Period.
Promptly after receipt of a Notice of Conversion/Continuation pursuant to this
SECTION 2.06(B), the Agent shall notify the Lenders by telecopy, telephone or
other similar form of transmission, of the requested conversion or continuation.
In the event that a Borrower should fail to provide a Notice of
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Conversion/Continuation with respect to any LIBOR Loans as provided above, such
Loans, on the last day of the Interest Period with respect to such Loans, shall
convert to Base Rate Loans.
(c) Any Notice of Conversion/Continuation for conversion to, or
continuation of, Loans made pursuant to this SECTION 2.06 shall be irrevocable
and the applicable Borrower shall be bound to convert or continue in accordance
therewith.
SECTION 2.07. SPECIAL PROVISIONS GOVERNING LIBOR LOANS. Notwithstanding any
other provisions to the contrary contained in this Agreement, the following
provisions shall govern with respect to LIBOR Loans as to the matters covered:
(a) AMOUNT OF LIBOR LOANS. Each continuation of or conversion to LIBOR
Loans shall be in a minimum amount of $5,000,000 and in integral multiples of
$1,000,000 in excess of that amount.
(b) DETERMINATION OF INTEREST PERIOD. By giving notice as set forth in
SECTION 2.06(B), a Borrower shall have the option, subject to the other
provisions of this SECTION 2.07, to specify whether the Interest Period for such
LIBOR Loan shall be a one, two, three or six month period. The determination of
Interest Periods shall be subject to the following provisions:
(i) In the case of immediately successive Interest Periods, each
successive Interest Period shall commence on the day on which the preceding
Interest Period expires.
(ii) If any Interest Period would otherwise expire on a day which is
not a Business Day, the Interest Period shall be extended to expire on the
next succeeding Business Day; PROVIDED that if the next succeeding
Business Day occurs in the following calendar month, then such Interest
Period shall expire on the immediately preceding Business Day.
(iii) A Borrower may not select an Interest Period for any LIBOR Loan,
which Interest Period expires later than the maturity date of such Loan.
(iv) A Borrower may not select an Interest Period with respect to any
portion of such Borrower's Loans which extends beyond an installment
payment date for such Loans unless, after giving effect to such selection,
the portion of such Loans not subject to Interest Periods ending after
such installment payment date is equal to or greater than the principal
due on such installment payment date.
(v) There shall be no more than four (4) Interest Periods in effect
at any one time.
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(c) DETERMINATION OF INTEREST RATE. As soon as practicable after 10:00 a.m.
(New York time) on the LIBOR Interest Rate Determination Date, the Agent shall
determine (which determination, absent manifest error, shall be presumptively
correct) the interest rate for the LIBOR Loans for which an interest rate is
then being determined and shall promptly give notice thereof (in writing or by
telephone confirmed in writing) to the applicable Borrower. In the event that on
any LIBOR Interest Rate Determination Date the Agent shall have determined
(which determination, absent manifest error, shall be presumptively correct and
binding upon all parties) that:
(i) adequate and fair means do not exist for ascertaining the
applicable interest rates by reference to which the LIBO Rate then being
determined is to be fixed; or
(ii) the LIBO Rate plus the Applicable Margin for any Interest Period
for such Loans will not adequately reflect the cost to any Lender of
making, funding or maintaining its LIBOR Loan for such Interest Period,
the Agent shall forthwith so notify the applicable Borrower and the
Lender, whereupon:
(A) each LIBOR Loan will automatically, on the last day of the
then existing Interest Period therefor, convert into a Base
Rate Loan; and
(B) the obligation of the Lenders to make, or to convert Loans
into, LIBOR Loans shall be suspended until the Agent shall
notify the applicable Borrower and the Lenders that the
circumstances causing such suspension no longer exist.
(d) ILLEGALITY. Notwithstanding any other provision of this Agreement, if
any Lender shall notify the Agent that the introduction of or any change in or
in the interpretation of any law or regulation makes it unlawful, or any central
bank or other Governmental Authority asserts that it is unlawful, for any Lender
to perform its obligations hereunder to make LIBOR Loans or to fund or maintain
LIBOR Loans hereunder, (i) the obligation of the Lenders to make, or to convert
Loans into or to continue Loans as, LIBOR Loans shall be suspended until the
Agent shall notify the Borrowers and the Lenders that the circumstances causing
such suspension no longer exist and (ii) the Borrowers shall on the termination
of the Interest Period then applicable thereto, or on such earlier date required
by law, prepay in full all LIBOR Loans then outstanding together with accrued
interest thereon, or convert all such LIBOR Loans into Base Rate Loans in
accordance with SECTION 2.06.
(e) COMPENSATION. In addition to such amounts as are required to be paid by
the Borrowers pursuant to the other Sections of this ARTICLE II, the Borrowers
agree to compensate any Lender for all losses, expenses and liabilities,
including, without limitation, any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
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to fund or maintain such Lender's LIBOR Loans (including the Applicable Margin
component thereof) to the Borrowers, which such Lender may sustain (i) if for
any reason a funding of any LIBOR Loans does not occur on a date specified
therefor in a Notice of Borrowing or Notice of Conversion/Continuation, or a
successive Interest Period does not commence after notice therefor is given
pursuant to SECTION 2.06 as a result of any act or omission of any Borrower,
(ii) if any voluntary or mandatory prepayment of any LIBOR Loans occurs for any
reason on a date which is not the last scheduled day of an Interest Period,
(iii) as a consequence of any required conversion of LIBOR Loans to Base Rate
Loans as a result of any of the events indicated in SECTION 2.07(D), or (iv) as
a consequence of any other failure by the Borrower to repay LIBOR Loans when
required by the terms of this Agreement.
(f) BOOKING OF LIBOR LOANS; DISCRETION AS TO MANNER OF FUNDING. The Lenders
may make, carry or transfer LIBOR Loans at, to, or for the account of, any of
their respective branch offices or the office of any of their respective
affiliates. Each Lender shall be entitled to fund and maintain its funding of
all or any part of its Loans in any manner it sees fit, it being understood that
for purposes of this Agreement all determinations hereunder shall be made
assuming each Lender had actually funded and maintained each LIBOR Loan through
the purchase of deposits of Dollars in the London Interbank market having a
maturity corresponding to each Loan's Interest Period and bearing an interest
rate equal to the LIBO Rate for such Interest Period.
SECTION 2.08. PAYMENTS. (a) Interest on each LIBOR Loan shall be payable in
arrears on each LIBOR Interest Payment Date and, if such LIBOR Loan is paid in
full other than on such LIBOR Interest Payment Date, on such other date.
Interest on each Base Rate Loan will be payable in arrears on each Payment Date
and, if such Base Rate Loan is paid in full other than on such Payment Date, on
such other date.
(b) Subject to the provisions of SECTIONS 2.09 and 9.02, the outstanding
principal balance of the Loans made to the Borrowers shall be payable in twenty
consecutive quarterly payments commencing on the Payment Dates set forth in
Annex C. On each such Payment Date, the Borrowers shall pay an amount equal to
the product of the percentage set forth on Annex C opposite such Payment Date
multiplied by the aggregate principal amount of the Loans made.
(c) Payments made with respect to the Loans by each Borrower shall be
applied by the Agent first to unpaid and accrued fees and interest and then to
the outstanding unpaid principal balance of the Loans of such Borrower;
PROVIDED, that upon the occurrence and during the continuance of an Event of
Default, all payments and prepayments with respect to the Obligations and all
proceeds of Collateral shall be applied in the following order by the Agent; (it
being understood that the order of priority set forth in the following clauses
may be altered upon direction from the Requisite Lenders to the Agent):
(1) first, to pay Obligations in respect of any expenses then due and
payable by the Borrowers to the Agents or the Lenders;
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(2) second, to pay Obligations in respect of any reimbursement or
indemnities then due and payable to the Agents or the Lenders;
(3) third, to pay Obligations in respect of any fees due and owing to the
Agent or the Collateral Agent;
(4) fourth, to pay Obligations in respect of the commitment fee and any
other fees and commissions then due and owing to the Agents or the Lenders;
(5) fifth, to pay Obligations in respect of any accrued and unpaid interest
due in respect of Loans;
(6) sixth, to pay termination payments due and payable pursuant to any
Interest Rate Agreement or other hedging agreement;
(7) to the ratable payment or prepayment of principal of any outstanding
Loans; and
(8) to the ratable payment of all other Obligations.
SECTION 2.09. OPTIONAL AND MANDATORY PREPAYMENT OF LOANS; OPTIONAL AND
MANDATORY REDUCTION OF COMMITMENT AMOUNT. (a) Provided that no Event of Default
has occurred and is continuing, the Borrowers shall have the right upon the
provision of sixty (60) days' prior written notice to the Agent, which notice,
once given, shall be irrevocable, on any Payment Date with respect to any Base
Rate Loans and on the last day of the applicable Interest Period with respect to
any LIBOR Loans, to prepay the outstanding principal of the Base Rate Loans in a
minimum principal amount of $1,000,000 and increments of $250,000 in excess
thereof, or the outstanding principal of the LIBOR Loans in a minimum principal
amount of $5,000,000 and increments of $1,000,000 in excess thereof, together,
in each case, with accrued interest thereon and the aggregate Prepayment Premium
applicable thereto. The amount of principal so prepaid shall be applied to the
remaining principal payments of the type of Loans prepaid (i.e. Base Rate Loans
or LIBOR Loans) in the inverse order of maturity.
(b) Upon the occurrence of any Event of Loss in excess of $1,000,000 with
respect to any item of Collateral that is not repaired or replaced, or any
Events of Loss which, in the aggregate, exceed $5,000,000 with respect to any
item or items of Collateral that are not repaired or replaced (in each case,
other than an item of Collateral no longer used or useful in the Business) such
that after such repair or replacement it has a value at least equal to its value
prior to the occurrence of such Event of Loss, the Borrower shall make a
principal prepayment within thirty (30) days of such Event of Loss in an amount
equal to the replacement value of the item of Collateral which suffered such
Event of Loss, together with accrued interest thereon (but without the
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Prepayment Premium) with such principal payment to be applied, to outstanding
principal balance of the Loans.
(c) The Borrowers shall prepay Loans in a principal amount equal to (i) all
the net proceeds of any sales of assets of any Borrower other than sales in the
ordinary course of business, which proceeds are not reinvested within 270 days
after receipt thereof in replacement assets, plus, in the case of any Loans held
by Lenders other than Lucent, the applicable Prepayment Premium, and (ii) the
proceeds of insurance policies paid to any Borrower and not applied within 270
days after any such payment to replacing, rebuilding or restoring the Collateral
which was the subject of insurance loss, without any Prepayment Premium, in each
case, within five (5) days after the expiration of the applicable 270 day
period.
(d) Provided that no Event of Default has occurred and is continuing and
that the Borrower can demonstrate to the Agent that it has adequate funds as to
ensure that all work to be performed with respect to any System then under
construction shall be performed and that each such System shall be a Completed
System on or before December 31, 2000, the Borrowers shall have the right upon
the provision of thirty days' prior written notice to the Agent, which notice,
once given, shall be irrevocable, on any Payment Date, to reduce the Commitment
Amount of all the Lenders. Each such reduction shall be in a minimum principal
amount of $1,000,000 and increments of $250,000 in excess thereof.
(e) Any reduction in the Commitment Amount of all the Lenders shall be
allocated to each Lender based on its Pro Rata Share. All prepayments of
principal shall be applied to the remaining principal payments of the type of
Loans prepaid in the inverse order of maturity.
SECTION 2.10. FEES. (a) The Borrowers shall pay and the Borrowers shall be
jointly and severally liable to the Agent for the account of the Lenders for
payment of a nonutilization fee calculated on a per annum basis and equal to (1)
in the case of each Lender other than Lucent, the product of (x) 1.25% per annum
multiplied by (y) the average unused Commitment Amount of such Lender for the
quarterly period preceding a Payment Date (PROVIDED that until the conditions
set forth in SECTION 4.03 and SECTION 4.04 have been satisfied, such
nonutilization fee shall be paid only on the Commitment Amount which together
with Loans then outstanding aggregate $250,000,000) and (2) in the case of
Lucent, the product of (x) 1.25% per annum multiplied by (y) the lesser of (A)
the average of the unused Commitment Amount of Lucent and (B) the average of the
excess of (I) $250,000,000 over (II) the principal amount of Loans held by
Lucent, in each case, for the quarterly period preceding a Payment Date. Such
fees shall be payable on each Payment Date following such last day of a quarter
beginning on the Payment Date following the Closing Date until and including the
Payment Date following the Commitment Termination Date:
In the event that at any time the Borrowers fails to comply with the
requirements of SECTION 2.03(D) for any calendar year, the nonutilization fees
shall be increased by 100 basis points for the entire calender year with payment
of such increment in the nonutilization fee being due and payable not later than
the last Business Day of such calendar year.
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(b) The Borrowers shall pay and the Borrowers shall be jointly and
severally liable to the Agent and the Collateral Agent, for payment of an annual
administrative fee and a collateral monitoring fee at the times and in the
amounts set forth in the Fee Letters.
(c) The Borrowers shall on the Closing Date pay the Agent the underwriting
fee and the structuring fee referred to in the Fee Letter.
(d) All fees once paid shall be nonrefundable.
SECTION 2.11. MANNER OF PAYMENT; SPECIAL TAX CONSIDERATIONS. (a) All
payments by the Borrowers hereunder and under the Notes shall be made to the
Agent by wire transfer or other electronic payment method to the Payment Account
or to such bank account as the Agent may designate, for the account of the
Lenders in Dollars in immediately available funds by 11:00 a.m., New York time,
on the date on which such payment shall be due. The Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal or interest or other fees ratably (other than amounts payable pursuant
to SECTION 2.13) to each Lender in accordance with SECTION 10.07. Interest in
respect of any Loan hereunder shall accrue from the day such Loan is made up to
and including the day prior to the date on which such Loan is paid in full.
Payments received after 12:00 p.m. shall not be given credit until the next
Business Day, and the Borrowers shall be liable for interest, if any, accruing
on such payment until the next Business Day.
(b)(1) Any and all payments by each Borrower hereunder shall be made free
and clear of and without deduction for any and all Taxes. If any Borrower shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under the other Loan Documents to any Lender or Agent, (A) the sum
payable shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this SECTION 2.11) such Lender or Agent receives an amount equal to the sum it
would have received had no such deductions been made, (B) such Borrower shall
make such deductions, and (C) such Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law. If a withholding tax of the United States of America or any
other Governmental Authority shall be or become applicable (y) after the date of
this Agreement, to the payments by any Borrower made to the Lending Office or
any other office that a Lender may claim as its Lending Office, or (z) after
such Lender's selection and designation of any other Lending Office, to such
payments made to such other Lending Office, such Lender shall use reasonable
efforts to make, fund and maintain its Loans through another Lending Office of
such Lender in another jurisdiction so as to reduce to the greatest extent
possible, but not increase, the applicable Borrower's liability hereunder, if
the making, funding or maintenance of such Loans through such other Lending
Office of such Lender does not, in the judgment of such Lender, otherwise
materially adversely affect such Loans, such Lender's obligations under its
Commitment or such Lender. Notwithstanding anything to the contrary hereunder,
if a Person becomes a Lender under this Agreement pursuant to SECTION 11.08, the
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Borrowers shall in no event be required to increase any payment pursuant to
paragraph (b) of this SECTION 2.11 by an amount that would exceed the amount of
any increase that would be required to be made under paragraph (b) of this
SECTION 2.11 to the assigning Lender.
(2) The Borrowers will jointly and severally indemnify each Lender and the
Agent and hold them harmless for the full amount of Taxes (including, without
limitation, any Taxes imposed by any Governmental Authority on amounts payable
under this SECTION 2.11 or any other documentary taxes, assessments or charges
made by any Governmental Authority by reason of the execution and delivery of
this Agreement or any other Loan Document) paid by such Lender or the Agent (as
the case may be) and any liability (including penalties, interest, and expenses)
arising therefrom or with respect thereto. This indemnification shall be made
within thirty (30) days after the date such Lender or the Agent (as the case may
be) makes written demand therefor. A certificate as to any additional amount
payable to any Lender or the Agent under this SECTION 2.11 submitted to the
Borrowers and the Agent (if a Lender is so submitting) by such Lender or the
Agent shall show in reasonable detail the amount payable and the calculations
used to determine such amount. With respect to such deduction or withholding for
or on account of any Taxes and to confirm that all such Taxes have been paid to
the appropriate Governmental Authorities, the Borrowers shall promptly (and in
any event not later than thirty (30) days after receipt) furnish to each Lender
and the Agent such certificates, receipts and other documents as may be required
(in the reasonable judgment of such Lender or the Agent) to establish any tax
credit to which such Lender or the Agent may be entitled.
(3) Within thirty (30) days after the date of any payment of Taxes on
amounts payable hereunder by any Borrower, such Borrower will furnish to the
Agent, at its address referred to in SECTION 11.01, the original or a certified
copy of a receipt evidencing payment thereof.
(4) Without prejudice to the survival of any other agreement of the
Borrowers hereunder, the agreements and obligations of such Borrower contained
in this SECTION 2.11 shall survive the payment in full of principal and interest
hereunder and the termination of this Agreement.
(5) Each Lender that is not created or organized under the laws of the
United States of America or a political subdivision thereof shall deliver to the
Borrowers and the Agent on or before the effective date hereof, or, if later,
the date on which such Lender becomes a Lender pursuant to SECTION 11.08, a true
and accurate certificate executed in duplicate by a duly authorized officer of
such Lender, in a form satisfactory to the Borrowers and the Agent, to the
effect:
(A) that such Lender is capable under the provisions of an applicable tax
treaty concluded by the United States of America (in which case the
certificate shall be accompanied by two original, executed copies of Form
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1001 of the IRS or any successor form) or under Section 1442 of the IRC
(in which case the certificate shall be accompanied by two original,
executed copies of Form 4224 of the IRS or any successor form) of
receiving payments of interest hereunder exempt from or at a reduced rate
of deduction or withholding of United States federal income tax, or
(B) if such Lender is not a "bank" within the meaning of Section
881(c)(3)(A) of the IRC and intends to claim exemption from U.S. federal
withholding tax under Section 871(h) or Section 881(c) of the IRC with
respect to payments of "portfolio interest", (i) that such Lender is not a
"bank" within the meaning of Section 881(c) of the IRC, is not a 10
percent shareholder (within the meaning of Section 871(h)(3)(B) of the
IRC) of any Borrower and is not a controlled foreign corporation related
to any Borrower (within the meaning of Section 864(d)(4) of the IRC), (ii)
that such Lender claims complete exemption from U.S. federal withholding
tax on payments of interest by the Borrowers under this Agreement and the
other Loan Documents and (iii) that the Lender has received in replacement
of any Note held by or assigned to it, a QFL Note in accordance with this
SECTION 2.11(B).
Each such Lender further agrees to deliver to the Borrowers and the Agent from
time to time a true and accurate certificate executed in duplicate by a duly
authorized officer of such Lender substantially in a form satisfactory to the
Borrowers and the Agent, before or promptly upon the occurrence of any event
requiring a change in the most recent certificate previously delivered by it to
the Borrowers and the Agent pursuant to this SECTION 2.11(B)(5). Further, each
Lender which delivers a certificate accompanied by Form 1001 of the IRS
covenants and agrees to deliver to the Borrower and the Agent within fifteen
(15) days prior to the date on which the first payment becomes payable to it
hereunder or under any Note, and every third anniversary of such date
thereafter, on which this Agreement is still in effect, another such certificate
and two accurate and complete original signed copies of Form 1001 (or any
successor form or forms required under the IRC or the applicable regulations
promulgated thereunder), and each Lender that delivers a certificate accompanied
by Form 4224 of the IRS covenants and agrees to deliver to the Borrower and the
Agent within fifteen (15) days prior to the beginning of each subsequent taxable
year of such Lender during which this Agreement is still in effect, another such
certificate and two accurate and complete original signed copies of IRS Form
4224 (or any successor form or forms required under the IRC or the applicable
regulations promulgated thereunder). Each such certificate shall certify as to
one of the following:
(a) that such Lender is capable of receiving payments of interest hereunder
exempt from or at a reduced rate of deduction or withholding of United States of
America federal income tax;
(b) that such Lender is not capable of receiving payments of interest
hereunder exempt from or at a reduced rate of deduction or withholding of United
States federal income tax as specified therein but is capable of recovering the
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full amount of any such deduction or withholding from a source other than the
Borrowers and will not seek any such recovery from the Borrowers; or
(c) that, as a result of the adoption of or any change in any law, treaty,
rule, regulation, guideline or determination of a Governmental Authority or any
change in the interpretation or application thereof by a Governmental Authority
after the date such Lender became a party hereto, such Lender is not capable of
receiving payments of interest hereunder without deduction or withholding of
United States of America federal income tax as specified therein and that it is
not capable of recovering the full amount of the same from a source other than
the Borrowers.
Each Lender shall promptly furnish to the Borrowers and the Agent such
additional documents as may be reasonably required by the Borrowers or the Agent
to establish any exemption from or reduction of any Taxes required to be
deducted or withheld and which may be obtained without undue expense to such
Lender
(6) For a period with respect to which a Lender has failed to provide the
Agent and the Borrowers with the appropriate form described in this SECTION
2.11(B)(5) (other than if such failure is due to a change in law occurring
subsequent to the date on which a form originally was required to be provided),
such Lender shall not be entitled to indemnification under this SECTION 2.11
with respect to Taxes imposed by the United States by reason of such failure;
PROVIDED, that should a Lender become subject to Taxes because of its failure to
deliver a form required hereunder, the Borrowers shall take such steps as such
Lender shall reasonably request to assist such Lender to recover such Taxes.
