EXECUTION COPY
AMENDMENT NO. 9 TO
THE AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
AMENDMENT NO. 9 dated as of June 30, 2000 to the Amended and
Restated Stockholders Agreement, dated as of October 31, 1997 (as heretofore
amended, the "STOCKHOLDERS AGREEMENT") among KMC Telecom Holdings, Inc., Nassau
Capital Partners L.P., NAS Partners I L.L.C., ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Newcourt
Commercial Finance Corporation (as successor to AT&T Credit Corporation),
General Electric Capital Corporation, First Union National Bank (as successor to
CoreStates Bank, N.A.), and CoreStates Holdings, Inc., and the Series G Holders
listed on Schedule A attached hereto (collectively, the "SERIES G HOLDERS").
W I T N E S S E T H
WHEREAS, the Series G Holders shall acquire certain shares of Series
G Convertible Preferred Stock pursuant to the Series G Purchase Agreement
(hereinafter defined) and each Series G Holder desires to become a party to the
Stockholders Agreement as a condition to its purchase of shares of Series G
Preferred Stock;
WHEREAS, the parties hereto desire to make certain amendments to
the Stockholders Agreement;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, all capitalized
terms defined in the Stockholders Agreement and used herein shall have the
meanings set forth in the Stockholders Agreement. In addition, the definitions
section of the Stockholders Agreement is hereby amended by adding thereto
certain additional definitions and by amending certain existing definitions as
follows:
"APPROVED SALE" means either (i) the sale, lease, transfer,
conveyance or other disposition, in one or a series of related transactions, of
all or substantially all of the assets of the Company and its Subsidiaries,
taken as a whole, or (ii) a transaction or series of transactions (including by
way of merger, consolidation, or sale of equity) the result of which is that the
holders of the Company's outstanding voting securities immediately prior to such
transactions are after giving effect to such transactions no longer, in the
aggregate, the "beneficial owners") (as such term is defined in Rule 13d-3 and
Rule 13d-5 promulgated under the Securities Exchange Act), directly or
indirectly through one or more intermediaries, of more than 50% of the voting
power of the outstanding voting securities of the Company, which in either case,
has been approved by both the Board of Directors and the holders of a majority
of the Shares (the "APPROVING STOCKHOLDERS"); PROVIDED that the Approving
Stockholders must include the consent of the Requisite Series G Holders if the
aggregate Fair Market Value of the consideration per share of Series G
Convertible Preferred Stock received in such transaction by the holders of
Series G Convertible Preferred Stock is less than the greater of (1) 125% of the
Deemed Issuance Price or (2) the sum of the Liquidation Preference of one share
of Series G Convertible Preferred Stock plus all accumulated but unpaid
dividends thereon.
"BUSINESS DAY" means any day except a Saturday, a Sunday, or other
day on which commercial banks in the State of New York or New Jersey are
authorized or required by law or executive order to close.
"CONVERTIBLE PREFERRED STOCK" means the Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible
Preferred Stock, Series D Convertible Preferred Stock and the Series G
Convertible Preferred Stock.
"DEEMED ISSUANCE PRICE" shall be the lowest price per share at which
shares of Series G Convertible Preferred Stock are issued pursuant to the Series
G Purchase Agreement.
"DEMAND RIGHTS COMMENCEMENT DATE" means the earlier to occur of (i)
the date which is 180 days after the date on which the Company completes an
initial Public Offering and (ii) June 30, 2002.
"DRESDNER" shall mean Dresdner Kleinwort ▇▇▇▇▇▇ Private Equity
Partners, L.P.
"DRESDNER DIRECTOR" has the meaning set forth in Section 4.3.1.
"FAIR MARKET VALUE" of any property as of a particular date (the
"Determination Date") shall mean: (i) if the property is a security, the average
of the last 30 "daily sales prices" of such security on the principal national
securities exchange on which such security is listed or admitted for trading on
the last 30 Business Days prior to the Determination Date, or if not listed or
traded on any such exchange, then the Fair Market Value shall be the average of
the last 30 "daily sales prices" of such security on the Nasdaq National Market
on the last 30 Business Days prior to the Determination Date (the "daily sales
price" shall be the closing price for bona fide transactions of such security at
the end of each day), or (ii) if such security is not so listed or admitted to
unlisted trading privileges or if no such sale is made on at least 25 of such
days, then the Fair Market Value shall be the price (determined on a per share
basis, if applicable) that would be paid for the entire common equity of the
Company in an orderly sale transaction between a willing buyer and a willing
seller, without taking into account the lack of liquidity of the Company's
securities, using customary valuation techniques and assuming full disclosure of
all relevant information, as reasonably determined by an investment banking firm
of recognized national standing selected in good faith by the Board of Directors
or a duly appointed committee of the Board of Directors (which determination
shall be reasonably described in the written notice delivered to the holders of
the Series G Convertible Preferred Stock) or (iii) if the property in question
is not a security, then the Fair Market Value of the property in question shall
be the fair value thereof determined jointly by the Company and the Requisite
Series G Holders. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an independent
appraiser experienced in valuing the type of property in question selected by
the Company and approved by the Requisite Series G Holders (which approval shall
not be unreasonably withheld or delayed). The Company shall pay the fees and
expenses of any investment banking firm and/or appraiser retained to determine
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Fair Market Value hereunder. The determination of such appraiser and/or
investment banking firm shall be final and binding on all Persons.
"KAMINE DIRECTOR" has the meaning set forth in Section 4.3.1.
"LIQUIDATION PREFERENCE" has the meaning set forth in the Series
G Certificate of Designations.
"LUCENT" means Lucent Technologies Inc.
"MAJORITY SERIES G HOLDERS" means the Persons from time to time
holding at least 50% of the outstanding shares of Series G Convertible Preferred
Stock.
"NASSAU DIRECTOR" has the meaning set forth in Section 4.3.1.
"QUALIFIED PUBLIC OFFERING" or "QPO" means the sale in a firm
commitment underwritten public offering of Common Stock, in any single
transaction or series of related transactions, pursuant to an effective
registration statement filed by the Company under the 1933 Act in which (i) the
Company receives aggregate gross proceeds (before deduction of underwriting
discounts and expenses of sale) of at least $80,000,000, and (ii) the price per
share at which such shares are sold to the public in such offering (before
deduction of underwriting discounts and expenses of sale) is not less than the
Liquidation Preference (as adjusted for any stock split, stock combination or
other similar transaction).
"REGISTRABLE SECURITIES" means (i) the Common Stock issued or
issuable upon the conversion of the Convertible Preferred Stock or the exercise
of the AT&T Company Warrant or the GECC Warrant, (ii) any Common Stock acquired
after October 31, 1997 by Nassau, Kamine, AT&T, GECC, CoreStates, any Accredited
Investor that it a permitted transferee of Common Stock pursuant to Section
3.1.6 or any of their respective Affiliates, (iii) the Common Stock held, as of
October 31, 1997, by Kamine, Nassau, AT&T and CoreStates and their respective
Affiliates and by KMC Telecommunications L.P., a Delaware limited partnership,
(iv) any Common Stock acquired after the date hereof by any Series G Holder and
(v) any shares of capital stock of the Company issued or issuable with respect
to the securities referred to in clauses (i) through (iv) by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. For purposes of
this Agreement, a Person will be deemed to be a holder of Registrable Securities
whenever such Person has the right to acquire directly or indirectly such
Registrable Securities (including, without limitation, upon conversion or
exercise in connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right),
whether or not such acquisition has actually been effected. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (i) such securities shall have been registered under
the Securities