(7) Any Lender that is not a "bank" within the meaning of Section
881(c)(3)(A) of the IRC and satisfies the applicable requirements of SECTION
2.11(B)(5) (a "Qualified Foreign Lender") shall upon receipt of the written
request of the Agent or the Borrowers and may, upon its own written request to
the Agent, exchange any Note held by or assigned to it for a qualified foreign
lender Note ( a "QFL Note"). A QFL Note shall be in the form of the Note
attached as Exhibit E but shall contain the following legend,"This Note is a QFL
Note, and as such, ownership of the obligation represented by such QFL Note may
be transferred only in accordance with Section 2.11 of the Loan and Security
Agreement." Any QFL Note issued in replacement of any existing Note pursuant to
this Section shall be (i) dated the Closing Date, (ii) issued in the name of the
entity in whose name such existing Note was issued and (iii) issued in the same
principal amount as such existing Note. Any Note replaced pursuant to this
Section is sometimes referred to herein as a "Replaced Note".
(8) Each Borrower agrees that, upon the request of or delivery of a request
to a Qualified Foreign Lender pursuant to paragraph (7) of this SECTION 2.11(B),
it shall execute and deliver a QFL Note to the Agent in replacement of the
Replaced Note surrendered in connection with such request conforming to the
requirements of this paragraph. Each Qualified Foreign Lender shall surrender
its Note in connection with any replacement pursuant to this SECTION 2.11. Upon
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receipt by the Agent, in connection with any replacement, of a QFL Note and the
existing Note to be replaced by such QFL Note in accordance with this paragraph,
the Agent shall forward the QFL Note to the Lender which has surrendered its
Note for replacement by such QFL Note and shall forward the surrendered Note to
the relevant Borrower marked "canceled". Once issued, QFL Notes (i) shall be
deemed to and shall be "Notes" for all purposes under the Loan Documents, (ii)
may not be exchanged for Notes which are not QFL Notes, notwithstanding anything
to the contrary in the Loan Documents and (iii) shall at all times thereafter be
QFL Notes, including, without limitation, following any transfer or assignment
thereof.
(9) Notwithstanding anything to the contrary in the Loan Documents, the QFL
Notes are registered obligations as to both principal and interest with a
Borrower and transfer of the obligations underlying such QFL Note may be
effected only by surrender of the QFL Note to such Borrower and either
reissuance by such Borrower of such QFL Note to the transferee or issuance by
such Borrower of a new QFL Note to the transferee. A QFL Note shall only
evidence the Lender's or an assignee's right, title and interest in and to the
related obligation, and in no event is a QFL Note to be considered a bearer
instrument or obligation. This SECTION 2.11 shall be construed so that the
obligations underlying the QFL Notes are at all times maintained in "registered
form" within the meaning of Sections 871(h)(2) and 881(c)(3) of the IRC.
(c)(1) If a Borrower pays any additional amount under this SECTION 2.11
and, as a result, any Lender, together with the Agent, subsequently, in their
sole discretion and based on their own interpretation of any relevant laws (but
acting in good faith) receive or are granted a final and non-appealable credit
against or deduction from or in respect of any tax payable by such Lender, or
obtain any other final and non-appealable relief in respect of any tax, which in
the opinion of such Lender and the Agent, acting in good faith, is both
reasonably identifiable and quantifiable by them without requiring any Lender,
the Agent or their professional advisers to expend a material amount of time or
incur a material cost in so identifying or quantifying (any of the foregoing, to
the extent so reasonably identifiable and quantifiable, being referred to as a
"SAVING"), such Lender shall, to the extent that it can do so without prejudice
to the retention of the Saving, reimburse such Borrower promptly after such
identification and quantification with the amount of such Saving; PROVIDED, that
any such Saving shall be reduced by any costs incurred by such Lender or the
Agent in obtaining such Saving.
(2) Nothing in this SECTION 2.11(C) shall require any Lender to disclose to
any Person any information regarding its tax affairs or to arrange its tax and
other affairs in any particular manner.
SECTION 2.12. MAXIMUM LAWFUL INTEREST RATE. Notwithstanding any provision
contained herein, the total liability of the Borrowers for payment of interest
pursuant hereto and the Notes, including any other charges or other amounts, to
the extent such charges and other amounts are deemed to be interest, shall not
exceed the maximum amount of such interest permitted by law to be charged,
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collected, or received from the Borrowers (the "MAXIMUM RATE"). If any payments
by any Borrower for the account of any Lender include interest in excess of the
Maximum Rate, such Lender shall apply such excess to the reduction of the unpaid
principal amount owing by such Borrower, or if none is due, such excess shall be
returned to such Borrower.
SECTION 2.13. FUNDING ISSUES. (a) INCREASED COSTS. If, due to either (i)
the introduction after the date hereof of, or any change after the date hereof
in or in the interpretation of, any applicable law, rule or regulation by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof or (ii) compliance by any Lender after
the date hereof with any final request or final directive issued after the date
hereof (whether or not having the force of law) by any such Governmental
Authority, central bank or comparable agency, and, as a result of any of the
events set forth in the above CLAUSES (I) and (II), (x) there shall be any
increase in the cost to such Lender in maintaining its Commitment under this
Agreement or funding or maintaining its Pro Rata Share of the Loans under this
Agreement, or (y) any Lender is subjected to any charge or withholding on its
obligations hereunder, or changes in the basis of taxation of payments to any
Lender in connection with any of the foregoing (except for changes in the rate
of tax on overall net income of any Lender) (collectively, "INCREASED COSTS"),
then the Borrowers shall, from time to time, pay, to the Agent for the benefit
of such Lender within 15 days after such Lender shall have provided notice to
the Agent (and the Agent shall have provided notice to the Borrowers) of such
Increased Cost, an amount sufficient to compensate such Lender for such
Increased Cost, as provided herein. A certificate setting forth in reasonable
detail the computation of the amount of such Increased Cost (which increase in
cost shall be determined by such Lender's reasonable allocation of the aggregate
of such cost increases resulting from such event), submitted to the Borrowers by
such Lender, absent manifest error, shall be conclusive and binding for all
purposes.
(b) INCREASED CAPITAL. If any Lender which is subject to minimum capital
requirements determines that compliance by such Lender, with any guideline or
request from any central bank or other Governmental Authority (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by such Lender, or any corporation controlling such
Lender, and such Lender reasonably determines that the amount of such capital is
increased by or based upon any commitment to lend hereunder or making or
maintaining Loans, then, upon demand by such Person, the Borrowers agree to,
within five (5) days of such demand, pay to such Person, from time to time as
specified by such Person, additional amounts sufficient to compensate such
Person in the light of such circumstances, to the extent that such Person
reasonably determines such increase in capital to be allocable to such Person's
commitment or maintenance of Loans hereunder. A certificate as to the amount of
such increased cost, submitted to the Borrowers by the applicable Person, absent
manifest error, shall be conclusive and binding on the Borrowers for all
purposes.
(c) REPLACEMENT OF LENDER. If any Borrower, as a result of the requirements
of either SECTION 2.13(A) or SECTION 2.13(B), shall be required to pay any
particular Lender (an "AFFECTED LENDER") the additional amounts referred to in
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such Section, which costs are not imposed by the other Lenders, and such
additional amounts are material, then such Borrower shall be entitled to find a
replacement Lender, reasonably acceptable to the Agents (the Agents' consent to
such replacement Lender not to be unreasonably withheld), to replace the
Affected Lender. The Affected Lender and the replacement Lender shall execute an
Assignment Agreement with respect to all of the Affected Lender's Commitments
and all Loans owing to the Affected Lender and comply with the other provisions
of SECTION 11.08(c). Upon the payment by the replacement Lender to the Affected
Lender of the then outstanding principal amount of Loans owing to the Affected
Lender, together with accrued interest thereon, and the payment by the Borrower
to the Affected Lender of any compensation required with respect to LIBOR Loans
pursuant to SECTION 2.07(E), the replacement Lender shall succeed to all of the
Affected Lender's rights and obligations under this Agreement and the other Loan
Documents.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to the Agent, the Collateral Agent
and the Lenders that:
SECTION 3.01. ORGANIZATION; POWERS. (a) Such Borrower (i) is a corporation
or limited liability company duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization and (ii) is
qualified to do business in the jurisdiction in which its principal place of
business is located and in every other jurisdiction where such qualification is
necessary;
(b) such Borrower has the power and authority to own its properties, to
carry on its business as now conducted; and
(c) such Borrower has the power and authority to execute and deliver and
perform this Agreement and the other Loan Documents to which it is a party, to
borrow hereunder, and will have the power to execute and deliver any Mortgages
and Collateral Assignments of Leases or other instruments to be delivered by it
subsequent to the date hereof.
SECTION 3.02. CORPORATE AUTHORIZATION. The execution, delivery and
performance of this Agreement and the other Loan Documents to which such
Borrower is a party, and the Loans hereunder:
(a) have been duly authorized by such Borrower's Board of Directors or
managers and, if necessary, such Borrower's stockholders or members;
(b) (1) do not violate (i) any existing provision of law applicable to the
Borrower and not immaterial to its business, (ii) such Borrower's Certificate of
Incorporation or by-laws or other organizational documents, as the case may be,
or (iii) any applicable order of any court or other governmental agency, and (2)
do not conflict with, result in a breach of or constitute (with due notice or
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lapse of time or both) a default under any indenture, agreement for borrowed
money, bond, note or other similar instrument or any other material agreement to
which such Borrower is a party or by which such Borrower or any of its property
is bound;
(c) do not result in the creation or imposition of any Lien of any nature
whatsoever upon any property or assets of such Borrower other than the Liens
granted pursuant to this Loan Agreement or the other Loan Documents;
(d) constitute legal, valid and binding obligations of such Borrower,
enforceable against such Borrower in accordance with their respective terms; and
(e) do not, as of the date of execution hereof, require any governmental
consent, filing, registration or approval except as set forth on SCHEDULE 3.02.
SECTION 3.03. FINANCIAL STATEMENTS. The Borrowers have furnished to the
Agent and the Lenders the audited consolidated financial statements of KMC
Holdings dated as of December 31, 1997, and the unaudited consolidated financial
statements for the fiscal quarter ended September 30, 1998 and for the period
ended October 31, 1998, which statements are attached hereto as EXHIBIT I
(collectively, the "FINANCIALS"). The Financials have been prepared in
accordance with GAAP applied on a basis consistent with that of preceding
periods and are complete and correct in all material respects. As of the date of
the Financials, (a) the Financials fairly represent KMC Holdings' financial
position and results of operations; and (b) there are no omissions from the
Financials or any other facts or circumstances not reflected in the Financials
which are or may be material according to GAAP.
SECTION 3.04. NO MATERIAL ADVERSE CHANGE. There has been no material
adverse change in the condition (financial or otherwise), operations or
properties of such Borrower since the date of the Financials.
SECTION 3.05. LITIGATION. Except as set forth on SCHEDULE 3.05, there are
no actions, suits or proceedings at law or in equity or by or before any
Governmental Authority now pending or, to the knowledge of such Borrower against
or affecting such Borrower or any property or rights of such Borrower as to
which there is a reasonable possibility of an adverse determination and which,
if adversely determined, would individually or in the aggregate materially
impair the right of any Borrower to carry on business substantially as now being
conducted or as presently contemplated or would result in any Material Adverse
Effect.
SECTION 3.06. TAX RETURNS. Such Borrower has filed or caused to be filed
all Federal, state and local tax returns which are required to be filed and has
paid or caused to be paid all taxes as shown on such returns or on any
assessment received by it to the extent that such taxes have become due, except
such taxes the amount, applicability or validity of which are being contested in
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good faith by appropriate proceedings and with respect to which such Borrower
shall have set aside on its books adequate reserves with respect to such taxes
as are required by GAAP.
SECTION 3.07. NO DEFAULTS. Such Borrower is not in default (i) with respect
to any judgment, writ, injunction, decree, rule or regulation of any
Governmental Authority which is likely to have a Material Adverse Effect, or
(ii) in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any material agreement or instrument to
which such Borrower is a party or by which any of its assets are bound, which is
likely to have a Material Adverse Effect.
SECTION 3.08. PROPERTIES. Such Borrower has good and marketable title to
all its material properties and assets and all Collateral of such Borrower is
free and clear of all Liens of any nature whatsoever, except Permitted Liens.
SECTION 3.09. LICENSES, MATERIAL AGREEMENTS, INTELLECTUAL PROPERTY. (a)
Such Borrower has made or will make application for and expects to receive all
Governmental Approvals and approvals of any Governmental Authority having
jurisdiction over such Borrower, which Governmental Approvals and approvals are
necessary or appropriate for the construction and operation of the Systems as
contemplated in the KMC III Tier III Plan, other than immaterial municipal
business permits. Such Governmental Approvals and approvals are correctly listed
on SCHEDULE 3.09(A) and constitute the only material licenses, permits or
franchises or other Governmental Approvals of any Governmental Authority
required in connection with the Systems as are presently operating. All such
Governmental Approvals are in full force and effect, are duly issued in the name
of, or validly assigned to, such Borrower and such Borrower has the power and
authority to operate thereunder.
(b) SCHEDULE 3.09(B) accurately and completely lists all material
agreements to which such Borrower is a party, including, without limitation, all
purchase agreements, construction contracts, right of way or right of occupancy
agreements, lease agreements, consulting, employment, management and related
agreements. All the foregoing agreements are valid, subsisting and in full force
and effect and neither such Borrower, nor, to the best of such Borrower's
knowledge and belief, any other parties, are in material default thereunder.
Such Borrower has given true and complete copies of all such agreements to the
Agent and the Lenders.
(c) Such Borrower owns or possesses all the patents, trademarks, service
marks, trade names, copyrights and licenses, and all rights with respect to the
foregoing (the "INTELLECTUAL PROPERTY"), necessary for the conduct of its
business as presently conducted without any known conflict with the rights of
others. SCHEDULE 3.09(C) accurately and completely lists all Intellectual
Property owned or possessed by or licensed to such Borrower. Such Borrower has
entered into Intellectual Property Documents with respect to its Intellectual
Property, as requested by the Agent (or the Requisite Lenders).
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SECTION 3.10. COMPLIANCE WITH LAWS. Except as disclosed on SCHEDULE 3.10,
the operations of such Borrower comply in all material respects with all
applicable federal, state or local laws and regulations, including Environmental
Laws. Except as disclosed on SCHEDULE 3.10, none of the operations of such
Borrower is subject to any judicial or administrative proceeding alleging the
violation of any Environmental Laws. Except as disclosed on SCHEDULE 3.10, such
Borrower neither knows nor reasonably should know that any of the operations of
such Borrower is the subject of federal or state investigation evaluating
whether any Remedial Action is needed to respond to a Release. Except as
disclosed on SCHEDULE 3.10, the Borrower has not filed any notice under any
federal or state law indicating past or present treatment, storage or disposal
of a hazardous waste or reporting a Release. Except as disclosed on SCHEDULE
3.10, such Borrower has no contingent liability of which such Borrower has
knowledge or reasonably should have knowledge in connection with any Release.
SECTION 3.11. ERISA. Neither such Borrower nor any ERISA Affiliate of such
Borrower maintains or contributes to any Plan other than a Plan listed on
SCHEDULE 3.11 hereto. Each Plan which is intended to be qualified under Section
401(a) of the IRC has been determined by the IRS to be so qualified, and each
trust related to any such Plan has been determined to be exempt from federal
income tax under Section 501(a) of the IRC. Except as disclosed on SCHEDULE
3.11, neither such Borrower nor any ERISA Affiliate maintains or contributes to
any employee welfare benefit plan within the meaning of Section 3(1) of ERISA
which provides benefits to employees after termination of employment other than
as required by Section 601 of ERISA. Neither such Borrower nor any ERISA
Affiliate has breached any of the responsibilities, obligations or duties
imposed on it by ERISA or regulations promulgated thereunder with respect to any
Plan which breach could result in a Material Adverse Effect. No Plan has
incurred any accumulated funding deficiency (as defined in Section 302(a)(2) of
ERISA and Section 412(a) of the IRC), whether waived or not waived. Neither such
Borrower nor any ERISA Affiliate nor any fiduciary of any Plan which is not a
Multiemployer Plan (i) has engaged in a nonexempt "prohibited transaction"
described in Section 406 of ERISA or Section 4975 of the IRC or (ii) has taken
or failed to take any action which would constitute or result in a Termination
Event. Neither such Borrower nor any ERISA Affiliate has incurred any liability
to the PBGC which remains outstanding and which could result in a Material
Adverse Effect, other than the payment of premiums, and there are no premium
payments which have become due which are unpaid. Schedule B to the most recent
annual report filed with the IRS with respect to each Plan is complete and
accurate. Since the date of each such Schedule B, there has been no adverse
change in the funding status or financial condition of the Plan relating to such
Schedule B. Neither such Borrower nor any ERISA Affiliate has (i) failed to make
a required contribution or payment to a Multiemployer Plan or (ii) made a
complete or partial withdrawal under Sections 4203 or 4205 of ERISA from a
Multiemployer Plan. Neither such Borrower nor any ERISA Affiliate has failed to
make a required installment or any other required payment under Section 412 of
the IRC on or before the due date for such installment or other payment. Neither
such Borrower nor any ERISA Affiliate is required to provide security to a Plan
under Section 401(a)(29) of the IRC due to a Plan amendment that results in an
increase in current liability for the plan year.
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SECTION 3.12. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.
Such Borrower is not an "investment company" as that term is defined in, and is
not otherwise subject to regulation under, the Investment Company Act of 1940.
Such Borrower is not a "holding company" as that term is defined in, and is not
otherwise subject to regulation under, the Public Utility Holding Company Act of
1935.
SECTION 3.13. FEDERAL RESERVE REGULATIONS. Such Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
of the United States), and no part of the proceeds of the Loans made to such
Borrower will be used to purchase or carry any such margin stock or to extend
credit to others for the purpose of purchasing or carrying any such margin stock
or for any purpose that violates, or is inconsistent with, the provisions of
Regulation T, U or X of said Board of Governors.
SECTION 3.14. COLLATERAL. The security interests granted by ARTICLE VIII,
and the accompanying financing statements, when duly filed in the offices and
jurisdictions set forth on SCHEDULE 3.14 create valid and perfected first
priority Liens in and to the Collateral of such Borrower, enforceable against
other Persons in all jurisdictions securing the payment, as applicable, of the
Obligations hereunder. Upon filing such financing statements, to the extent that
the filing of a financing statement is sufficient to perfect a security
interest, no further action is required to perfect the Liens of the Agent in
favor of the Lenders in the Collateral of such Borrower described in SECTION
8.01.
SECTION 3.15. CHIEF PLACE OF BUSINESS. As of the Closing Date, the chief
executive office and principal place of business address of such Borrower is
1545 Route 206, Bedminster, New Jersey 07921. If any change in any such location
occurs, such Borrower shall notify the Agent thereof not later than ten days
after the occurrence thereof. As of the date of execution hereof, the books and
records of such Borrower and all chattel paper and all records of account are
located at the principal place of business or chief executive office of such
Borrower and if any change in such location occurs, such Borrower shall notify
the Collateral Agent thereof not later than ten days after the occurrence
thereof.
SECTION 3.16. OTHER CORPORATE NAMES. Except as set forth on SCHEDULE 3.16,
such Borrower has not used and does not now use and will not use any corporate
or fictitious name.
SECTION 3.17. INSURANCE. SCHEDULE 3.17 contains a description of all
insurance which such Borrower maintains or has maintained on its behalf. All of
such insurance is in full force and effect.
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SECTION 3.18. KMC III TIER III PLAN. The KMC III Tier III Plan represents
good faith projections of future financial performance of the Borrowers for the
periods set forth therein. Such document has been prepared on the basis of the
assumptions set forth therein, which the Borrowers believe are reasonable in
light of current and reasonably foreseeable business conditions.
SECTION 3.19. CAPITALIZATION AND SUBSIDIARIES. The classes of Equity
Interests, number of authorized shares, number of outstanding shares and par
values or other designations of the Equity Interests or other equity securities
or beneficial interests of such Borrower are correctly set forth on SCHEDULE
3.19. All the outstanding shares of Equity Interests or other equity securities
or beneficial interests of such Borrower are duly and validly issued, fully paid
and nonassessable, and none of such issued and outstanding shares, equity
securities or beneficial interests has been issued in violation of, or is
subject to, any preemptive or subscription rights. There are no: (A) outstanding
shares of Equity Interests or other equity securities or beneficial interests or
other securities convertible into or exchangeable for shares of Equity Interests
or other equity securities or other beneficial interests of such Borrower, (B)
outstanding rights of subscription, warrants, calls, options, contracts or other
agreements of any kind, issued, made or granted to or with any Person under
which such Borrower may be obligated to issue, sell, purchase, retire or redeem
or otherwise acquire or dispose of any shares of Equity Interests or other
equity securities or beneficial interests of such Borrower, or (C) Subsidiaries
of such Borrower. KMC Holdings beneficially owns, directly or indirectly, all
the Equity Interests of such Borrower and KMC IHC.
SECTION 3.20. REAL PROPERTY, LEASES AND EASEMENTS. Such Borrower leases or
owns the real property described on SCHEDULE 3.20. Set forth on SCHEDULE 3.20 is
a list of (i) all real property leased or owned by such Borrower (the "REAL
PROPERTY") and (ii) all easements, rights of way, rights of occupancy, licenses
and similar rights with respect to real property granted to such Borrower not
otherwise disclosed to the Collateral Agent and the Lenders on a title report
delivered to the Collateral Agent and the Lenders pursuant to the terms hereof
(together with all easements, rights of way, rights of occupancy, licenses and
similar rights with respect to real property granted to such Borrower which are
so disclosed, collectively, the "EASEMENTS"). Also set forth on SCHEDULE 3.20 is
a street address of the Real Property locations described above, including a
description of such properties' current use. Except as set forth in SCHEDULE
3.20, such Borrower's interests in the Real Property and the Easements are
sufficient in order for such Borrower to conduct its business and operations as
presently conducted.
SECTION 3.21. SOLVENCY. After giving effect to any Loans made to such
Borrower hereunder, the disbursement of the proceeds of such Loans pursuant to
the Borrower's instructions and the execution, delivery and performance of each
of the Loan Documents and transactions contemplated thereby, such Borrower is
Solvent and is not contemplating either the filing of a petition by it under any
state or federal bankruptcy or insolvency laws or the liquidation of all or a
substantial portion of its property, and has no knowledge of any Person
contemplating the filing of any such petition against such Borrower.
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SECTION 3.22. BROKERS, ETC. Except as otherwise described on SCHEDULE 3.22,
such Borrower has not dealt with any broker, finder, commission agent or other
similar Person in connection with the Loans or the transactions being effected
contemporaneously with this Agreement, and such Borrower covenants and agrees to
indemnify and hold harmless the Agent, and the Lenders from and against, any
broker's fee, finder's fee or commission in connection with such transactions.
SECTION 3.23. NO MATERIAL MISSTATEMENTS. Neither any report, financial
statement, exhibit or schedule furnished by or on behalf of such Borrower to the
Agent, or any Lender in connection with the negotiation of this Agreement and
the other Loan Documents or included herein or therein, nor any other
information required to be furnished pursuant to the provisions of ARTICLE V
contains any material misstatement of fact or omits to state any material fact
necessary to make the statements therein not materially misleading.
SECTION 3.24. YEAR 2000 PROBLEMS. Such Borrower has made a full and
complete assessment of the Year 2000 Problems and has a realistic and achievable
program for remediating the Year 2000 Problems on a timely basis. Based on such
assessment and program, such Borrower does not reasonably anticipate that Year
2000 Problems will have a Material Adverse Effect.
ARTICLE IV
CONDITIONS FOR LOANS
The obligations of each Lender to make Loans hereunder are subject to the
accuracy, as of the Initial Funding Date and as of the date of making of each of
the Loans after the Initial Funding Date, of the representations and warranties
contained in ARTICLE III (except that any representations or warranties that
relate to a specified date shall only be reaffirmed as of such date) and the
other Loan Documents, to the performance by such Borrower of its obligations to
be performed hereunder on or before the date of such Loan and to the
satisfaction of the following further conditions:
SECTION 4.01. CONDITIONS PRECEDENT TO INITIAL LOANS. In the case of the
Loans to be made on the Initial Funding Date:
(a) All then applicable legal matters incident to this Agreement and the
other Loan Documents shall be reasonably satisfactory to the Agent and its
counsel.
(b) The Agent and the Collateral Agent, as applicable, shall have received
payment in full of the fees set forth in the Fee Letter, and all the other
documented out-of-pocket costs and expenses of the Agent and the Lenders
incurred on or prior to the Initial Funding Date, including, without limitation,
reasonable attorneys' and paralegals' fees and expenses and the fees and
expenses incurred in connection with preparation of any environmental audits.
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(c) (1) The Agent and the Collateral Agent shall have received the
following items, in each case in form and substance satisfactory to the Agent,
the Collateral Agent and the Lenders:
(i) the Financials;
(ii) the KMC III Tier III Plan showing in reasonable detail and
specifying any material underlying assumptions, for the subsequent nine (9)
year period, the Borrower's anticipated revenues and expenses and projected
statements of cash flow and information with respect to projected capital
expenditures and changes in working capital over such period, and a
detailed Systems construction and buildout schedule;
(iii) certificates substantially in the form of EXHIBITS J-1, J-2 and
J-3 hereto, dated the Initial Funding Date or dated the Closing Date and a
reaffirmation of such certificate dated the Initial Funding Date, of the
secretaries or assistant secretaries of each Borrower, KMC Holdings and KMC
IHC, certifying (1) the names and true signatures of the officers
authorized to sign each Loan Document to which any Borrower, KMC Holdings
and KMC IHC is a party, (2) the resolutions of the Board of Directors of
KMC III, KMC Holdings or KMC IHC approving the transactions contemplated by
the Loan Documents to which each is a party, (3) KMC III's, KMC Holdings'
or KMC IHC's bylaws, and (A) only with respect to the certificate of KMC
Holdings, (x) a true and correct copy of the Indenture, (y) true and
correct copies of the Management Agreement and the Tax Sharing Agreement
and (z) that KMC Holdings has made the Required Contributions to and (B)
only with respect to KMC IHC, that KMC IHC has made the Required
Contributions to KMC III;
(iv) the written opinions of special, regulatory and local counsel for
each Borrower, KMC Holdings and KMC IHC, dated the Initial Funding Date,
addressed to the Agent, the Collateral Agent and the Lenders satisfactory
to (and containing only such qualifications and limitations as are
satisfactory to) the Agents and its counsel, which opinions shall be
substantially in the forms set forth in EXHIBITS K-1, K-2 and K-3,
respectively, attached hereto;
(v) certificates of appropriate public officials dated not more than
30 days prior to the Initial Funding Date, as to the legal existence or
qualification, and good standing of each Borrower, KMC Holdings and KMC IHC
from such Person's jurisdiction of organization and from the jurisdiction
in which such Person has its principal place of business;
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(vi) each Borrower's, KMC Holdings' and KMC IHC's Certificate of
Incorporation, as amended, modified or supplemented on or prior to the
Initial Funding Date, each certified to be true, correct and complete by
the Secretary of State of the state in which such Person is organized;
(vii) completed Year 2000 questionnaire executed by the Borrower;
(viii) the Notes duly executed and delivered by the Borrowers; and
(ix) this Agreement duly executed and delivered by the Borrowers.
(2) The Collateral Agent shall have received the following items in each
case in form and substance satisfactory to the Collateral Agent and the Lenders:
(i) the Pledge Agreements duly executed by (A) KMC IHC with respect to
the Equity Interests in KMC III and (B) KMC III with respect to the Equity
Interests in KMC Leasing III together with, in the case of KMC III, stock
certificates and, in each case, undated stock powers executed in blank in
form and substance satisfactory to the Collateral Agent and the Lenders;
(ii) the KMC Holdings Guaranty, duly executed by KMC Holdings;
(iii) the KMC IHC Guaranty, duly executed by KMC IHC;
(iv) loss payable endorsements substantially in the form of EXHIBIT M
attached hereto with respect to each Borrower's insurance policies relating
to the Collateral, and insurance certificates required by SECTION 5.04(G)
from nationally recognized insurance brokers with respect to each
Borrower's insurance policies;
(v) with respect to each Borrower's then existing Collection Accounts,
Restricted Account Agreements substantially in the form of EXHIBIT N
attached hereto, duly executed by applicable Borrower and the financial
institutions maintaining the Collection Accounts;
(vi) a Collateral Assignment of Licenses duly executed by each
Borrower, together with consents to assignment of licenses and rights from
Persons designated by the Collateral Agent and the Lender duly executed by
such Persons, including agreements as to default notices, cure rights,
waiver of lien rights, conveyance of nondisturbance rights and other terms
satisfactory to the Collateral Agent and the Lenders (provided the
Borrowers shall have the post-closing period provided for in SECTION 5.08
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with respect to obtaining the consents to Collateral Assignment of Licenses
required pursuant to such Section);
(vii) a Collateral Assignment of Leases duly executed by each
Borrower, together with consents to assignment, duly executed by the
appropriate Persons, including agreements as to default notices, cure
rights, waiver of lien rights, conveyance of nondisturbance rights and
other terms satisfactory to the Collateral Agent and the Lenders with
respect to those leased properties specified by the Collateral Agent or the
Requisite Lenders, together with landlord waivers in the form of EXHIBIT D
hereto executed by the appropriate landlord with respect to those leased
properties specified by the Collateral Agent or the Requisite Lenders;
(viii) completed environmental questionnaires and indemnity agreement
executed by each Borrower and Phase I Environmental Reports with respect to
premises described on SCHEDULE 3.10 (if any);
(ix) an Access Agreement executed and delivered by Kamine Development
Corp. with respect to the Borrower's premises located at 1545 Route 206,
Suite 300, Bedminster, New Jersey in form and substance satisfactory to the
Collateral Agent and the Lenders;
(x) a Trademark Security Agreement in the form of EXHIBIT Q hereto,
duly executed and delivered by the Borrowers;
(xi) a Contribution Agreement in the form of EXHIBIT R hereto, duly
executed and delivered by the Borrowers.
(d) The Agent or the Collateral Agent, as applicable, shall have
satisfactorily completed its review of any Additional Purchase Agreements,
construction and maintenance contracts, right of way agreements and
interconnection agreements related to the Systems being financed with the Loans
made on the Initial Funding Date.
(e) The Collateral Agent shall have received evidence satisfactory to it
and the Lenders that its security interests in the Collateral have been properly
perfected and constitute first and prior security interests subject only to
Permitted Liens, including by (i) filing Mortgages, the Collateral Assignment of
Licenses, the Collateral Assignment of Leases, leasehold mortgages and UCC-1
financing statements in certain filing and recording offices, (ii) filing the
Trademark Security Agreement in the United States Patent and Trademark Office,
(iii) obtaining consents to the Collateral Assignments of Licenses and the
Collateral Assignments of Leases (provided the Borrowers shall have the
post-closing period provided for in SECTION 5.08 with respect to obtaining the
consents to certain Collateral Assignments of Licenses required pursuant to such
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Section) and (iv) taking possession of stock certificates and other instruments,
in each case, as requested by the Collateral Agent or the Requisite Lenders.
(f) The Collateral Agent shall have received evidence satisfactory to it,
including the results of searches conducted in the mortgage recording, UCC, tax
Lien and judgment filing records in each appropriate filing office or
jurisdiction, that there are no Liens against the Collateral except Permitted
Liens.
(g) The Agent shall have received evidence satisfactory that no Borrower
has any Debt other than as described in SECTION 6.13 and that the holders of any
such Debt described in CLAUSES (V) and (VII) of SECTION 6.13 have executed
subordination and standstill agreements satisfactory to the Collateral Agent and
the Lenders.
(h) The Collateral Agent, as it or the Requisite Lenders may require, shall
have obtained or waived in writing with respect to each real estate and material
equipment lease and each mortgage of any Borrower relating to the Systems being
financed with the initial Loan made after the Closing Date (i) the right from
the applicable lessors and mortgagees to cure all payment defaults under such
leases and mortgages by making payment directly to the applicable lessors and
mortgagees and (ii) landlord waivers and consents, as the Collateral Agent or
the Requisite Lenders may require, with respect to each leased facility.
(i) The Agent shall have satisfactorily completed their due diligence
investigation of the Borrowers and the Systems and the Borrowers' other assets,
and their respective officers and directors including, without limitation,
environmental reviews, engineering reviews, review of material agreements of the
Borrowers and review of easement matters.
(j) All right of way agreements with respect to each System under
construction shall be sufficient to allow full operation of such System and,
upon request of the Collateral Agent or the Requisite Lenders shall be
assignable to the Collateral Agent or its designee.
(k) KMC Holdings or KMC IHC, by either the making of capital contributions
or Qualified Intercompany Loans, shall have contributed or loaned cash to KMC
III in an aggregate amount equal to at least $58,500,000.
(l) Without the prior written consent of the Lenders, there shall not have
been any change in the ownership of 5% or more of the Voting Stock of KMC
Holdings.
SECTION 4.02. CONDITIONS PRECEDENT TO ALL LOANS. In the case of each Loan
hereunder:
(a) The representations and warranties of each Borrower set forth in
ARTICLE III or in any other Loan Document shall be true and correct in all
material respects on and as of the date of such Loan with the same effect as
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though such representations and warranties had been made on and as of such date,
except that any representations or warranties that relate to a specified date
shall only be reaffirmed as of such date.
(b) At the time of each such Loan, and after giving effect to such Loan,
each Borrower shall be in compliance with all the terms and provisions set forth
herein on its part to be observed or performed, and no Event of Default or
Default shall have occurred and be continuing.
(c) At the time of each such Loan and after giving effect to each such
Loan, there shall have been no material adverse change in the condition
(financial or otherwise), operations, properties or prospects of any Borrower
since the date of the Financials.
(d) Such Loan, when combined with Loans previously made to the Borrowers,
shall not exceed the Commitment Amount.
(e) All legal matters incident to such Loan and the Loan Documents shall be
satisfactory to the Agent and its counsel.
(f) The Agent shall have received a Notice of Borrowing for the Loan and
acceptance certificate and invoices required by SECTION 2.03.
(g) The Collateral Agent shall have first priority Liens on all personal
and real property assets that comprise or relate to each System to be funded by
such Loan, shall have received collateral assignments of all material third
party agreements relating to such Systems, consented to by the applicable third
parties, as requested by the Agents, and shall have received evidence that all
necessary Governmental Approvals for such System have been obtained.
(h) The Collateral Agent shall have received copies of such lien waivers
and other acknowledgments from Persons constructing the Systems, any
subcontractors or vendors (including Lucent or each Additional Vendor) with
respect to the construction of the Systems as the Agent may reasonably request.
(i) All fees and expenses which are due and payable to the Agents on or
prior to the date of the advance of such Loan shall have been paid.
(j) The Agent or the Collateral Agent, as applicable, shall have
satisfactorily completed their review of any Additional Purchase Agreements,
construction and maintenance contracts related to the Systems being financed
with such Loan and the interconnection agreements for each System being financed
with such Loan.
(k) The Collateral Agent shall have obtained or waived in writing with
respect to each real estate and material equipment lease, each mortgage, and
each material third party agreement relating to the Systems being financed with
such Loan (i) the right from the applicable lessors and mortgagees to cure all
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payment defaults under such leases and mortgages by making payments directly to
the applicable lessors and mortgagees, as the Agents may request, (ii) landlord
waivers and consents, as the Agents may require, with respect to each leased
facility, and (iii) consents to collateral assignment, as the Agent or the
Requisite Lenders may require, with respect to each such material third party
agreement.
(l) There shall not have occurred in the opinion of the Agents, any
material adverse change in any two of the three members of (i) KMC III's or KMC
Leasing III's, (ii) KMC Holdings' or (iii) KMC IHC's senior management team,
which shall comprise its Chief Executive Officer, Chief Financial Officer and
Executive Vice President - Field Sales and Operations.
(m) If a Loan is requested to finance Aged Equipment, the Agent or the
Requisite Lenders, if it or they so elect, shall have obtained an appraisal of
such Aged Equipment from an appraiser selected by the Agent, which appraisal
shall be satisfactory to the Collateral Agent and the Requisite Lenders, and the
cost of which shall be borne by such Borrower.
(n) Each Borrower shall have delivered to the Agents such other
certificates, documents, legal opinions or other information as the Agent may
reasonably request.
SECTION 4.03. CONDITIONS PRECEDENT TO LOANS IN EXCESS OF THE LEVEL 1
LENDING LIMIT. The obligation to make Loans hereunder in excess of the Level 1
Lending Limit shall be subject to the satisfaction of the condition that the
Borrowers shall have received an additional $35,000,000 of funded equity or
Qualified Intercompany Loans.
SECTION 4.04. CONDITIONS PRECEDENT TO LOANS IN EXCESS OF THE LEVEL 2
LENDING LIMIT. The obligation to make Loans hereunder in excess of the Level 2
Lending Limit shall be subject to the satisfaction of the following further
conditions:
(a) Lucent shall have assigned or sold participations in its Loans and/or
Commitment, without recourse to or credit support from Lucent, so that, after
giving effect to the Loans being made on such Funding Date, the aggregate Loans
of Lucent do not exceed $250,000,000.
(b) KMC Holdings or KMC IHC shall have obtained through the sale of Equity
Interests (other than Disqualified Stock) in KMC Holdings or High Yield Debt of
either KMC Holdings or KMC IHC net cash proceeds of not less than $300,000,000
and, either by the making of capital contributions or Qualified Intercompany
Loans, KMC Holdings or KMC IHC shall have contributed or loaned such net cash
proceeds to KMC III.
(c) Prior to December 31, 1999 the Borrowers shall have delivered the KMC
III Tier III - Tier IV Plan.
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(d) the Borrowers shall have revised financial covenants in accordance with
the KMC III Tier III-Tier IV Plan in a manner that is acceptable to the Agent
and the Requisite Lenders.<F1> Under review.<F1>
ARTICLE V
AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that so long as this Agreement shall
remain in effect, any Commitment hereunder shall be outstanding or any
Obligations hereunder or under any of the other Loan Documents are unpaid,
unless the Requisite Lenders shall have otherwise given prior written consent:
SECTION 5.01. CORPORATE AND FRANCHISE EXISTENCE. Such Borrower shall
preserve and maintain its corporate existence, rights, franchises, licenses and
privileges in its jurisdiction of its organization, and in all other
jurisdictions in which such qualification is necessary in view of its business
and operations and property and preserve, protect and keep in full force and
effect its material rights and its Governmental Approvals.
SECTION 5.02. COMPLIANCE WITH LAWS, ETC. Such Borrower shall comply in all
material respects with all laws and regulations applicable to it, including,
without limitation, Environmental Laws, regulations promulgated by the FCC and
any PUC, and other telecommunications laws and regulations, and all material
contractual obligations applicable to it.
SECTION 5.03. MAINTENANCE OF PROPERTIES. Such Borrower shall at all times
maintain in good repair, working order and condition, excepting ordinary wear
and tear, all its properties material to its operations and make all appropriate
repairs, replacements and renewals thereof, in each case consistent with prudent
industry practices and sound business judgment and with respect to the
maintenance of machinery and equipment, in compliance with applicable government
regulations, manufacturers' warranty requests and any licensing requirements.
SECTION 5.04. INSURANCE.
(a) COVERAGE. Without limiting any of the other obligations or liabilities
of such Borrower under this Agreement, such Borrower shall carry and maintain,
and require each contractor retained in connection with the construction of any
System to carry and maintain, each at its own expense, at least the minimum
insurance coverage set forth in this SECTION 5.04. Such Borrower shall also
carry and maintain any other insurance that the Collateral Agent or the
Requisite Lenders may reasonably require from time to time. All insurance
carried pursuant to this SECTION 5.04 shall be placed with such insurers that
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have an A.M. Best rating of A:X or better, or as may be acceptable to the
Collateral Agent and the Requisite Lenders. Such coverage shall be in such form,
with terms, conditions, limits and deductibles as shall be acceptable to the
Collateral Agent and the Requisite Lenders.
(b) CONSTRUCTION PERIOD. During the period from, and including the
commencement of construction of any System, to and including the completion of
construction of any System, such Borrower shall maintain in full force and
effect, pay all premiums when due in respect of, and comply with all terms and
conditions of the following coverages:
(i) ALL RISK BUILDER'S RISK. The Borrower shall maintain all risk
builder's risk insurance covering physical loss or damage to such System
including, but not limited to, fire and extended coverage, collapse, flood,
earth movement, and comprehensive boiler and machinery coverage (including
electrical malfunction and mechanical breakdown). Such insurance shall
cover all property during construction and testing, as well as any and all
materials, equipment and machinery intended for such System during off-site
storage and inland transit and, if necessary, during ocean and air transit.
All transit coverage shall be on a "warehouse to warehouse" basis. The all
risk builder's risk policy shall be written on a replacement cost basis for
the full construction cost of such System or in an amount acceptable to the
Collateral Agent and the Requisite Lenders and shall contain an agreed
amount endorsement waiving any coinsurance penalty. Coverage shall not
exclude resultant damage caused by faulty workmanship, design or materials
nor shall it exclude machinery and equipment under guarantee or warranty;
and
(ii) COMPREHENSIVE OR COMMERCIAL GENERAL LIABILITY. Such Borrower
shall maintain comprehensive general liability insurance written on an
occurrence basis with a limit of liability not less than $1,000,000.
Coverage shall include, but not be limited to, premises/operations,
explosion, collapse, and underground hazards, broad form contractual,
independent contractors products/completed operations, broad form property
damage, and personal injury liability. Such insurance shall not exclude
coverage for punitive or exemplary damages where insurable by law; and
(iii) WORKERS' COMPENSATION/EMPLOYER'S LIABILITY. Such Borrower shall
maintain workers' compensation insurance in accordance with statutory
provisions covering accidental injury, illness or death of an employee of
such Borrower while at work or in the scope of his or her employment with
such Borrower and employer's liability insurance in an amount not less
than $1,000,000. Such coverage shall not contain any occupational disease
exclusions; and
(iv) AUTOMOBILE LIABILITY. Such Borrower shall maintain automobile
liability insurance covering owned, non-owned, leased, hired or borrowed
vehicles against bodily injury or property damage. Such coverage shall
have a limit of not less than $1,000,000; and
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(v) EXCESS/UMBRELLA LIABILITY. Such Borrower shall maintain excess
or umbrella liability insurance in an amount not less than $25,000,000
written on an occurrence basis providing coverage limits in excess of the
insurance limits required under SECTION 5.04(B)(II), (B)(III) (employer's
liability only), and (b)(iv). Such insurance shall follow from the primary
insurances and drop down in case of exhaustion of underlying limits and/or
aggregates. Such insurance shall not exclude coverage for punitive or
exemplary damages where insurable by law.
(c) CONTRACTOR INSURANCE COVERAGE. Such Borrower shall cause each
contractor retained in connection with the construction of any System to carry
and maintain, in full force and effect, such insurance and such bonds as such
contractor is required to maintain pursuant to the following:
(i) BOND. Such contractor shall maintain performance and payment
bonds written in a form and by a surety acceptable to the Agent and the
Requisite Lenders. Such bonds shall cover all payments, performance,
material and other obligations of such contractor and all subcontractors.
The applicable performance and payment bonds shall, at all times, be in an
amount equal to the full value of the construction contracts. Each bond
shall cover the faithful performance of the construction contract. Such
Borrower and the Collateral Agent shall be named as obligees under each
bond; and
(ii) COMPREHENSIVE OR COMMERCIAL GENERAL LIABILITY. Such contractor
shall maintain comprehensive general liability insurance covering the
construction of such System written on an occurrence basis with a limit of
liability not less than $25,000,000. Coverage shall include, but not be
limited to, premises/operations, explosion, collapse, and underground
hazards, sudden and accidental pollution, broad form contractual,
independent contractors, products/completed operations, broad form
property damage, and personal injury liability. Such insurance may be
written in any combination of primary and excess/umbrella forms. The
products completed operations coverage shall be extended to cover such
System for two years after completion of such System. Such insurance shall
not exclude coverage for punitive or exemplary damages where insurable by
law; and
(iii) WORKERS' COMPENSATION/EMPLOYER'S LIABILITY. Such contractor
shall maintain workers' compensation insurance in accordance with
statutory provisions covering accidental injury, illness or death of an
employee of such contractor while at work or in the scope of his or her
employment with such contractor and employer's liability insurance in an
amount not less than $25,000,000 written in any combination of primary and
excess/umbrella policies, and
(iv) AUTOMOBILE LIABILITY. Such contractor shall maintain automobile
liability insurance covering owned, non-owned, leased, hired or borrowed
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vehicles against bodily injury or property damage. Such coverage shall
have a limit of not less than $25,000,000 written in any combination of
primary and excess/umbrella policies.
(d) OPERATIONS PERIOD. Beginning on the completion date of each System,
such Borrower shall maintain in full force and effect, pay all premiums when due
in respect of, and comply with all terms and conditions of the following
insurance coverages for each System.
(i) ALL RISK PROPERTY INSURANCE. Such Borrower shall maintain all
risk property insurance covering such System against physical loss or
damage, including but not limited to fire and extended coverage, collapse,
flood, earth movement and comprehensive boiler and machinery coverage
(including electrical malfunction and mechanical breakdown). Such
insurance shall cover each and every component of such System and shall
not contain any exclusion for resultant damage caused by faulty
workmanship, design or materials. Coverage shall be written on a
replacement cost basis in an amount acceptable to the Agents. Such
insurance policy shall contain an agreed amount endorsement waiving any
coinsurance penalty; and
(ii) BUSINESS INTERRUPTION. As an extension of the coverage required
under SECTION 5.04(D)(I), such Borrower shall maintain business
interruption insurance in an agreed amount equal to twelve (12) months
projected loss of net profits, continuing expenses and debt service
payments of such System and shall contain an agreed amount endorsement
waiving any coinsurance penalty. Contingent business interruption
insurance shall also be included to cover the major suppliers and
customers of the Borrowers. Coverage shall be included for expediting
expenses in an amount not less than $1,000,000. Such insurance shall also
cover service interruption. Deductibles shall not exceed thirty (30) days;
and
(iii) COMPREHENSIVE OR COMMERCIAL GENERAL LIABILITY INSURANCE. Such
Borrower shall maintain comprehensive general liability insurance written
on an occurrence basis with a limit of not less than $1,000,000. Such
coverage shall include, but not be limited to, premises/operations,
explosion, collapse, underground hazards, contractual liability,
independent contractors, products, completed operations, property damage
and personal injury liability. Such insurance shall not exclude coverage
for punitive or exemplary damages where insurable by law; and
(iv) WORKERS' COMPENSATION/EMPLOYER'S LIABILITY. Such Borrower shall
maintain workers' compensation insurance in accordance with statutory
provisions covering accidental injury, illness or death of an employee of
such Borrower while at work or in the scope of his or her employment with
such Borrower and employer's liability insurance in an amount not less
than $1,000,000. Such coverage shall not contain any occupational disease
exclusions; and
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(v) AUTOMOBILE LIABILITY. Such Borrower shall maintain automobile
liability insurance covering owned, non-owned, leased, hired or borrowed
vehicles against bodily injury or property damage. Such coverage shall
have a limit of not less than $1,000,000; and
(vi) EXCESS/UMBRELLA LIABILITY. Such Borrower shall maintain excess
or umbrella liability insurance in an amount not less than $25,000,000
written on an occurrence basis providing coverage limits in excess of the
insurance limits required under SECTIONS 5.04(D)(III), (D)(IV) (employer's
liability only), and (D)(V). Such insurance shall follow from the primary
insurances and drop down in case of exhaustion of underlying limits and/or
aggregates. Such insurance shall not exclude coverage for punitive or
exemplary damages where insurable by law.
(e) ENDORSEMENTS. Such Borrower shall cause all insurance carried and
maintained in accordance with this SECTION 5.04 to be endorsed as follows:
(i) Such Borrower shall be the named insured and the Collateral
Agent shall be an additional named insured and loss payee with respect to
policies described in SECTION 5.04(B)(I), (D)(I) and (D)(II). Such
Borrower shall be the named insured and the Collateral Agent shall be an
additional insured with respect to policies described in SECTION
5.04(B)(II), (B)(III) (to the extent allowed by law), (B)(IV),
(B)(V),(D)(III), (D)(IV) (to the extent allowed by law), (D)(V) and
(D)(VI). Such Borrower and the Collateral Agent shall be additional
insureds under all insurances carried by contractors under SECTION 5.04(C)
to the extent allowed by law. All policies shall provide that any
obligation imposed upon such Borrower and/or any contractor, including but
not limited to the obligation to pay premiums, shall be the sole
obligation of such Borrower and/or the contractor and not that of the
Agent, the Collateral Agent or any Lender; and
(ii) with respect to policies described in SECTION 5.04(B)(I), (D)(I)
and (D)(II), the interests of the Collateral Agent shall not be
invalidated by any action or inaction of such Borrower, or any other
Person, and shall insure the Collateral Agent regardless of any breach or
violation by such Borrower, any contractor or any other Person, of any
warranties, declarations or conditions of such policies, and
(iii) inasmuch as the liability policies are written to cover more
than one insured, all terms, conditions, insuring agreements and
endorsements, with the exception of the limits of liability, shall operate
in the same manner as if there were a separate policy covering such
insured; and
(iv) the insurers thereunder shall waive all rights of subrogation
against the Agent, the Collateral Agent, or the Lenders, any right of
setoff or counterclaim and any other right to deduction, whether by
attachment or otherwise; and
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(v) such insurance shall be primary without right of contribution of
any other insurance carried by or on behalf of the Agent, the Collateral
Agent or the Lenders with respect to their interests as such in such
System; and
(vi) if such insurance is canceled for any reason whatsoever,
including nonpayment of premium, or any changes are initiated by such
Borrower or carrier which affect the interests of the Collateral Agent,
such cancellation or change shall not be effective as to the Collateral
Agent until thirty (30) days, except in the case of non-payment of premium
which shall be ten (10) days, after receipt by the Collateral Agent of
written notice sent by registered mail from such insurer.
(f) CERTIFICATIONS. On the Initial Funding Date, and at each policy
renewal, but not less than annually, such Borrower shall provide to the
Collateral Agent approved certification from each insurer or by an authorized
representative of each insurer. Such certification shall identify the
underwriters, the type of insurance, the limits, deductibles, and term thereof
and shall specifically list the special provisions delineated for such insurance
required for this SECTION 5.04.
(g) INSURANCE REPORT. Concurrently with the furnishing of all certificates
referred to in this SECTION 5.04, the Borrower shall furnish the Agent with an
opinion from an independent insurance broker, acceptable to the Agents, stating
that all premiums then due have been paid and that, in the opinion of such
broker, the insurance then maintained by such Borrower is in accordance with
this section. Furthermore, upon its first knowledge, such broker shall advise
the Agent promptly in writing of any default in the payment of any premiums or
any other act or omission, on the part of any Person, which might invalidate or
render unenforceable, in whole or in part, any insurance provided by such
Borrower hereunder.
(h) APPLICATION OF PAYMENTS. All payments received by such Borrower from
any insurance referred in SECTION 5.04(B)(I), (D)(I) and (D)(II) shall be
promptly delivered directly to the Agent, which amounts shall be applied by the
Agent, upon request by such Borrower and provision to the Agent of detailed
information, including a construction schedule and cost estimates, which
establish to the reasonable satisfaction of the Agent and the Requisite Lenders
that the amounts available and the proposed schedule are adequate to restore,
replace or rebuild the property subject to insurance payments in a timely
manner, to such restoration, replacement or rebuilding unless an Event of
Default or Default shall have occurred and be continuing or such Borrower shall
have failed to make such request within thirty (30) days after receipt of such
amounts by Agents, in which case such amounts shall be applied in the Requisite
Lenders' sole discretion to the repayment of the Obligations or such
restoration, replacement or rebuilding.
(i) GENERAL. The Agents shall be entitled, upon reasonable advance notice,
to review and/or receive copies of such Borrower's (or other appropriate
party's) books and records regarding all insurance policies carried and
maintained with respect to each System and the Borrower's obligations under this
SECTION 5.04. Notwithstanding anything to the contrary herein, no provision of
this Agreement or any other Loan Document shall impose on the Collateral Agent,
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or any Lender any duty or obligation to verify the existence or adequacy of the
insurance coverage maintained by such Borrower, nor shall the Collateral Agent,
the Agent or any Lender be responsible for any representations or warranties
made by or on behalf of such Borrower to any insurance broker, company or
underwriter. The Agent at the direction of the Requisite Lenders or the Agent,
at its sole option, may obtain such insurance if not provided by the Borrower;
in such event, such Borrower shall reimburse the Collateral Agent or the Agent
upon demand for the cost thereof together with interest, and such costs shall
constitute Obligations secured by the Collateral.
(j) PERFORMANCE BY KMC HOLDINGS. The obligations of such Borrower under
this SECTION 5.04 may be performed by KMC Holdings on behalf of such Borrower.
SECTION 5.05. OBLIGATIONS AND TAXES. Such Borrower shall pay all its
indebtedness and obligations promptly and in accordance with their terms and pay
and discharge promptly all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or in respect of its property,
before the same shall become in default, as well as all lawful claims for labor,
materials and supplies or otherwise which, if unpaid, might become a Lien upon
such properties or any part thereof; PROVIDED that such Borrower shall not be
required to pay and discharge or to cause to be paid and discharged any such
tax, assessment, charge, levy or claim so long as the validity or amount thereof
shall be contested in good faith by appropriate proceedings diligently pursued,
and the Borrower shall set aside on its books such reserves as are required by
GAAP with respect to any such tax, assessment, charge, levy or claim so
contested.
SECTION 5.06. FINANCIAL STATEMENTS, REPORTS, ETC. Such Borrower shall
furnish to the Agent and the Lenders (except as otherwise provided herein):
(a) within one hundred twenty (120) days after the end of each fiscal year
of such Borrower, two sets of annual consolidated and consolidating financial
statements for KMC Holdings (one excluding Excluded Subsidiaries and one
including Excluded Subsidiaries), and combined financial statements for the
Borrowers, including the balance sheets and statements of operations, income,
stockholders' equity and cash flows, for such fiscal year, prepared in
accordance with GAAP, which consolidated financial statements and other above
described financial information shall have been audited by a nationally
recognized independent certified public accounting firm satisfactory to the
Agent, and accompanied by such independent certified public accounting firm's
unqualified opinion;
(b) within forty-five (45) days after the end of each month and each fiscal
quarter during each fiscal year of such Borrowers, consolidated and
consolidating unaudited balance sheets and statements of operations for KMC
Holdings, and combined unaudited balance sheets and statements of operations for
the Borrower and consolidated and consolidating statements of stockholders'
equity and cash flows of KMC Holdings, and combined consolidated statements of
stockholders' equity and cash flows of the Borrowers as of the end of each such
month or fiscal quarter, as applicable, and for the then elapsed portion of the
fiscal year; PROVIDED that with respect to the consolidated and consolidating
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unaudited balance sheets and statements of operations for KMC Holdings and
statements of stockholders' equity and cash flows of KMC Holdings delivered as
of the end of each fiscal quarter, such Borrower shall provide two sets of such
statements (one excluding Excluded Subsidiaries and one including Excluded
Subsidiaries); PROVIDED, further, that such Borrower shall not be required to
deliver the items described in this SECTION 5.06(B) on a monthly basis at any
time that, and only for so long as, the Borrowers have achieved positive EBITDA;
(c) concurrently with provision of the financial statements referred to in
CLAUSES (A) and (B) above, a certificate of KMC Holdings' independent certified
public accountant or KMC Holdings' chief financial officer, as applicable, to
the effect that the financial statements referred to in CLAUSE (A) or (B) above,
present fairly the financial position and results of operations of KMC Holdings,
and the Borrowers and as having been prepared in accordance with GAAP
consistently applied, in each case, subject to normal year end audit adjustments
except for the statements referred to in CLAUSE (A) above;
(d) concurrently with (a) above, and any statements delivered pursuant to
(b) above in respect of the month of March and the period ending March 31, the
month of June and the period ending June 30 or the month of September and the
period ending September 30, a Periodic Reporting Certificate of the chief
financial officer of KMC Holdings setting forth the calculations contemplated in
ARTICLE VII, the number of Completed Systems and certifying as to the fact that
such Person has examined the provisions of this Agreement and that no Event of
Default or any Default, shall have occurred and be continuing or if such an
event has occurred, a statement explaining its nature and extent and setting
forth the steps the Borrowers propose to take to cure such Event of Default;
(e) (i) not later than December 1 of each calendar year, consolidating and
consolidated projected and annual revenue and income statements, including
detailed revenue and expense statements, balance sheets and cash flow statements
for KMC Holdings for the succeeding fiscal year, such statements to be
reasonably acceptable to the Agents, and (ii) not later than July 1, 1999, an
annual operating budget on a monthly basis for such calendar year and not later
than January 15 of each calendar year beginning January 15, 2000, an annual
operating budget on a quarterly basis for such calendar year, with each such
budget to be in compliance with the KMC III Tier III Plan;
(f) to the Agent, all material agreements or licenses affecting the
Governmental Approvals of the any Borrower or any System promptly after any
execution, or material amendment thereto;
(g) to the Agent, promptly upon their becoming available, copies of any
material periodic or special documents, statements or other information filed by
any Borrower with the FCC, PUC or other Governmental Authority in connection
with the construction and/or operation of any System or with respect to the
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transactions contemplated by any of the Loan Documents, and copies of any
material notices and other material communications from the FCC, PUC or from any
other Governmental Authority;
(h) immediately upon any officer of any Borrower obtaining knowledge of any
condition or event (i) which either constitutes an Event of Default or a
Default, (ii) which renders any representation or warranty contained herein
materially false or misleading, or when made, renders any document materially
false or misleading, or (iii) which would result in any financial results for
any fiscal year to materially deviate from the financial results projected for
such fiscal year in the KMC III Tier III Plan or the financial projections
described in CLAUSE (E) above, a certificate signed by an authorized officer of
such Borrower specifying in reasonable detail the nature and period of existence
thereof and what corrective action such Borrower has taken or proposes to take
with respect thereto;
(i) within thirty (30) days after the end of each fiscal year of such
Borrower, a certificate signed by an authorized officer of such Borrower (x)
setting forth all the Real Property, Easements, licenses, rights of way and
other similar interests in real property acquired by such Borrower in the
preceding year and (y) confirming that no Default or Event of Default has
occurred and is continuing;
(j) evidence in the manner set forth in SECTION 5.04(E) of insurance
complying with SECTION 5.04;
(k) following the written request of the Agent, not later than forty-five
(45) days after the end of each fiscal month, reports on accounts receivable and
accounts payable of such Borrower in such detail and format as may be reasonably
requested by the Agent;
(l) promptly upon the filing thereof, copies of all registration statements
and annual, quarterly, monthly or other regular reports which such Borrower or
KMC Holdings files with the Securities and Exchange Commission; and
(m) promptly from time to time such other information regarding the
operations (including, without limitation, construction budgeting and System
completion), business affairs and condition (financial or otherwise) of such
Borrower or KMC Holdings as the Agent may reasonably request.
SECTION 5.07. LITIGATION AND OTHER NOTICES. Such Borrower shall give the
Agent prompt written notice upon obtaining knowledge of the following: (a) all
Events of Default or Defaults and all events of default or any event that would
become an event of default upon notice or lapse of time or both under any of the
terms or provisions of any note, or of any other evidence of indebtedness or
agreement or contract governing the borrowing of money in excess of $250,000 in
the aggregate of such Borrower; (b) any levy, attachment, execution or other
process against any of its property or assets, real or personal, in an amount in
excess of $250,000 of such Borrower; (c) the filing or commencement of any
action, suit or proceeding by or before any court or any Governmental Authority
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which, if adversely determined against it, would result in a Material Adverse
Effect; (d) any material adverse notice, letter or other correspondence of any
kind from the FCC or the PUC relating to the Governmental Approvals or any
System; (e) any default under any other material license, agreement or contract
to which it is a party; and (f) any matter which has resulted in, or which such
Borrower reasonably believes will result in, a Material Adverse Effect on such
Borrower.
SECTION 5.08. MORTGAGES; LANDLORD CONSENTS; LICENSES AND OTHER AGREEMENTS.
As security for the Obligations, such Borrower, with respect to each Completed
System, and each System which is not a Completed System but which is requested
to be financed with the proceeds of Loans (a) shall execute promptly and deliver
to the Collateral Agent (1) Mortgages in favor of the Collateral Agent and
satisfactory to the Agents with respect to any real property purchased by such
Borrower on which a switch or network operating center is located, and, at the
request of the Agents, with respect to any other real property purchased by the
Borrower, together with lender's title policies for any such real property
satisfactory to the Agents, if requested by the Agents, (2) leasehold mortgages
or collateral assignments of leases, landlord waivers or consents, and
appropriate Uniform Commercial Code fixture financing statements, in each case
satisfactory to the Agents with respect to any real property leased by such
Borrower and on which Switch Equipment or a network operating center is located,
and at the request of the Agents, with respect to any other leased real property
of such Borrower, (3) Mortgages or collateral assignments and consents
satisfactory to the Agents with respect to such Borrower's Easements and rights
of way, as requested by the Agents, (4) collateral assignments of leases and
lessor consents, satisfactory to and as requested by the Agents, with respect to
any long-haul fiber leased by such Borrower and (5) with respect to each
Completed System or System, at all times from and after the date on which such
Borrower requests funding for such other Completed System or System, collateral
assignments and within 45 days thereafter the consents to such assignments from
the applicable third Persons, for each other material lease, license, contract
or other agreement or instrument entered into by the Borrower after the date
hereof, as required by the Collateral Agent and (b) (1) update Schedule 1 to the
Collateral Assignment of Licenses to cover all Governmental Approvals obtained
by such Borrower after the Closing Date and agreements entered into by such
Borrower after the Closing Date with third Persons, (2) obtain consents to
collateral assignments from the licensors granting the Governmental Approvals
referred to in CLAUSE (B)(1) above and from those third Persons referred to in
CLAUSE (B)(1) above that are specified by the Agents, such consents to
collateral assignment to be in form and substance satisfactory to the Agents and
(3) update Schedule 1 to the Collateral Assignment of Leases to cover all leases
referred to in CLAUSE (A)(2) above.
SECTION 5.09. ERISA. Such Borrower shall comply in all material respects
with the applicable provisions of ERISA and furnish to the Agent, (i) as soon as
possible, and in any event within thirty (30) days after such Borrower or any
officer of such Borrower knows or has reason to know that any Reportable Event
with respect to any Plan has occurred or any Termination Event has occurred, a
statement of an officer of such Borrower setting forth details as to such
Reportable Event or Termination Event and the corrective action that such
Borrower proposes to take with respect thereto, together with a copy of the
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notice of any such Reportable Event given to the PBGC, and (ii) promptly after
receipt thereof, a copy of any notice such Borrower may receive from the PBGC
relating to the intention of the PBGC to terminate any Plan or to appoint a
trustee to administer any such Plan.
SECTION 5.10. ACCESS TO PREMISES AND RECORDS. Such Borrower shall permit
representatives of the Agents to have access to such Borrower's books and
records and to the Collateral and the premises of such Borrower at reasonable
times upon reasonable notice and to make such excerpts from such records as such
representatives deem necessary and to inspect the Collateral.
SECTION 5.11. DESIGN AND CONSTRUCTION. Such Borrower shall design,
construct, equip and operate its Systems substantially as previously disclosed
to Lenders in the KMC III Tier III Plan and in accordance with prudent industry
standards.
SECTION 5.12. ENVIRONMENTAL NOTICES. If such Borrower shall (a) receive
written notice that any violation of any Environmental Law may have been
committed or is about to be committed by such Borrower, (b) receive written
notice that any administrative or judicial complaint or order has been filed or
is about to be filed against such Borrower alleging violations of any
Environmental Law or requiring such Borrower to take any action in connection
with any Release of any Contaminant into the environment, or (c) receive any
written notice from a Governmental Authority or private party alleging that such
Borrower may be liable or responsible for costs associated with a response to or
cleanup of a Release or any damages caused thereby, such Borrower shall provide
the Agent with a copy of such notice within twenty (20) Business Days of such
Borrower's receipt thereof.
SECTION 5.13. AMENDMENT OF ORGANIZATIONAL DOCUMENTS. Such Borrower shall
notify the Agent and the Collateral Agent of any amendment to its Certificate of
Incorporation or other organizational documents within ten (10) days of the
occurrence of any such event, and provide the Collateral Agent with copies of
any amendments certified by the secretary of such Borrower and of all other
relevant documentation. Such Borrower shall promptly deliver to the Collateral
Agent such financing statements executed by such Borrower which the Agents may
request as a result of any such event.
SECTION 5.14. THIRD PARTY AGREEMENTS AND DELIVERY AND ACCEPTANCE
Certificates. Such Borrower shall provide the Collateral Agent with (i) copies
of all interconnection agreements, right of way agreements, easement agreements,
real property leases, construction agreements, equipment purchase agreements,
fiber leases, telephone line leases, state and local franchise agreements and
other agreements with municipalities, that in each case relate to each System of
such Borrower, promptly after execution of each such agreement; PROVIDED, that
with respect to certain of the foregoing categories of agreements specified by
the Agent or the Requisite Lenders, such Borrower shall be permitted to provide
the Agent with inventories of the particular types of agreements in lieu of
delivering copies of the agreements, which inventories shall be (x) in form and
substance satisfactory to the Agents and (y) updated by the applicable Borrower
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promptly following the execution of any additional agreement of the type
inventoried; PROVIDED, FURTHER, that nothing in the foregoing proviso shall
limit the Collateral Agent's ability to, at any time, request and receive a copy
of any third party agreement from the applicable Borrower, and (ii) (A) if the
Lenders are funding a Completed System, a delivery and acceptance certificate
substantially in the form of EXHIBIT P hereto with respect to such Completed
System and (B) otherwise, copies of delivery and acceptance certificates
substantially in the form of EXHIBIT P hereto with respect to each item of
Telecommunications Equipment with an invoiced purchase price in excess of
$250,000, in each case, where such certificates are not required to be delivered
to the Agent pursuant to SECTION 2.03(A), promptly after completion of such
System or acceptance of such item of Equipment, as applicable.
SECTION 5.15. ACCOUNTS PAYABLE. Such Borrower shall pay each of its
accounts payable in accordance with its practices as of the Closing Date but in
any event no later than sixty (60) days after the due date, PROVIDED, that such
Borrower shall not be required to pay any account payable as long as the
validity thereof shall be contested in good faith by appropriate protest or
proceedings and such Borrower shall have set aside adequate reserves with
respect thereto in accordance with GAAP.
SECTION 5.16. INTELLECTUAL PROPERTY. Such Borrower shall enter into
Intellectual Property Documents, in form and substance satisfactory to the Agent
and the Requisite Lenders, with respect to all the Intellectual Property owned
by such Borrower.
SECTION 5.17. FISCAL YEAR. Such Borrower shall maintain a fiscal year
ending on December 31.
SECTION 5.18. COMPLETED SYSTEMS. On or prior to December 31, 1999, the
Borrowers shall have Completed Systems in ten (10) Tier III Cities. On or prior
to December 31, 2000, the Borrower shall have Completed Systems in twenty-seven
(27) Tier 3 III Cities.
SECTION 5.19. YEAR 2000 PROBLEMS. On or prior to March 31, 1999, each
Borrower shall complete and deliver to the Agent a Year 2000 Corrective Plan. On
or prior to April 30, 1999, each Borrower shall implement Year 2000 Corrective
Actions. On or prior to June 30, 1999, each Borrower shall complete Year 2000
Corrective Actions and Year 2000 Implementation Testing. On or prior to
September 30, 1999, each Borrower shall eliminate all Year 2000 Problems, except
where the failure to correct the same could not reasonably be expected to have a
Material Adverse Effect, individually or in the aggregate.
SECTION 5.20. SUBSIDIARY GUARANTEES AND PLEDGES. Such Borrower shall (i)
cause each Person which becomes a Subsidiary of such Borrower to execute a
guaranty of the Obligations substantially in the form of EXHIBIT G hereto, but
exclusive of any financial covenants, (ii) execute a contribution agreement in
form and substance acceptable to the Agent, (iii) execute a Pledge Agreement
pursuant to which all the Equity Interests in such Person will be pledged to the
Collateral Agent, PROVIDED that in the event such Person is an indirect
Subsidiary of such Borrower, such Borrower shall cause each applicable
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Subsidiary of such Borrower to pledge all the Equity Interests in such Person to
the Collateral Agent, (iv) execute a security agreement pursuant to which such
Person shall provide to the Collateral Agent for the benefit of the Lenders a
Lien on and security interest in all of such Person's tangible and intangible
personal property, real property leaseholds, fixtures, and easement rights and
(v) enter into such other agreements and provide such other instruments
(including opinions of counsel) as the Agent may reasonably request.
SECTION 5.21. ACCOUNTING; MAINTENANCE OF RECORDS. Such Borrower shall
maintain a system of accounting established and administered in accordance with
GAAP. Such Borrower shall keep and maintain in all material respects, proper
books of record and account in which entries in conformity with GAAP shall be
made of all dealings and transactions in relation to their respective businesses
and activities.
SECTION 5.22. FURTHER ASSURANCES. Such Borrower agrees to do such further
acts and things and to execute and deliver to the Agent or the Collateral Agent
such additional assignments, agreements, powers and instruments, at such
Borrower's expense, as the Agent or the Collateral Agent may reasonably require
or deem advisable to carry into effect the purposes of this Agreement and the
other Loan Documents or to better assure and confirm unto the Agent or the
Collateral Agent its rights, powers and remedies hereunder and thereunder.
ARTICLE VI
NEGATIVE COVENANTS
Each Borrower covenants and agrees with the Agent, the Collateral Agent and
the Lenders that as long as this Agreement shall remain in effect, any
Commitment hereunder shall be outstanding or any Obligations hereunder or under
any of the Loan Documents shall be unpaid, unless the Requisite Lenders shall
have otherwise given prior written consent:
SECTION 6.01. LIENS, ETC. Such Borrower shall not create, incur, assume or
suffer to exist, directly or indirectly, any Lien upon or with respect to any of
its properties or the Collateral, now owned or hereafter acquired, or upon any
proceeds, products, issues, income or profits therefrom except for the following
("PERMITTED LIENS"):
(i) Liens granted pursuant to the Loan Documents;
(ii) Liens securing any Purchase Debt to the extent that the Liens
cover only the subject assets purchased with such Purchase Debt;
(iii) Liens for taxes, assessments or governmental charges or levies
on such Borrower's property if the same shall not at the time be
delinquent or thereafter can be paid without penalty, or are being
diligently contested in good faith and by appropriate proceedings and for
which such Borrower shall have set aside reserves on its books as required
by GAAP;
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(iv) Liens imposed by law, such as landlord's, carrier's,
warehousemen's and mechanic's liens, which liens shall be waived in
writing to the extent waivable, and with respect to obligations not yet
due or being contested in good faith by appropriate proceedings and in
either case for which the such Borrower shall have set aside reserves on
its books as required by GAAP;
(v) Liens arising out of pledges or deposits under workmen's
compensation laws, unemployment insurance, old age pensions, or other
social security benefits other than any Lien imposed by ERISA; or
(vi) Liens incurred or deposits made in the ordinary course of
business to secure surety bonds provided that such Liens shall extend only
to cash collateral for such surety bonds.
SECTION 6.02. USE OF PROCEEDS. Such Borrower shall not use the proceeds of
any Loan for any purpose other than as provided in SECTION 2.02.
SECTION 6.03. SALE OF ASSETS, CONSOLIDATION, MERGER, ETC. Such Borrower
shall not consolidate with or merge into any other Person, or without the prior
written consent of the Requisite Lenders, sell, lease, transfer or otherwise
dispose of any Collateral, except for (a) sales of inventory in the ordinary
course of business and (b) any sale, lease, transfer or other disposition of
assets no longer used or useful in the conduct of the Business for the fair
market value thereof not to exceed $250,000 in the aggregate.
SECTION 6.04. DIVIDENDS AND DISTRIBUTIONS; SALE OF EQUITY INTERESTS. (a)
Such Borrower shall not purchase, redeem or otherwise acquire any Equity
Interest in such Borrower, declare or make or pay any dividends in any fiscal
year of such Borrower on any class or classes of stock or membership units,
return capital of the Borrower to its stockholders or members, make any other
distribution on or in respect of any shares of any class of capital stock or
membership units of such Borrower or make other payments to any shareholder or
member of such Borrower (including in the form of compensation, loan, expense
reimbursement or management fee); PROVIDED, that provided no Event of Default or
Default has occurred and is continuing or would result therefrom, (i) such
Borrower may make payments of fees or compensation for services which are in the
nature of management, corporate overhead or administrative services to the
extent permitted by SECTION 6.05, (ii) provided further, that (A) during the
previous four fiscal quarters of the Borrowers, EBITDA equaled at least
eighty-five percent (85%) of "Estimated EBITDA" (as defined below) and such
Estimated EBITDA is a positive number, (B) during the previous four fiscal
quarters of the Borrowers, the Borrowers maintained a Fixed Charge Coverage
Ratio of at least 1.10 to 1.00, (C) with respect to the next four fiscal
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quarters of the Borrowers, EBITDA for the Borrower, as projected in the most
recent financial information furnished pursuant to SECTION 5.06(E), is projected
to equal at least eighty-five percent (85%) of Estimated EBITDA for such fiscal
quarters and such Estimated EBITDA is a positive number, and (D) with respect to
the next four fiscal quarters of the Borrowers, the Fixed Charge Coverage Ratio
as projected in the most recent financial information submitted to the Agent and
the Lenders pursuant to SECTION 5.06(E), is projected to equal at least 1.10 to
1.00, the Borrower may pay to KMC IHC and KMC IHC may pay to KMC Holdings
dividends in the amount necessary to make scheduled principal and interest
payments under the Indenture, and any other amounts due under the Indenture
(including Sections 4.14 and 7.07 thereunder). Estimated EBITDA shall mean
"EBITDA" as calculated in the KMC III Tier III Plan. (b) Such Borrower shall not
sell or issue any additional Equity Interests other than to KMC IHC in
connection with the contribution of additional cash equity into such Borrower;
PROVIDED that any such Equity Interests are pledged to the Collateral Agent for
the benefit of the Agents and the Lenders.
SECTION 6.05. MANAGEMENT FEES AND PERMITTED CORPORATE OVERHEAD. Such
Borrower shall not pay or enter into any arrangement to pay any fee or
compensation, or reimburse expenses of, an Affiliate or any other Person for
services which are in the nature of management, corporate overhead or
administrative services except to the extent provided for in the KMC III Tier
III Plan, the Management Agreement or as described on SCHEDULE 6.11 attached
hereto.
SECTION 6.06. GUARANTEES; THIRD PARTY SALES AND LEASES. Such Borrower shall
not directly or indirectly, (i) assume any obligation or indebtedness of another
Person, (ii) make or assume any Guarantee, or (iii) finance any third party
sales or leases, other than its obligations under SECTION 2.13.
SECTION 6.07. INVESTMENTS. Such Borrower shall not, directly or indirectly,
make any Investments except:
(i) Temporary Cash Investments;
(ii) Investments in certificates of deposit, repurchase agreements,
money market or other cash management accounts, bankers acceptances and
short term Eurodollar time deposits with financial institutions having a
long term deposit rating of at least A+ from Moody's Investors Service,
Inc. or Standard & Poor's Ratings Group, respectively;
(iii) Investments in commercial paper rated P1 or A1 by Moody's
Investors Service, Inc. or Standard & Poor's Ratings Group respectively.
SECTION 6.08. SUBSIDIARIES. Such Borrower shall not create or acquire any
Subsidiary other than with the prior written consent of the Requisite Lenders.
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SECTION 6.09. PERMITTED ACTIVITIES. Such Borrower shall not engage in any
business or activity other than the operation of its Business in accordance with
the KMC III Tier III Plan without the prior written consent of the Requisite
Lenders.
SECTION 6.10. DISPOSITION OF LICENSES, ETC. Such Borrower shall not sell,
assign, transfer or otherwise dispose or attempt to dispose of in any way any
Governmental Approval or any other licenses, permits or approvals (i) prior to
the Trigger Date, material, in each case, to the operation of any System in
accordance with the KMC III Tier III Plan and (ii) on or after the Trigger Date,
the assignment, transfer or disposal of which would result in a Material Adverse
Effect, without the prior written consent of the Requisite Lenders.
SECTION 6.11. TRANSACTIONS WITH AFFILIATES. Except for the Management
Agreement, the Tax Sharing Agreement or as set forth on SCHEDULE 6.11, such
Borrower shall not directly or indirectly, enter into any transaction,
including, without limitation, leases or other agreements for the purchase or
use of any goods or services, with any Affiliate, except in the ordinary course
of and pursuant to reasonable requirements of such Borrower's business upon fair
and reasonable terms no less favorable to such Borrower than it would obtain in
a comparable arm's length transaction with an unaffiliated Person.
SECTION 6.12. ERISA. Such Borrower shall not:
(A) engage, or permit any ERISA Affiliate to engage, in any prohibited
transaction described in Section 406 of ERISA or 4975 of the IRC for which a
statutory or class exemption is not available or a private exemption has not
been previously obtained from the United States Department of Labor;
(B) permit to exist any accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the IRC), whether or not waived;
(C) fail, or permit any ERISA Affiliate to fail, to pay timely required
contributions or annual installments due with respect to any waived funding
deficiency to any Benefit Plan;
(D) terminate, or permit any ERISA Affiliate to terminate, any Benefit Plan
which would result in any material liability of such Borrower under Title IV of
ERISA;
(E) fail to make any contribution or payment to any Multiemployer Plan
which such the Borrower or any ERISA Affiliate may be required to make under any
agreement relating to such Multiemployer Plan, or any law pertaining thereto;
(F) amend, or permit any ERISA Affiliate to amend, a Plan resulting in an
increase in current liability for the plan year such that such Borrower is
required to provide security to such Plan under Section 401(a)(29) of the IRC;
or
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(G) fail, or permit any ERISA Affiliate to fail, to pay any required
installment under Section 412 of the IRC on or before the due date for such
installment or other payment.
SECTION 6.13. INDEBTEDNESS. Such Borrower shall not enter into any
commitment for, create or suffer to exist any Debt or any other obligations for
the deferred purchase price of property or services except:
(i) the Obligations;
(ii) the obligations arising under any Loan Document;
(iii) obligations under leases contemplated in the KMC III Tier III
Plan and the Schedules to this Agreement;
(iv) obligations under Capitalized Leases, financing leases or loan
agreements or similar debt documents with respect to the financing and
contemplated purchase of office equipment, vehicles and non-essential
telecommunications equipment, not to exceed an aggregate amount for the
Borrowers of $5,000,000 at any time ("PURCHASE Debt");
(v) additional unsecured Debt subordinate to the payment of the
Obligations on terms and conditions approved by the Agents but in no event
to exceed an aggregate amount for the Borrowers of $1,000,000 in principal
amount outstanding at any time;
(vi) performance bonds executed solely in connection with the
construction of Systems in the ordinary course of business; and
(vii) Qualified Intercompany Loans.
SECTION 6.14. PREPAYMENT AND DEBT DOCUMENTS. (a) Such Borrower shall not
voluntarily prepay any Debt, except the Obligations in accordance with the terms
hereof.
(b) Such Borrower shall not amend any agreement relating to Debt other than
the Obligations in any manner which would increase the amount of principal,
interest or fees on such debt, or accelerate any payments of such Debt.
SECTION 6.15. SALE AND LEASEBACK TRANSACTIONS. Such Borrower shall not,
directly or indirectly, enter into any arrangement with any Person providing for
such Borrower to lease or rent property that any Borrower, KMC Holdings or KMC
IHC has sold or will sell or otherwise transfer to such Person.
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SECTION 6.16. MARGIN REGULATION. Such Borrower shall not use or permit any
other Person to use any portion of the proceeds of any credit extended under
this Agreement in any manner which might cause the extension of credit made by
any Lender or the application of such proceeds to violate the Securities Act of
1933 or Securities Exchange Act of 1934 (or any successor statute) or to violate
Regulation G, Regulation U, or Regulation X, or any other regulation of the
Federal Reserve Board, in each case, as in effect on the date or dates of such
extension of credit and such use of proceeds.
SECTION 6.17. MANAGEMENT AND TAX SHARING AGREEMENTS. Such Borrower shall
not amend the Management Agreement or the Tax Sharing Agreement in any manner
that would have a material adverse effect on the Lenders, the Borrowers or the
transactions contemplated hereby.
ARTICLE VII
FINANCIAL COVENANTS
Such Borrower covenants and agrees with the Agent and the Lenders that as
long as this Agreement shall remain in effect, any Commitment hereunder shall be
outstanding or the Obligations hereunder or under any of the Loan Documents
shall be unpaid, unless the Requisite Lenders shall have otherwise given prior
written consent:
SECTION 7.01. FINANCIAL COVENANTS PRIOR TO ACHIEVING POSITIVE EBITDA. Until
the earlier to occur of (i) July 1, 2002 and (ii) the date on which the
BORROWERS shall have achieved positive EBITDA for all the Borrowers on a
combined basis for two consecutive fiscal quarters as determined by reference to
the financial statements submitted pursuant to SECTION 5.06:
(a) TOTAL DEBT TO CONTRIBUTED CAPITAL. The Borrowers shall not, at any
time, commencing with the fiscal quarter ending December 31, 1999, permit the
ratio of the Total Debt to Contributed Capital to exceed 1.00 to 1.00.
(b) MINIMUM REVENUES. As of the last day of each fiscal quarter, the
Borrowers shall on a combined basis have revenues at least equal to the lesser
of (i) 85% of the amount projected for such date in the KMC III Tier III Plan
and (ii) such projected amount for such date minus $1,000,000 in the KMC III
Tier III Plan, which amount is set forth in ITEM 1 on ANNEX B attached hereto.
(c) EBITDA.
(i) As of the last day of each fiscal quarter occurring on or after
the Closing Date to and including the fiscal quarter ending March 31, 2002,
the Borrowers shall not permit the EBITDA losses for the Borrowers on a
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combined basis for the two fiscal quarters then ending to exceed the
greater of (A) 115% of such losses projected for each such date in the KMC
III Tier III Plan, which amount is set forth in ITEM 2 on ANNEX B attached
hereto and (B) $5,000,000 less than the aggregate amount of EBITDA
projected for each such date in the KMC III Tier III Plan, which amount is
set forth in ITEM 2 on ANNEX B attached hereto.
(ii) As of the last day of each fiscal quarter thereafter, the
Borrowers shall not permit EBITDA for the Borrowers on a combined basis for
the two fiscal quarters then ending to be less than the greater of (A) 85%
of the amount of EBITDA projected for each such date in the KMC III Tier
III Plan, which amount is set forth in ITEM 3 on ANNEX B attached hereto
and (B) $5,000,000 less than the aggregate amount of EBITDA projected for
each such date in the KMC III Tier III Plan, which amount is set forth as
ITEM 3 on ANNEX B attached hereto.
(d) CAPITAL EXPENDITURES. As of the last day of each fiscal quarter, the
Borrowers shall not permit capital expenditures on a combined, cumulative basis
beginning on the Closing Date to exceed the amounts set forth in ITEM 4 on ANNEX
B attached hereto.
(e) MINIMUM ACCESS LINES. As of the last day of each fiscal quarter
beginning with the fiscal quarter ending September 30, 2000, the Borrowers shall
have in place at least seventy-five percent (75%) of the Access Lines projected
for each such date in the KMC III Tier III Plan, which amounts are set forth in
ITEM 5 on Annex B attached hereto.
SECTION 7.02. FINANCIAL COVENANTS AFTER ACHIEVING POSITIVE EBITDA. On and
after the earlier of (i) July 1, 2002, and (ii) the date on which the Borrowers
have achieved positive EBITDA on a combined basis for two consecutive fiscal
quarters as determined by reference to the financial statements submitted
pursuant to SECTION 5.06:
(a) MAXIMUM TOTAL LEVERAGE RATIO. As of the last day of each fiscal
quarter, commencing with the fiscal quarter ended September 30, 2002, the
Borrowers shall not permit the Total Leverage Ratio to be greater than the
following:
<TABLE>
<CAPTION>
MAXIMUM TOTAL
FISCAL QUARTER ENDING LEVERAGE RATIO
- --------------------- --------------
<S> <C>
9/30/02 10.0 to 1.0
12/31/02 8.0 to 1.0
3/31/03 5.0 to 1.0
6/30/03 5.0 to 1.0
9/30/03 4.0 to 1.0
12/31/03 3.0 to 1.0
Last Day of Each Fiscal
Quarter Thereafter 2.0 to 1.0
</TABLE>
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(b) MINIMUM DEBT SERVICE COVERAGE RATIO. As of the last day of each fiscal
quarter, commencing with the fiscal quarter ended March 31, 2003, the Borrowers
shall not permit the ratio of (1) EBITDA for the Borrowers on a combined basis
for the most recently ended six month period, to (2) Interest Expense for the
most recently ended six month period plus Principal Payments required during the
most recently ended six month period to be less than the following:
<TABLE>
<CAPTION>
MINIMUM DEBT SERVICE
FISCAL QUARTER ENDING COVERAGE RATIO
- --------------------- --------------------
<S> <C>
3/31/03 1.0 to 1.0
6/30/03 1.0 to 1.0
9/30/03 1.0 to 1.0
12/31/03 1.5 to 1.0
3/31/04 1.5 to 1.0
Last Day of Each Fiscal
Quarter Thereafter 2.0 to 1.0
</TABLE>
(c) MINIMUM FIXED CHARGE COVERAGE RATIO. As of the last day of each fiscal
quarter, commencing with the fiscal quarter ended December 31, 2003, the
Borrowers shall not permit the ratio of (1) the product of two times the EBITDA
for the Borrowers on a combined basis for the most recently ended six month
period to (2) Fixed Charges for the Borrowers (such ratio being referred to as
the "FIXED CHARGE COVERAGE RATIO") to be less than the following:
<TABLE>
<CAPTION>
MINIMUM FIXED CHARGE
FISCAL QUARTER ENDING COVERAGE RATIO
- --------------------- --------------------
<S> <C>
12/31/03 to 6/30/06 0.5 to 1.0
Last Day of Each Fiscal
Quarter Thereafter 1.0 to 1.0
</TABLE>
(d) MAXIMUM CONSOLIDATED LEVERAGE RATIO. As of the last day of each fiscal
quarter, commencing with the fiscal quarter ended September 30, 2002, the
Borrowers shall not permit the ratio of (1) Consolidated Debt to (2) the product
of two times the sum of EBITDA for KMC Holdings and its Subsidiaries (excluding
its Excluded Subsidiaries) on a consolidated basis for the most recently ended
six month period to be greater than the following:
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<TABLE>
<CAPTION>
MAXIMUM TOTAL
FISCAL QUARTER ENDING LEVERAGE RATIO
- --------------------- --------------------
<S> <C>
9/30/02 35.0 to 1.0
12/31/02 25.0 to 1.0
3/31/03 20.0 to 1.0
6/30/03 15.0 to 1.0
9/31/03 12.0 to 1.0
12/31/03 11.0 to 1.0
3/31/04 10.0 to 1.0
6/30/04 10.0 to 1.0
9/30/04 10.0 to 1.0
12/31/04 10.0 to 1.0
3/31/05 10.0 to 1.0
6/30/05 10.0 to 1.0
9/30/05 10.0 to 1.0
12/31/05 10.0 to 1.0
3/31/06 8.0 to 1.0
6/30/06 8.0 to 1.0
9/30/06 8.0 to 1.0
12/31/06 8.0 to 1.0
Last Day of Each Fiscal Quarter
Thereafter 6.0 to 1.0
</TABLE>
ARTICLE VIII
COLLATERAL SECURITY
SECTION 8.01. COLLATERAL SECURITY. (a) To secure payment and performance of
all the Obligations, each of the Borrowers hereby grants to the Collateral Agent
for the benefit of the Agent, and the Lenders, to the extent permitted by law, a
right of setoff against and a continuing security interest in and to all such
Borrower's tangible and intangible personal property, fixtures and real property
leasehold and easement interests, whether now owned or existing, or hereafter
acquired or arising, wheresoever located, including, without limitation, all the
following property, or interests in property: (a) all machinery, equipment,
Telecommunications Equipment and fixtures, including without limitation, fiber
optic and other cables, transmission and switching equipment, transmission
facilities, connection equipment, conduit, carrier pipes, junctions,
regenerators, power sources, alarm systems, electronics, structures and shelters
and cable laying equipment; (b) all Accounts, accounts receivable, other
receivables, contract rights, leases, chattel paper, investment property, and
general intangibles of such Borrower (including, without limitation, goodwill,
going concern value, patents, trademarks, trade names, service marks,
blueprints, designs, product lines and research and development), including,
without limitation, all the Borrower's rights under all present and future
Governmental Approvals, permits, licenses and franchises heretofore or hereafter
granted to Borrower for the operation and ownership of its Systems (excluding
licenses and permits issued by the FCC, any PUC or any other Governmental
Authority to the extent, and only to the extent, it is unlawful to grant a
security interest in such licenses and permits, but including, to the maximum
extent permitted by law, all rights incident or appurtenant to such licenses and
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permits, including, without limitation, the right to receive all proceeds
derived from or in connection with the sale, assignment or transfer of such
licenses and permits), whether now owned or hereafter acquired by such Borrower,
or in which the Borrower may now have or hereafter acquire an interest; (c) all
instruments, letters of credit, documents of title, policies and certificates of
insurance, securities, bank deposits, deposit accounts (including such
Borrower's Collection Accounts), checking accounts and cash now or hereafter
owned by such Borrower, or in which such Borrower may now have or hereafter
acquire an interest; (d) all inventory, including all merchandise, raw
materials, work in process, finished goods and supplies, now or hereafter owned
by the Borrower or in which the Borrower may now have or hereafter acquire an
interest; (e) all such Borrower's leasehold interest in any real property, all
such Borrower's licenses, easements and rights of way with respect to real
property; (f) all accessions, additions or improvements to, substitutions for
and all proceeds and products of, all the foregoing, including proceeds of
insurance; and (g) all books, records, documents, computer tapes and discs
relating to all the foregoing.
SECTION 8.02. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY
INTERESTS THEREIN. Such Borrower shall execute and deliver to the Collateral
Agent for the benefit of the Agents and the Lenders, prior to the Initial
Funding Date, and at any time or times thereafter at the request of the
Collateral Agent or the Requisite Lenders, all financing statements or other
documents (and pay the cost of filing or recording the same in all public
offices deemed necessary by the Collateral Agent), as the Collateral Agent or
the Requisite Lenders may request, in a form satisfactory to the Collateral
Agent and the Requisite Lenders, to perfect and keep perfected the security
interest in the Collateral granted by such Borrower to the Collateral Agent or
to otherwise protect and preserve the Collateral and the Collateral Agent's
security interest therein or to enforce the Collateral Agent's security interest
in the Collateral. Should such Borrower fail to do so, the Collateral Agent is
authorized to sign any such financing statements as such Borrower's agent. Such
Borrower further agrees that a carbon, photographic or other reproduction of
this Agreement or of a financing statement is sufficient as a financing
statement.
SECTION 8.03. APPOINTMENT OF THE COLLATERAL AGENT AS THE BORROWERS'
ATTORNEY-IN-FACT. Such Borrower hereby irrevocably designates, makes,
constitutes and appoints the Collateral Agent (and all persons designated by the
Collateral Agent) as its true and lawful attorney-in-fact, and authorizes the
Collateral Agent, in its or the Collateral Agent's name, to, following the
occurrence and during the continuance of an Event of Default: (i) demand payment
of the Borrower's Accounts; (ii) enforce payment of such Borrower's Accounts by
legal proceedings or otherwise; (iii) exercise all such Borrower's rights and
remedies with respect to proceedings brought to collect an Account; (iv) sell or
assign any Account upon such terms, for such amount and at such time or times as
the Collateral Agent deems advisable; (v) settle, adjust, compromise, extend or
renew an Account; (vi) discharge and release any Account; (vii) prepare, file
and sign such Borrower's name on any proof of claim in bankruptcy or other
similar document against an account debtor of such Borrower; (viii) notify the
post office authorities to change the address for delivery of such Borrower's
mail to an address designated by the Collateral Agent, and open and deal with
all mail addressed to the Borrower; (ix) do all acts and things which are
necessary, in the Collateral Agent's discretion (as advised by the Requisite
Lenders), to fulfill such Borrower's obligations under this Agreement; (x) take
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control in any manner of any item of payment or proceeds thereof; (xi) have
access to any lockbox or postal box into which such Borrower's mail is
deposited; (xii) endorse such Borrower's name upon any items of payment or
proceeds thereof and deposit the same in the Collateral Agent's account on
account of the Obligations; (xiii) endorse such Borrower's name upon any chattel
paper, document, instrument, invoice, or similar document or agreement relating
to any Account or any goods pertaining thereto; and (xiv) sign such Borrower's
name on any verification of Accounts and notices thereof to account debtors.
SECTION 8.04. COLLECTION OF ACCOUNTS AND RESTRICTED ACCOUNT ARRANGEMENTS.
Such Borrower hereby represents and warrants that each depository account
("COLLECTION ACCOUNT") now maintained by it at any bank ("COLLECTION AGENT") for
the collection of checks and cash constituting proceeds of Accounts and sales of
other personal property which are part of the Collateral is identified on
SCHEDULE 8.04 attached hereto and made a part hereof. With respect to each
Collection Account, such Borrower shall, no later than the Initial Funding Date,
deliver to the Collateral Agent, a "RESTRICTED ACCOUNT AGREEMENT" substantially
in the form of EXHIBIT N attached hereto and made a part hereof, duly executed
and delivered by such Borrower and the applicable Collection Agent, authorizing
and directing such Collection Agent, upon receipt of written notice from the
Collateral Agent that an Event of Default has occurred and is continuing, to
deposit all checks and cash received into a restricted account (a "RESTRICTED
ACCOUNT") and remit all amounts deposited in such Restricted Account to the
Collateral Agent's account specified in such Restricted Account Agreement until
such time as the Collection Agent receives written notice from the Collateral
Agent rescinding such instruction. Such Borrower shall, following the occurrence
and during the continuance of an Event of Default and any subsequent request by
the Agent therefor, take such further action as the Collateral Agent or the
Requisite Lenders may reasonably deem desirable to effect the transfer of
exclusive ownership and control of the Restricted Accounts and all Collection
Accounts to the Collateral Agent. Until all the Obligations have been
indefeasibly paid in full, such Borrower agrees not to enter into any agreement
or execute and deliver any direction which would modify, impair or adversely
affect the rights and benefits of the Collateral Agent under any Restricted
Account Agreement. Such Borrower shall not open, establish or maintain any
Collection Account (other than those identified on SCHEDULE 8.04 hereto) without
first having delivered to the Collateral Agent a duly executed and delivered
Restricted Account Agreement with respect to such Collection Account. Such
Borrower shall notify the Collateral Agent in writing not less than five (5)
days prior to the date it shall open or establish any Collection Account other
than an account described on SCHEDULE 8.04 hereto.
SECTION 8.05. CURE RIGHTS. Such Borrower expressly authorizes the
Collateral Agent and the Agent, and the Collateral Agent (as directed by the
Requisite Lenders) and the Agent may, but shall not be required to, at any time
and from time to time, to take any and all action that it reasonably determines
to be necessary or desirable to cure any default or violation (including a
payment default) of such Borrower in connection with any real estate lease,
license agreement, Governmental Approval or any other material lease, agreement
or contract entered into with respect to the Systems.
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ARTICLE IX
EVENTS OF DEFAULT; REMEDIES
SECTION 9.01. EVENTS OF DEFAULT. The following events shall each constitute
an "EVENT OF DEFAULT":
(a) any Borrower shall fail to pay the principal of or interest on its
Notes or any other amounts payable hereunder or under any of the other Loan
Documents when due, whether as scheduled, at a date fixed for prepayment, by
acceleration or otherwise, and five (5) Business Days shall have elapsed; or
(b) any Borrower shall fail to observe or perform any other covenant,
condition or agreement to be observed or performed by it in any of the Loan
Documents, and such Borrower fails to cure such breach within ten (10) Business
Days after written notice thereof unless the breach relates to a covenant
contained in SECTIONS 5.04, or ARTICLE VI (other than SECTION 6.05 or SECTION
6.07) or VII, in which case no notice or grace period shall apply, or unless the
breach relates to SECTION 5.06, in which case an Event of Default shall occur on
the thirtieth day following the breach without any notice requirement, unless
the breach shall have been cured before such date; or
(c) any representation or warranty made by any Borrower, KMC Holdings or
KMC IHC in connection with this Agreement or any other Loan Document, or the
Loans or any statement or representation made in any report, certificate,
financial statement or other instrument furnished by or on behalf of such
Borrower, KMC Holdings or KMC IHC pursuant to this Agreement or any other Loan
Document, shall prove to have been false or misleading in any material respect
when made or delivered or when deemed made in accordance with the terms hereof
or thereof; or
(d) any Borrower, KMC Holdings or KMC IHC shall fail to make any payment
due (whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) on any other obligation for borrowed money in excess of $250,000 with
respect to any Borrower or KMC IHC or in excess of $1,000,000 with respect to
KMC Holdings, and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such indebtedness;
or any other default or event under any agreement or instrument relating to any
indebtedness for borrowed money in excess of $250,000 with respect to any
Borrower or KMC IHC or in excess of $1,000,000 with respect to KMC Holdings, or
any other event, shall occur and shall continue after the applicable grace
period, if any, specified in such agreement or instrument if the effect of such
default or event is to accelerate, or to permit the acceleration of, the
maturity of such indebtedness in excess of $250,000 with respect to any Borrower
or KMC IHC or in excess of $1,000,000 with respect to KMC Holdings; or any such
indebtedness in excess of $250,000 with respect to any Borrower or KMC IHC or in
excess of $1,000,000 with respect to KMC Holdings shall be declared to be due
and payable or required to be prepaid (other than by a regularly scheduled
required prepayment) prior to the stated maturity thereof; or
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(e) any Borrower, KMC Holdings or KMC IHC shall (i) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator or similar
official for such Borrower, KMC Holdings or KMC IHC or for a substantial part of
its property, (ii) make a general assignment for the benefit of creditors, (iii)
become unable, or admit in writing its inability, to pay its debts as they
become due, (iv) voluntarily or involuntarily dissolve, liquidate or wind up its
affairs, or (v) take action for the purpose of effecting any of the foregoing;
or
(f) a proceeding under any bankruptcy, reorganization, arrangement of
debts, insolvency or receivership law is filed by or against any Borrower, KMC
Holdings or KMC IHC, or any Borrower or KMC Holdings takes any action to
authorize any of the foregoing matters, and in the case of any such proceeding
instituted against any Borrower, KMC Holdings or KMC IHC (but not instituted by
any Borrower, KMC Holdings or KMC IHC), either such proceeding shall remain
undismissed or unstayed for a period of 60 days or any of the actions sought in
such proceeding (including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee or other similar official for
any Borrower, KMC Holdings or KMC IHC or any substantial part of its property)
shall be granted or shall occur; or
(g) a Termination Event occurs which the Requisite Lenders in good faith
believe would subject any Borrower to a material liability; or
(h) the plan administrator of any Plan applies under Section 412(d) of the
IRC for a waiver of the minimum funding standards of Section 412(a) of the IRC
and the Requisite Lenders in good faith believe that the approval of such waiver
could subject any Borrower or any ERISA Affiliate to material liability; or
(i) any of the Governmental Approvals or any other license, Governmental
Approval or other governmental consent or approval necessary for the continuing
operation of the Borrower or any System or any other material Governmental
Approval or approval of or material filing with the FCC, any PUC or any other
Governmental Authority with respect to the conduct by any Borrower of its
business and operations, including its Business, shall not be obtained or shall
cease to be in full force and effect, which in respect of any of the
Governmental Approvals shall, in the case of an order of the FCC, any PUC or
other Governmental Authority having jurisdiction with respect thereto, revoking,
or deciding not to renew, any such Governmental Approval, occur upon the
issuance of such order, and, in the case of any other order revoking or
terminating any of the Governmental Approvals or deciding not to renew such
Governmental Approvals prior to the termination thereof, occur when such order
becomes final, and, in each case, with respect to any such event occurring on or
after the Trigger Date, such event is also reasonably likely to result in a
Material Adverse Effect; or
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(j) the FCC, any PUC or any other Governmental Authority, by final order,
determines that the existence or performance of this Agreement or any other Loan
Document will result in a revocation, suspension or material adverse
modification of any of the Governmental Approvals for any System, and with
respect to any such event occurring on and after the Trigger Date, such
determination is reasonably likely to result in a Material Adverse Effect; or
(k) for any reason any Loan Document shall not be in full force and effect
or shall not be enforceable in accordance with its terms, or any security
interest or lien granted pursuant thereto with respect to Collateral having an
aggregate value of $500,000 or greater shall fail to be perfected or to have its
intended priority, or any Borrower or any Affiliate thereof shall contest the
validity of any Lien granted under, or shall disaffirm its obligations under any
Loan Document; or
(l) any Borrower shall default under any Lucent Purchase Agreement or
Additional Purchase Agreement, which default shall not have been cured or waived
within the applicable grace period thereunder unless such Borrower is contesting
such default in good faith by appropriate protest or proceedings and shall have
set aside adequate reserves in accordance with GAAP; or
(m) for any reason, any Borrower ceases to operate any System or ceases to
own any of its Governmental Approvals necessary for the continuing operation of
any System, and with respect to any such event occurring on or after the Trigger
Date, such cessation is reasonably likely to result in a Material Adverse
Effect; or
(n) a judgment or judgments for the payment of money in excess of $250,000
individually or $500,000 in the aggregate at any one time shall have been
rendered against any Borrower and the same shall have remained unsatisfied and
in effect for any period of sixty (60) days during which no stay of execution
shall have been obtained; or
(o) any Borrower is enjoined, restrained or in any way prevented by the
order of any court or administrative or regulatory agency from conducting its
business in any material respect with respect to any one or more of its Systems
and with respect to any such event occurring on or after the Trigger Date, such
event is reasonably likely to result in a Material Adverse Effect; or
(p) any Borrower becomes subject to any liabilities, costs, expenses,
damages, fines or penalties which could reasonably be expected to have a
Material Adverse Effect arising out of or related to (i) any Remedial Action in
response to a Release or threatened Release at any location of any Contaminant
into the indoor or outdoor environment or (ii) any material violation of any
Environmental Law; or
(q) a Change of Control shall occur; or
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(r) KMC Holdings shall fail to observe or perform any covenant, condition
or agreement to be observed or performed by it in the KMC Holdings Guaranty; or
(s) KMC IHC shall fail to observe or perform any covenant, conditions or
agreement to be observed by it in the KMC IHC Guaranty; or
(t) any Borrower shall fail to observe or perform any covenant, condition
or agreement to be observed or performed by it in any material agreement (other
than a Loan Document or an agreement referred to in SECTION 9.01(D)), such
Borrower fails to cure such breach within ten (10) Business Days after written
notice thereof, and with respect to any such failure occurring on or after the
Trigger Date, such failure is reasonably likely to result in a Material Adverse
Effect, unless such Borrower is contesting such covenant, condition or agreement
by appropriate protest or proceedings and shall have set aside adequate reserves
in accordance with GAAP.
SECTION 9.02. TERMINATION OF COMMITMENT; ACCELERATION. Upon the occurrence
and at any time during the continuance of any Event of Default, the Agent shall
upon direction from the Requisite Lenders:
(a) by notice to the Borrowers, terminate Lenders' Commitment to make Loans
hereunder; or
(b) by notice to the Borrower, declare the Obligations to be immediately
due and payable, whereupon all the Obligations shall be immediately due and
payable without further notice of any kind, PROVIDED, that if an Event of
Default described in SECTION 9.01(F) shall exist or occur, all the Obligations
shall automatically, without declaration or notice of any kind, be immediately
due and payable and the Commitment shall be automatically terminated.
SECTION 9.03. WAIVERS. Demand, presentment, protest and notices of
nonpayment, protest, dishonor and acceptance are hereby waived by each Borrower.
Each Borrower also waives the benefit of all valuation, appraisal and exemption
laws and the posting of any bond required of the Collateral Agent, the Agent or
any Lender in connection with any judicial process to realize on the Collateral,
to enforce any judgment or other court order entered in favor of the Collateral
Agent, the Agent or any Lender or to enforce by specific performance, temporary
restraining order, or preliminary or permanent injunction, this Agreement or any
other Loan Documents. Each Borrower waives the right, if any, to the benefit of,
or to direct the application of, any Collateral. Each Borrower hereby
acknowledges that none of the Collateral Agent, the Agent or any Lender has any
obligation to resort to any Collateral or make claim against any other Person
before seeking payment or performance from any Borrower.
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SECTION 9.04. RIGHTS AND REMEDIES GENERALLY. If an Event of Default occurs
and is continuing, the Agent and the Collateral Agent shall have, in addition to
any other rights and remedies contained in this Agreement or in any of the other
Loan Documents, all the rights and remedies of a secured party under the Code or
other applicable laws, which rights and remedies shall be cumulative, and none
exclusive, to the extent permitted by law. In addition to all such rights and
remedies, the sale, lease or other disposition of the Collateral, or any part
thereof, by the Collateral Agent or the Agent after the occurrence of an Event
of Default may be for cash, credit or any combination thereof, and the
Collateral Agent or the Agent may purchase all or any part of the Collateral at
public or, if permitted by law, private sale, and in lieu of actual payment of
such purchase price, may set off the amount of such purchase price against the
Obligations then owing. Any sales of the Collateral may be adjourned from time
to time with or without notice. The Agent or the Collateral Agent, may, in its
sole discretion, cause the Collateral to remain on the premises of any Borrower,
at the expense of the Borrower, pending sale or other disposition of the
Collateral. The Agent or the Collateral Agent shall have the right to conduct
such sales on the premises of any Borrower, at the expense of the Borrowers, or
elsewhere, on such occasion or occasions as it may see fit.
SECTION 9.05. ENTRY UPON PREMISES AND ACCESS TO INFORMATION. If an Event of
Default occurs and is continuing, the Agent and the Collateral Agent shall have
the right to enter upon the premises of any Borrower where any Collateral is
located (or is believed to be located) without any obligation to pay rent to
such Borrower, or any other place or places where the Collateral is believed to
be located and kept, and render the Collateral unusable or remove the Collateral
therefrom to the premises of the Agent or the Collateral Agent or any agent of
the Agent or the Collateral Agent, for such time as the Agent or the Collateral
Agent may desire, in order effectively to collect or liquidate the Collateral,
and/or the Agent or the Collateral Agent may require any Borrower to assemble
the Collateral and make it available to the Agent or the Collateral Agent at a
place or places to be designated by the Agent or the Collateral Agent. If an
Event of Default occurs and is continuing, the Agent or the Collateral Agent
shall have the right to obtain access to any Borrower's data processing
equipment, computer hardware and software relating to the Collateral and to use
all of the foregoing and the information contained therein in any manner the
Agent or the Collateral Agent deems appropriate.
SECTION 9.06. SALE OR OTHER DISPOSITION OF COLLATERAL BY THE AGENT. Any
notice required to be given by the Agent or the Collateral Agent of a sale,
lease or other disposition or other intended action by the Agent or the
Collateral Agent with respect to any of the Collateral which is deposited in the
United States mails, registered or certified, postage prepaid and duly addressed
to the Borrowers at the address specified in SECTION 11.01, at least ten days
prior to such proposed action shall constitute fair and reasonable notice to the
Borrowers of any such action. The net proceeds realized by the Agent or the
Collateral Agent upon any such sale or other disposition, after deduction for
the expense of retaking, holding, preparing for sale, selling or the like and
the reasonable attorneys' fees and legal expenses incurred by the Agent or the
Collateral Agent in connection therewith, shall be applied as provided herein
toward satisfaction of the Obligations. The Agent or the Collateral Agent, as
applicable, shall account to the Borrowers for any surplus realized upon such
sale or other disposition, and the Borrowers shall remain liable for any
deficiency. The commencement of any action, legal or equitable, or the rendering
of any judgment or decree for any deficiency shall not affect the Collateral
Agent's security interest in the Collateral. The Borrowers agree that the
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Collateral Agent has no obligation to preserve rights to the Collateral against
any other parties. The Agent and the Collateral Agent are hereby granted a
license or other right to use, without charge, the Borrowers' labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks,
service marks and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, and the Borrowers' rights under all licenses and all
franchise agreements shall inure to the Agent's and the Collateral Agent's
benefit until the Obligations are paid in full.
SECTION 9.07. GOVERNMENTAL APPROVALS. In connection with the enforcement by
the Agent or the Collateral Agent of any remedies available to it as a result of
any Event of Default, each Borrower agrees that it shall join and cooperate
fully with, at the request of the Agent or the Collateral Agent, any receiver
referred to below and/or the successful bidder or bidders at any foreclosure
sale in a filing of an application (and furnishing any additional information
that may be required in connection with such application or which the Agent, the
Collateral Agent or the Requisite Lenders may believe relevant to such
application) with the FCC, any PUC and all other applicable Governmental
Authorities, requesting their prior approval of (i) the operation or abandonment
of all or the portion of any System and/or (ii) the transfer of control of such
Borrower or assignment of all licenses, certificates, Governmental Approvals,
approvals and permits, issued to each Borrower by the FCC, any PUC or any such
Governmental Authorities with respect to any System and the operation thereof,
to the Agent or the Collateral Agent, the receiver or to the successful bidder
or bidders. In connection with the foregoing, the Borrower shall take such
further actions, and execute all such instruments, as the Agent, the Collateral
Agent or the Requisite Lenders reasonably deems necessary or desirable. Each
Borrower agrees that the Agent or the Collateral Agent may enforce any
obligation of such Borrower as set forth in this section by an action for
specific performance. In addition, each Borrower hereby irrevocably constitutes
and appoints the Agent and the Collateral Agent and any agent or officer thereof
(which appointment is coupled with an interest) as its true and lawful
attorney-in-fact with full irrevocable power and authority and in the place and
stead of such Borrower and in the name of such Borrower or in its own name, from
time to time in its discretion after the occurrence and during the continuance
of an Event of Default and in connection with the foregoing, for the purpose of
executing on behalf and in the name of the Borrower any and all of the
above-referenced instruments and to take any and all appropriate action in
furtherance of the foregoing. THE EXERCISE OF ANY RIGHTS OR REMEDIES HEREUNDER
OR UNDER ANY OTHER LOAN DOCUMENT BY ANY LENDER, THE AGENT OR THE COLLATERAL
AGENT THAT MAY REQUIRE FCC, ANY PUC OR ANY OTHER GOVERNMENTAL AUTHORITY APPROVAL
SHALL BE SUBJECT TO OBTAINING SUCH APPROVAL. PENDING THE RECEIPT OF ANY FCC, ANY
PUC OR ANY OTHER GOVERNMENTAL AUTHORITY APPROVAL, NO BORROWER SHALL DO ANYTHING
TO DELAY, HINDER, INTERFERE OR OBSTRUCT THE EXERCISE OF THE AGENT'S OR THE
COLLATERAL AGENT'S RIGHTS OR REMEDIES HEREUNDER IN OBTAINING SUCH APPROVALS.
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SECTION 9.08. APPOINTMENT OF RECEIVER OR TRUSTEE. In connection with the
exercise of its remedies under this Agreement, the Agent or the Collateral Agent
may, upon the occurrence of an Event of Default, obtain the appointment of a
receiver or trustee to assume, upon receipt of all necessary judicial, FCC, any
PUC or other Governmental Authority consents or approvals, control of or
ownership of any of the Governmental Approvals. Such receiver or trustee shall
have all rights and powers provided to it by law or by court order or provided
to the Agent or the Collateral Agent under this Agreement. Upon the appointment
of such trustee or receiver, the Borrowers agree to cooperate, to the extent
necessary or appropriate, in the expeditious preparation, execution and filing
of an application to the FCC, any PUC or any other Governmental Authority or for
consent to the transfer of control or assignment of any Borrower's Governmental
Approvals to the receiver or trustee.
SECTION 9.09. RIGHT OF SETOFF. In addition to any rights now or hereafter
granted under applicable law and not by way of limitation of any such rights,
upon the occurrence and during the continuance of any Event of Default, each
Lender and each holder of any Note is hereby authorized at any time or from time
to time, without notice to any Borrower or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and to apply any
and all balances held by it at any of its offices for the account of any
Borrower (regardless of whether such balances are then due to such Borrower) and
any other properties or assets any time held or owing by that Lender or that
holder to or for the credit or for the account of any Borrower against and on
account of any of the Obligations which are not paid when due. Any Lender or
holder of any Note exercising a right to set off or otherwise receiving any
payment on account of the Obligations in excess of its Pro Rata Share thereof
shall purchase for cash (and the other Lenders or holders shall sell) such
participation in each such other Lender's or holder's Pro Rata Share of the
Obligations as would be necessary to cause such Lender to share the amount so
set off or otherwise received with each other Lender or holder in accordance
with their respective Pro Rata Shares. Each Borrower agrees, to the fullest
extent permitted by law, that (a) any Lender or holder may exercise its right to
set off with respect to amounts in excess of its Pro Rata Share of the
Obligations and may sell participations in such amount so set off to other
Lenders and holders and (b) any Lender or holder so purchasing a participation
in the Loans made or other Obligations held by other Lenders or holders may
exercise all rights of set-off, bankers' lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender or holder were a
direct holder of the Loans and the other Obligations in the amount of such
participation. Notwithstanding the foregoing, if all or any portion of the
set-off amount or payment otherwise received is thereafter recovered from the
Lender that has exercised the right of set-off, the purchase of participations
by that Lender shall be rescinded and the purchase price restored without
interest. Each Borrower hereby agrees that the foregoing provisions are intended
to be construed so as to satisfy the requirements of Section 553 of the Federal
Bankruptcy Code or amendments thereto (including any requirement of mutuality of
obligations therein).
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ARTICLE X
THE AGENT AND THE COLLATERAL AGENT
SECTION 10.01. APPOINTMENT OF AGENT. (a) Lucent Technologies Inc. is hereby
appointed to act as contractual representative on behalf of all Lenders under
this Agreement and the other Loan Documents. The Agent agrees to act as such
contractual representative upon the express conditions contained in this ARTICLE
X. The provisions of this SECTION 10.01 are solely for the benefit of the Agent
and the Lenders and no Borrower or any other Person shall have any rights as a
third party beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement and the other Loan Documents, the
Agent shall act solely as an agent of the Lenders and does not assume and shall
not be deemed to have assumed any obligation toward or relationship of agency or
trust with or for any Borrower or any other Person. The Agent shall have no
duties or responsibilities except for those expressly set forth in this
Agreement and the other Loan Documents. Notwithstanding the use of the defined
term "Agent", it is expressly understood and agreed that the Agent shall not
have any fiduciary responsibilities to any Lender by reason of this Agreement
and that the Agent is merely acting as the representative of the Lenders with
only those duties as are expressly set forth in this Agreement and the other
Loan Documents. In its capacity as the Lenders' contractual representative, the
Agent (i) does not assume any fiduciary duties to any of the Lenders, (ii) is a
"representative" of the Lenders within the meaning of Section 9-105 of the UCC
and (iii) is acting as an independent contractor, the rights and duties of which
are limited to those expressly set forth in this Agreement and the other Loan
Documents. Each of the Lenders agrees to assert no claim against the Agent on
any agency theory or any other theory of liability for breach of fiduciary duty,
all of which claims each Lender waives. Neither the Agent nor any of its
Affiliates nor any of their respective officers, directors, employees, agents or
representatives shall be liable to any Lender for any action taken or omitted to
be taken by it hereunder or under any other Loan Document, or in connection
herewith or therewith, except for damages caused by its or their own gross
negligence or willful misconduct.
(b) If the Agent shall request instructions from all Lenders, Requisite
Lenders or all affected Lenders with respect to any act or action (including
failure to act) in connection with this Agreement or any other Loan Document,
then the Agent shall be entitled to refrain from such act or taking such action
unless and until the Agent shall have received instructions from all Lenders,
Requisite Lenders, or all affected Lenders, as the case may be, and the Agent
shall not incur liability to any Person by reason of so refraining. The Agent
shall be fully justified in failing or refusing to take any action hereunder or
under any other Loan Document (a) if such action would, in the opinion of the
Agent, be contrary to law or the terms of this Agreement or any other Loan
Document, (b) if such action would, in the opinion of the Agent, expose the
Agent to liabilities beyond the limits of this Agreement or (c) if the Agent
shall not first be indemnified to its satisfaction against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. Without limiting the foregoing, no Lender shall have any
right of action whatsoever against the Agent as a result of the Agent acting or
refraining from acting hereunder or under any other Loan Document in accordance
with the instructions of all Lenders, Requisite Lenders or all affected Lenders,
as applicable.
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SECTION 10.02. AGENT'S RELIANCE, ETC. Neither the Agent nor any of its
Affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement or the other Loan Documents, except for
damages caused by its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Agent: (a) may treat
the payee of any Note as the holder thereof until the Agent receives written
notice of the assignment or transfer thereof signed by such payee and in form
satisfactory to the Agent; (b) may consult with legal counsel, independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations made in or in connection with this
Agreement or the other Loan Documents; (d) shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms, covenants
or conditions of this Agreement or the other Loan Documents on the part of any
Borrower or to inspect the Collateral (including the books and records); (e)
shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
the other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto; and (f) shall incur no liability under or in respect of this
Agreement or the other Loan Documents by acting upon any notice, consent,
certificate or other instrument or writing (which may be by telecopy, telegram,
cable or telex) believed by it to be genuine and signed or sent by the proper
party or parties.
SECTION 10.03. LUCENT AND AFFILIATES. With respect to its Commitments
hereunder, Lucent shall have the same rights and powers under this Agreement and
the other Loan Documents as any other Lender and may exercise the same as though
it were not the Agent; and the term "Lender" or "Lenders" shall, unless
otherwise expressly indicated, include Lucent in its individual capacity. Lucent
and its Affiliates may lend money to, invest in, and generally engage in any
kind of business with, any Borrower, any of its Affiliates and any Person who
may do business with or own securities of any Borrower or any such Affiliate,
all as if Lucent were not the Agent and without any duty to account therefor to
the Lenders. Lucent and its Affiliates may accept fees and other consideration
from any Borrower for services in connection with this Agreement or otherwise
without having to account for the same to Lenders. Lucent may also purchase or
hold Equity Interests or warrants in KMC Holdings, KMC IHC or the Borrower and
make subordinated loans to any Borrower. Each Lender acknowledges the potential
conflict of interest between Lucent as a Lender holding disproportionate
interests in the Loans, Lucent as a member or subordinated debt holder of the
Borrower, Lucent as a vendor under the Lucent Purchase Agreement and Lucent as
Agent.
SECTION 10.04. LENDER CREDIT DECISION. Each Lender acknowledges that it
has, independently and without reliance upon the Agent or any other Lender and
based on the financial information given it by the Borrowers and such other
documents and information as it has deemed appropriate, made its own credit and
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financial analysis of the Borrowers and its own decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon the Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement. Each
Lender acknowledges the potential conflict of interest of each other Lender as a
result of Lenders holding disproportionate interests in the Loans, and expressly
consents to, and waives any claim based upon, such conflict of interest.
SECTION 10.05. INDEMNIFICATION. Each of the Lenders agrees to indemnify the
Agent (to the extent not reimbursed by the Borrowers and without limiting the
obligations of Borrowers hereunder), ratably according to their respective Pro
Rata Shares, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against the Agent in any way relating to or arising out of this
Agreement or any other Loan Document or any action taken or omitted by the Agent
in connection therewith; PROVIDED, that no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent's
gross negligence or willful misconduct. Without limiting the foregoing, each
Lender agrees to reimburse the Agent promptly upon demand for its ratable share
of any out-of-pocket expenses (including counsel fees) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement and each other Loan Document, to the
extent that the Agent is not reimbursed for such expenses by the Borrowers.
SECTION 10.06. SUCCESSOR AGENT. The Agent may resign at any time by giving
not less than thirty (30) days' prior written notice thereof to Lenders and the
Borrowers. Upon any such resignation, the Requisite Lenders shall have the right
to appoint a successor Agent. If no successor Agent shall have been so appointed
by the Requisite Lenders and shall have accepted such appointment within 30 days
after the resigning Agent's giving notice of resignation, then the resigning
Agent may, on behalf of Lenders, appoint a successor Agent, which shall be a
Lender, if a Lender is willing to accept such appointment, or otherwise shall be
a commercial bank or financial institution or a subsidiary of a commercial bank
or financial institution if such commercial bank or financial institution is
organized under the laws of the United States of America or of any State thereof
and has a combined capital and surplus of at least $300,000,000. If no successor
Agent has been appointed pursuant to the foregoing, by the 30th day after the
date such notice of resignation was given by the resigning Agent, such
resignation shall become effective and the Requisite Lenders shall thereafter
perform all the duties of Agent hereunder until such time, if any, as the
Requisite Lenders appoint a successor Agent as provided above. Any successor
Agent appointed by the Requisite Lenders hereunder shall be subject to the
approval of Borrowers, such approval not to be unreasonably withheld or delayed;
PROVIDED that such approval shall not be required if a Default or an Event of
Default shall have occurred and be continuing. Upon the acceptance of any
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appointment as Agent hereunder by a successor Agent, such successor Agent shall
succeed to and become vested with all the rights, powers, privileges and duties
of the resigning Agent. Upon the earlier of the acceptance of any appointment as
Agent hereunder by a successor Agent or the effective date of the resigning
Agent's resignation, the resigning Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents, except that any
indemnity rights or other rights in favor of such resigning Agent shall
continue. After any resigning Agent's resignation hereunder, the provisions of
this SECTION 10.06 shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Agent under this Agreement and the other Loan
Documents.
SECTION 10.07. PAYMENTS; NON-FUNDING LENDERS; INFORMATION; ACTIONS IN
CONCERT.
(a) LOANS; PAYMENTS. Whenever the Agent receives a payment of principal,
interest, fee or premium (if any) or other payment, or whenever the Agent makes
an application of funds, in connection with the Loans or the Notes (including,
without limitation, any payment or application from any Collateral), the Agent
will on the date such payment is received or applied, if on or prior to 11:00
a.m. (Eastern time) on such date, or otherwise on the next Business Day, pay
over to each Lender as instructed by such Lender in writing, an amount equal to
such Lender's Pro Rata Share of such payment provided that such Lender has
funded all Loans required to be made by it and has purchased all participation
required to be purchased by it under this Agreement and the other Loan Documents
as of such date. To the extent that any Lender (a "NON-FUNDING LENDER") has
failed to fund all such payments and Loans or failed to fund the purchase of all
such participation, the Agent shall be entitled to set off the funding
short-fall against that Non-Funding Lender's Pro Rata Share of all payments
received from the Borrowers. All payments by Agent shall be made by wire
transfer to such Lender's account (as specified by such Lender) not later than
2:00 p.m. (Eastern time) on the applicable Business Day.
(b) RETURN OF PAYMENTS. (i) If Agent pays an amount to a Lender under this
Agreement in the belief or expectation that a related payment has been or will
be received by the Agent from the Borrowers and such related payment is not
received by Agent, then the Agent will be entitled to recover such amount from
such Lender on demand without set-off, counterclaim or deduction of any kind.
(ii) If the Agent determines at any time that any amount received by
the Agent under this Agreement must be returned to any Borrower or paid to
any other Person pursuant to any insolvency law or otherwise, then,
notwithstanding any other term or condition of this Agreement or any other
Loan Document, the Agent will not be required to distribute any portion
thereof to any Lender. In addition, each Lender will repay to Agent on
demand any portion of such amount that the Agent has distributed to such
Lender, together with interest at such rate, if any, as the Agent is
required to pay to any Borrower or such other Person, without set-off,
counterclaim or deduction of any kind.
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(c) NON-FUNDING LENDERS. The failure of any Non-Funding Lender to make any
portion of its Loans or any payment required by it hereunder on the date
specified therefor shall not relieve any other Lender (each such other Lender,
an "OTHER LENDER") of its obligations to make any such Loan on such date, but
neither any Other Lender nor the Agent shall be responsible for the failure of
any Non-Funding Lender to make any Loan. Notwithstanding anything set forth
herein to the contrary, a Non-Funding Lender shall not have any voting or
consent rights under or with respect to any Loan Document or constitute a
"Lender" (or be included in the calculation of "Requisite Lenders" or "Requisite
Revolving Lenders" hereunder) for any voting or consent rights under or with
respect to any Loan Document.
(d) DISSEMINATION OF INFORMATION. The Agent will use reasonable efforts to
provide Lenders with any notice of Default or Event of Default received by the
Agent from, or delivered by the Agent to, the Borrowers, with notice of any
Event of Default of which the Agent has actually become aware and with notice of
any action taken by the Agent following any Event of Default; PROVIDED that the
Agent shall not be liable to any Lender for any failure to do so, except to the
extent that such failure is attributable to the Agent's gross negligence or
willful misconduct. Lenders acknowledge that the Borrowers are required to
provide financial statements and other documents to Lenders pursuant to this
Agreement and agree that the Agent shall have no duty to provide the same to
Lenders.
(e) ACTIONS IN CONCERT. Anything in this Agreement to the contrary
notwithstanding, each Lender hereby agrees with each other Lender that no Lender
shall take any action to protect or enforce its rights arising out of this
Agreement or the Notes (including exercising any rights of set-off) without
first obtaining the prior written consent of the Agent and Requisite Lenders, it
being the intent of Lenders that any such action to protect or enforce rights
under this Agreement and the Notes shall be taken in concert and at the
direction or with the consent of Agent.
SECTION 10.08. COLLATERAL MATTERS.
(a) The Collateral Agent, at the written direction of the Requisite
Lenders, may release any Lien upon any Collateral (i) upon the termination of
the Commitments and payment and satisfaction of all Loans and all other
Obligations and which the Agent has been notified in writing are then due and
payable; (ii) constituting property being sold or disposed of if the applicable
Borrower certifies to the Collateral Agent that the sale or disposition is made
in compliance with SECTION 6.03 (and the Agent may rely conclusively on any such
certificate, without further inquiry); or (iii) constituting property leased to
the applicable Borrower under a lease which has expired or been terminated in a
transaction permitted under this Agreement or which will expire imminently and
which has not been, and is not intended by such Borrower to be, renewed or
extended and with respect to which such Borrower has not exercised any purchase
option. The Collateral Agent may not release all or substantially all the
Collateral without the consent of the Lenders. Upon request by the Collateral
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Agent or the Borrowers at any time, the Lenders will confirm in writing the
Collateral Agent's authority to release any Liens pursuant to this SECTION
10.08(A).
(b) Upon receipt by the Collateral Agent of any authorization required
pursuant to SECTION 10.08(A) from the Requisite Lenders or Lenders, as
applicable, of the Collateral Agent's authority to release any Liens upon
particular types or items of Collateral, and upon at least five (5) Business
Days' prior written request by the applicable Borrower, and provided that no
Event of Default has occurred and is then continuing, the Collateral Agent shall
(and is hereby irrevocably authorized by the Lenders to) execute such documents
as may be necessary to evidence the release of the Liens upon such Collateral;
PROVIDED, that (i) the Collateral Agent shall not be required to execute any
such document on terms which, in the Collateral Agent's opinion, would expose
the Collateral Agent to liability or create any obligation or entail any
consequence other than the release of such Liens without recourse or warranty,
and (ii) such release shall not in any manner discharge, affect or impair the
Obligations or any Liens (other than those expressly being released) upon (or
obligations of the applicable Borrower in respect of) all interests retained by
the applicable Borrower, including (without limitation) the proceeds of any
sale, all of which shall continue to constitute part of the Collateral.
(c) The Collateral Agent shall have no obligation whatsoever to any of the
Lenders to assure that the Collateral exists or is owned by any Borrower or is
cared for, protected or insured or has been encumbered, or, other than a duty to
act without recklessness, willful misconduct or gross (but not mere) negligence,
that the Liens have been properly or sufficiently or lawfully created,
perfected, protected or enforced or are entitled to any particular priority, or
to exercise at all or in any particular manner or under any duty of care,
disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to the pursuant to this SECTION
10.08 or pursuant to any of the Loan Documents, it being understood and agreed
that in respect of the Collateral, or any act, omission or event related
thereto, the Collateral Agent may act in any manner it may deem appropriate, in
its reasonable business judgment, given the Collateral Agent's own interest in
the Collateral in its capacity as one of the Lenders and that the Collateral
Agent shall have no other duty or liability whatsoever to any Lender as to any
of the foregoing.
SECTION 10.09. AGENCY FOR PERFECTION. Each Lender hereby appoints each
other Lender as agent for the purpose of perfecting the Lenders' security
interest in assets which, in accordance with Article 9 of the UCC can be
perfected only by possession. Should any Lender (other than the Collateral
Agent) obtain possession of any such Collateral, such Lender shall notify the
Collateral Agent thereof, and, promptly upon the Collateral Agent's request
therefor shall deliver such Collateral to the Collateral Agent.
SECTION 10.10. CONCERNING THE COLLATERAL AND THE RELATED LOAN DOCUMENTS AND
THE COLLATERAL AGENT. (a) Each Lender authorizes and directs the Collateral
Agent to enter into this Agreement and the other Loan Documents relating to the
Collateral, for the ratable benefit of the Lenders. The exercise by the
Collateral Agent or the Requisite Lenders of their respective powers set forth
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<PAGE>
in this Agreement or the other Loan Documents relating to the Collateral,
together with such other powers that are reasonably incidental thereto, shall be
binding upon all of the Lenders; PROVIDED that the Collateral Agent shall not
without the consent of the Requisite Lenders take any action in accordance with
the terms of this Agreement or the other Loan Documents relating to the
Collateral (other than, in the exercise of its reasonable judgment, actions to
preserve the value of the Collateral).
(b) The Collateral Agent with respect to the administration of the
Collateral shall have the same rights, obligations and status as the Agent as
are set forth in SECTION 10.01, 10.02, 10.03, 10.04, 10.05, and 10.06 above.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. NOTICES; ACTION ON NOTICES, ETC. (a) Notices and other
communications provided for herein shall be in writing and shall be delivered by
a courier service of recognized standing (specifying one (1) day delivery), or
by registered or certified mail, postage prepaid, return receipt requested (or,
if by telecopy communications equipment of the sending party, delivered by such
equipment) addressed, if to the Borrowers, at KMC Telecom III, Inc., 1545 Route
206, Suite 300, Bedminster, NJ 07921; Attention: President; (telecopy no. (908)
719-8775, confirmation no. (908) 470-2200) with a copy to Alan M. Epstein Esq.,
Kelley Drye & Warren LLP, 101 Park Avenue, New York, NY 10178; (telecopy no.
(212) 808-7897, confirmation no. (212) 808-7800), if to the Agent, at Lucent
Technologies Inc., 283 King George Road, Warren, NJ 07059; Attention: Financing
Operations Group (telecopy no. (908) 559-1706), and if to the Collateral Agent,
at ____________________________, Attention:_________________________________
(telecopy no. ______________, confirmation no. ______________). All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given (a) five Business Days
after mailing when sent by registered or certified mail, postage prepaid, return
receipt requested, or (b) upon receipt, if by courier service or any telecopy
communications equipment of the sender, in each case addressed to such party as
provided in this Section or in accordance with the latest unrevoked direction
from such party.
(b) Each Borrower agrees that the Agent or the Collateral Agent may act
upon any notice, consent, certificate, cable, telex or other instrument or
writing believed by the Agent or the Collateral Agent to be genuine, that the
Agent or the Collateral Agent may consult with legal counsel, selected by the
Agent or the Collateral Agent and shall not be liable to any Borrower for any
action taken or omitted to be taken in good faith by Lender in accordance with
the advice of such counsel.
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SECTION 11.02. NO WAIVERS; AMENDMENTS. (a) No failure or delay of the
Agent, the Collateral Agent or any Lender to exercise any right hereunder or
under any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, preclude any other or further
exercise thereof or the exercise of any other right. No waiver of any provision
of this Agreement or any other Loan Document nor consent to any departure by any
Borrower therefrom shall in any event be effective unless the same shall be in
writing and signed by the Agent and the Requisite Lenders, and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given. No notice or demand on any Borrower in any case shall entitle
any Borrower to any other or further notice or demand in similar or other
circumstances.
(b) Subject to the provisions of this SECTION 11.02(B), the Requisite
Lenders (or the Agent with the consent in writing of the Requisite Lenders) and
the Borrowers may enter into agreements supplemental hereto for the purpose of
adding or modifying any provisions to the Loan Documents or changing in any
manner the rights of the Lenders or the Borrowers hereunder or waiving any Event
of Default or Default hereunder; PROVIDED that no such supplemental agreement
shall, without the consent of each Lender affected thereby and in the case of
clause (vii) below, so long as Lucent shall have any unused Commitment Amount
without the consent of Lucent:
(i) Postpone or extend the Commitment Termination Date, the maturity
date for the loans or any other date fixed for any payment of principal of,
or interest on, the Loans or any fees or other amounts payable to such
Lender except with respect to (A) any modifications of the provisions
relating to prepayments of Loans and other Obligations and (B) a waiver of
the application of the default rate of interest pursuant to SECTION
2.05(B).
(ii) Reduce the principal amount of any Loans, or reduce the rate or
extend the time of payment of interest or fees thereon.
(iii) Reduce the percentage specified in the definition of Requisite
Lenders or any other percentage of Lenders specified to be the applicable
percentage in this Agreement to act on specified matters or amend the
definition of "Pro Rata Share".
(iv) Increase the amount of any Commitment of any Lender hereunder or
increase any Lender's Pro Rata Share.
(v) Permit any Borrower to assign its rights under this Agreement.
(vi) Release all or substantially all the Collateral.
(vii) Amend Section 2.02.
(viii) Amend this SECTION 11.02(B).
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No amendment of any provision of this Agreement relating to the Agent or the
Collateral Agent shall be effective without the written consent of the Agent or
the Collateral Agent, as applicable.
SECTION 11.03. GOVERNING LAW AND JURISDICTION. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CONFLICTS OF
LAWS PRINCIPLES. THE BORROWERS, THE AGENT, THE COLLATERAL AGENT AND THE LENDERS
CONSENT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED IN THE
CITY AND STATE OF NEW YORK AND WAIVE ANY OBJECTION RELATING TO IMPROPER VENUE OR
FORUM NON CONVENIENCE TO THE CONDUCT OF ANY PROCEEDING BY SUCH COURT.
SECTION 11.04. EXPENSES. The Borrowers will pay all documented
out-of-pocket third-party expenses (including in each case all reasonable
attorneys' and paralegals' fees and related expenses and costs), (i) incurred by
the Agent and the Collateral Agent in connection with the negotiation,
preparation and execution of the Loan Documents (whether or not the transactions
contemplated hereby shall be consummated), (ii) incurred by the Agents, in
connection with the administration of the Loan Documents, and the creation,
perfection, priority and protection of the Liens in the Collateral, and (iii)
incurred by the Agent, the Collateral Agent or any Lender in connection with the
enforcement of the rights of the Agent, the Collateral Agent or any Lender in
connection with this Agreement, any other Loan Documents or the Collateral, or
any restructuring or workout of this Agreement or the other Loan Documents.
SECTION 11.05. EQUITABLE RELIEF. Each Borrower recognizes that, in
the event it fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, or any other Loan Document, any remedy at law
may prove to be inadequate relief to the Agent, the Collateral Agent and the
Lenders; therefore, such Borrower agrees that the Agent or the Collateral Agent,
if it so requests, shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
SECTION 11.06. INDEMNIFICATION; LIMITATION OF LIABILITY. (a) The Borrowers
agree to protect, indemnify and hold harmless the Agent, the Collateral Agent
each Lender and each of their respective officers, affiliates, directors,
employees, attorneys, accountants, consultants, representatives and agents
(collectively called the "Indemnitees") from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements (including, without limitation,
payment by the Agent, the Collateral Agent or any Lender of any obligations due
or past due under any contract or agreement to which any Borrower is or becomes
a party) of any kind or nature whatsoever (including, without limitation, the
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fees and disbursements of counsel for and consultants of such Indemnitees in
connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitees shall be designated a party thereto), which may
be imposed on, incurred by, or asserted against such Indemnitees (whether
direct, indirect, or consequential and whether based on any federal or state
laws or other statutory regulations, including, without limitation, securities,
environmental and commercial laws and regulations, under common law or at
equitable cause or on contract or otherwise) in any manner relating to or
arising out of this Agreement or any of the other Loan Documents, or any act,
event or transaction related or attendant thereto, the agreements of the Agent,
the Collateral Agent or the Lenders contained herein, the making of Loans, the
management of such Loans or the Collateral (including any liability under
Environmental Laws) or the use or intended use of the proceeds of such Loans
hereunder (collectively, the "INDEMNIFIED MATTERS"); PROVIDED that no Borrower
shall have any obligation to any Indemnitee hereunder with respect to
Indemnified Matters caused by or resulting from the willful misconduct or gross
negligence of such Indemnitee; PROVIDED, FURTHER that the Borrowers shall not
have any obligation to any Indemnitee hereunder with respect to taxes that are
imposed on the net income of any Indemnitee or any franchise or doing business
taxes imposed on any Indemnitee. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Borrowers
shall contribute the maximum portion which they are permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all Indemnified Matters
incurred by the Indemnitees.
(b) To the extent permitted by applicable law, no claim may be made by the
Borrowers or any other Person against the Agent, the Collateral Agent, any
Lender or any of their respective affiliates, directors, officers, employees,
agents, attorneys, accountants, representatives or consultants for any special,
indirect, consequential or punitive damages in respect of any claim for breach
of contract or any other theory of liability arising out of or related to the
transactions contemplated by any of the Loan Documents or any act, omission or
event occurring in connection therewith; and the Borrowers hereby waive, release
and agree not to sue upon any claim for any such damages, whether or not accrued
and whether or not known or suspected to exist in its favor.
SECTION 11.07. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
warranties and representations made by any Borrower in any Loan Document shall
survive the execution and delivery of this Agreement and the other Loan
Documents and the making and repayment of the Obligations. The confidentiality
obligations of each Borrower in SECTION 11.16, the indemnification obligations
of each Borrower in SECTION 11.06, and to the extent the second sentence of
SECTION 11.13 is applicable, all covenants of each Borrower, survive the
repayment of the Obligations.
SECTION 11.08. SUCCESSORS AND ASSIGNS; ASSIGNMENTS; PARTICIPATIONS.
(a) GENERAL. The terms and provisions of the Loan Documents shall be
binding upon and inure to the benefit of the Borrowers, the Agent, the
Collateral Agent and the Lenders and their respective successors and assigns,
except that (i) no Borrower shall have any right to assign its rights or
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obligations under the Loan Documents and (ii) any assignment by any Lender must
be made in compliance with SUBSECTION (C) below. With respect to any Borrower,
successors and assigns shall include, without limitation, any receiver, trustee
or debtor-in-possession of or for such Borrower. Notwithstanding the foregoing,
any Lender may at any time, without the consent of the Borrowers or the Agent,
assign all or any portion of its rights under this Agreement and its Notes to a
Federal Reserve Bank or to an affiliate of such Lender; PROVIDED that no such
assignment shall release the transferor Lender from its obligations hereunder.
The Agent shall be entitled to utilize its Register to determine the payee of
any Note for all purposes hereof. Any request, authority or consent of any
Person, who at the time of making such request or giving such authority or
consent is the holder of any Note, shall be conclusive and binding on any
subsequent holder, transferee or assignee of such Note or of any Note or Notes
issued in exchange therefor.
(b) PARTICIPATIONS.
(i) Subject to the terms set forth in this SECTION 11.08(B), any
Lender may, in the ordinary course of its business and in accordance with
applicable law, at any time sell to one or more banks or other entities
("PARTICIPANTS") participating interests in any Loan owing to such Lender,
any Note held by such Lender, any Commitment of such Lender or any other
interest of such Lender under the Loan Documents on a pro rata or non-pro
rata basis. Notice of such participation to the Agent shall be required
prior to any participation becoming effective with respect to a Participant
which is not a Lender or an Affiliate thereof. In the event of any such
sale by a Lender of participating interests to a Participant, such Lender's
obligations under the Loan Documents shall remain unchanged, such Lender
shall remain solely responsible to the other parties hereto for the
performance of such obligations, such Lender shall remain the holder of any
such Note for all purposes under the Loan Documents, such Lender shall be
solely responsible for any withholding taxes or any filing or reporting
requirements in connection therewith relating to such Participant, all
amounts payable by the Borrowers under this Agreement shall be determined
as if such Lender had not sold such participating interests, and the
Borrowers and the Agent shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations under
the Loan Documents except that, for purposes of SECTION 2.13, the
Participants shall be entitled to the same rights as if they were Lenders,
PROVIDED that no Participant shall be entitled to receive any greater
amount pursuant to SECTION 2.13 than such Lender would have been entitled
to receive in respect of the amount of the participation transferred to
such Participant had no transfer occurred.
(ii) Each Lender shall retain the sole right to approve, without the
consent of any Participant, any amendment, modification or waiver of any
provision of the Loan Documents other than any amendment, modification or
waiver with respect to any Loan or Commitment in which such Participant has
an interest which forgives principal, interest or fees or reduces the
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interest rate or fees payable pursuant to the terms of this Agreement with
respect to any such Loan or Commitment, postpones any date fixed for any
regularly-scheduled payment of principal of, or interest or fees on, any
such Loan or Commitment, or releases all or substantially all the
Collateral, if any, securing any such Loan.
(iii) The Borrowers agree that each Participant shall be deemed to
have the right of setoff provided in SECTION 9.09 in respect to its
participating interest in amounts owing under the Loan Documents to the
same extent as if the amount of its participating interest were owing
directly to it as a Lender under the Loan Documents; PROVIDED that each
Lender shall retain the right of setoff provided in SECTION 9.09 with
respect to the amount of participating interests sold to each Participant
except to the extent such Participant exercises its right of setoff. The
Lenders agree to share with each Participant, and each Participant, by
exercising the right of setoff provided in SECTION 9.09, agrees to share
with each Lender, any amount received pursuant to the exercise of its right
of setoff, such amounts to be shared in accordance with SECTION 9.09 as if
each Participant were a Lender.
(c) ASSIGNMENTS.
(i) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time assign to one or more banks or
other entities ("PURCHASERS") all or a portion of its rights and
obligations under this Agreement (including, without limitation, its
Commitment and the Loans owing to it hereunder) in accordance with the
provisions of this SECTION 11.08(C). Each assignment shall be of a
constant, and not a varying, ratable percentage of all of the assigning
Lender's rights and obligations under this Agreement. Such assignment shall
be evidenced by an Assignment Agreement in form and substance reasonably
satisfactory to the Agent and shall not be permitted hereunder unless such
assignment is either for all of such Lender's rights and obligations under
the Loan Documents or, for Loans and Commitments in an aggregate principal
amount equal to the lesser of $5,000,000 (which minimum amount may be
waived by the Requisite Lenders after the occurrence of a Default) and such
Lender's Commitment Amount.
(ii) Upon (i) delivery to the Agent of a notice of assignment (a
"NOTICE OF ASSIGNMENT"), together with any consent required hereunder, and
(ii) payment of a $3,500 processing fee to the Agent for processing such
assignment if such assignment is to a Person which is not an affiliate of
the assigning Lender, such assignment shall become effective on the
effective date specified in such Notice of Assignment. The assigning Lender
shall be obligated to reimburse the Agent for all other costs and expenses
associated with the preparation and execution of such assignment (including
reasonable attorneys' fees arising out of such preparation and execution of
such assignment). The Notice of Assignment shall contain a representation
by the Purchaser to the effect that none of the consideration used to make
the purchase of the Commitment and Loans under the applicable assignment
agreement are "plan assets" as defined under ERISA and that the rights and
interests of the Purchaser in and under the Loan Documents will not be
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"plan assets" under ERISA. On and after the effective date of such
assignment, such Purchaser, if not already a Lender, shall for all purposes
be a Lender party to this Agreement and any other Loan Documents executed
by the Lenders and shall have all the rights and obligations of a Lender
under the Loan Documents, to the same extent as if it were an original
party hereto, and no further consent or action by the Borrowers, the
Lenders or the Agent shall be required to release the transferor Lender
with respect to the percentage of the aggregate Commitment and Loans
assigned to such Purchaser. Upon the consummation of any assignment to a
Purchaser pursuant to this SECTION 11.08(C)(II), the transferor Lender, the
Agent and the Borrowers shall make appropriate arrangements so that
replacement Notes are issued to such transferor Lender and new Notes or, as
appropriate, replacement Notes, are issued to such Purchaser, in each case
in principal amounts reflecting their Commitment and their Loans, as
adjusted pursuant to such assignment.
(iii) The Agent shall maintain at its address referred to in SECTION
11.01 a copy of each assignment delivered to and accepted by it pursuant to
this SECTION 11.08 and a register (the "REGISTER") for the recordation of
the names and addresses of the Lenders and the Commitment of and principal
amount of the Loans owing to, each Lender from time to time and whether
such Lender is an original Lender or the assignee of another Lender
pursuant to an assignment under this SECTION 11.08. The entries in the
Register shall be conclusive and binding for all purposes, absent manifest
error, and the Borrowers, the Agent and the Lenders may treat each Person
whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection
by the Borrowers or any Lender at any reasonable time and from time to time
upon reasonable prior notice.
SECTION 11.09. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement or any other Loan Document shall be invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby.
SECTION 11.10. COVER PAGE, TABLE OF CONTENTS AND SECTION HEADINGS. The
cover page, Table of Contents and section headings used herein are for
convenience of reference only, are not part of this Agreement and are not to
affect the construction of or be taken into consideration in interpreting this
Agreement.
SECTION 11.11. COUNTERPARTS. This Agreement may be signed in counterparts
with the same effect as if the signatures thereof and hereto were upon the same
instrument.
SECTION 11.12. APPLICATION OF PAYMENTS. Notwithstanding any contrary
provision contained in this Agreement or in any of the other Loan Documents,
upon the occurrence and during the continuance of any Event of Default, each
Borrower irrevocably waives the right to direct the application of any and all
payments at any time or times hereafter received by the Agent or any Lender from
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such Borrower or with respect to any of the Collateral, and such Borrower does
hereby irrevocably agree that the Agent or any Lender shall have the continuing
exclusive right to apply and reapply any and all payments received at any time
or times hereafter, whether with respect to the Collateral or otherwise, against
the Obligations in such manner as the Agent or any Lender may deem advisable,
notwithstanding any entry by the Agent or any Lender upon any of its books and
records, subject, however, to the provisions of SECTION 2.08(C).
SECTION 11.13. MARSHALLING; PAYMENTS SET ASIDE. Neither the Agent nor the
Agent shall be under any obligation to marshall any assets in favor of any
Borrowers or the other party or against or in payment of any or all of the
Obligations. To the extent that any Borrower makes a payment or payments to any
Agent or any Lender, or the Agent, the Collateral Agent any Lender enforces its
security interests or exercises its rights of setoff, and such payment or
payments or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
SECTION 11.14. SERVICE OF PROCESS. EACH BORROWER WAIVES PERSONAL SERVICE OF
ANY PROCESS UPON IT AND, CONSENTS THAT ALL SERVICE OF PROCESS SHALL BE MADE BY
REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO EACH BORROWER AT THE
ADDRESS INDICATED IN SECTION 11.01 AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED FIVE (5) BUSINESS DAYS AFTER SAME SHALL HAVE BEEN POSTED AS AFORESAID.
SECTION 11.15. WAIVER OF JURY TRIAL, ETC. EACH OF THE BORROWERS, THE AGENT,
THE COLLATERAL AGENT AND THE LENDERS WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE
IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE,
BETWEEN THE AGENT, THE COLLATERAL AGENT OR ANY LENDER AND ANY BORROWER ARISING
OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
THEREWITH OR THE TRANSACTIONS RELATED THERETO. EACH OF THE BORROWERS, THE AGENT,
THE COLLATERAL AGENT AND THE LENDERS HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY AND THAT ANY OF THEM MAY FILE AS AN ORIGINAL COUNTERPART OR A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
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SECTION 11.16. CONFIDENTIALITY. No Borrower shall at any time before or
after payment in full and satisfaction of all of the Obligations, reveal,
divulge or make known, or knowingly permit to be so revealed, divulged or made
known, to any Person (including Persons within its own organization who do not
have a definite need to know for the purpose of performance of this Agreement),
the terms or conditions of the Fee Letter; PROVIDED that the foregoing shall not
apply to information required to be disclosed by order of a court of competent
jurisdiction or in connection with any governmental investigation (in each case
to the extent disclosure is required, but no further) so long as such Borrower
notifies the Agent in writing of any circumstances of which such Borrower is
aware that may lead to such a requirement or order, so as to allow the Agent to
take steps to contest such order or investigation; PROVIDED, FURTHER, that the
foregoing shall not apply to information which is required to be disclosed by
such Borrower or information which in the reasonable determination of such
Borrower is desirable for it to disclose, pursuant to federal or state
securities laws, pursuant to the rules or regulations of the FCC, any PUC or
other applicable Governmental Authority, or to Persons who are consultants,
advisors (including but not limited to attorneys and auditors), officers,
directors or employees of such Borrower, provided that each such Person is
required by such Borrower to keep such information confidential.
SECTION 11.17. ENTIRE AGREEMENT, ETC. This Agreement (including all
schedules and exhibits referred to herein), the Notes, the Fee Letters and all
other Loan Documents constitute the entire contract between the parties hereto
with respect to the subject matter hereof and thereof and shall supersede and
take the place of any other instrument purporting to be an agreement of the
parties hereto relating to such subject matter.
SECTION 11.18. NO STRICT CONSTRUCTION. The parties hereto have
participated, jointly in the negotiation and drafting of this Agreement. In the
event of any ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of authorship of any provisions of this Agreement. IN WITNESS WHEREOF,
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the parties hereto have caused this Agreement to be duly executed by their duly
authorized officers as of the day and year first above written.
KMC TELECOM III, INC., as Borrower
By: /s/ Cynthia Worthman
----------------------------------------
Name:
Title:
KMC TELECOM LEASING III LLC, as Borrower
By: KMC Telecom III, Inc., as Sole Member
By: /s/ Cynthia Worthman
----------------------------------------
Name:
Title:
LUCENT TECHNOLOGIES INC., as Agent
By: /s/ Leslie L. Rogers
----------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
By:__________________________________________
Name:
Title:
95
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ANNEX A
<TABLE>
<CAPTION>
COMMITMENT AMOUNTS
LOANS
Lender Commitment Amount
<S> <C>
Lucent Technologies Inc. $600,000,000
TOTAL COMMITMENTS $600,000,000
</TABLE>
<PAGE>
ANNEX B
<TABLE>
<CAPTION>
FINANCIAL COVENANT INFORMATION (IN THOUSANDS)
FISCAL
QUARTER ENDED ITEM 1 ITEM 2 ITEM 3 ITEM 4 ITEM 5
- ------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
03/31/99 - ( 7,569) 50,000 N/A
06/30/99 - (15,136) 82,358 N/A
09/30/99 - (21,386) 185,677 N/A
12/31/99 - (25,541) 261,795 N/A
03/31/06 1,432 (32,100) 308,626 N/A
06/30/00 3,544 (35,968) 330,861 N/A
09/30/00 6,157 (34,535) 340,094 24,904
12/31/00 9,910 (32,520) 349,103 39,079
03/31/01 14,398 (32,458) 354,383 56,130
06/30/01 19,502 (29,651) 363,120 75,667
09/30/01 24,803 (22,120) 369,979 95,809
12/31/01 30,860 (15,784) 376,514 118,887
03/31/02 37,328 ( 7,243) 381,737 143,599
06/30/02 44,176 3,783 399,183 169,991
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
ANNEX C
AMORTIZATION SCHEDULE
PAYMENT DATE PERCENTAGE REDUCTION
<S> <C>
May 1, 2002 2.5%
August 1, 2002 2.5%
November 1, 2002 2.5%
February 1, 2003 2.5%
May 1, 2003 5.0%
August 1, 2003 5.0%
November 1, 2003 5.0%
February 1, 2004 5.0%
May 1, 2004 5.0%
August 1, 2004 5.0%
November 1, 2004 5.0%
February 1, 2005 5.0%
May 1, 2005 5.0%
August 1, 2005 5.0%
November 1, 2005 5.0%
February 1, 2006 5.0%
May 1, 2006 7.5%
August 1, 2006 7.5%
November 1, 2006 7.5%
Termination Date 7.5%
</TABLE>
- --------
1 Under review.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF KMC TELECOM HOLDINGS, INC. AS OF MARCH 31, 1999 AND THE RELATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<CASH> 47,792,000
<SECURITIES> 0
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143,503,000
0
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</TABLE>
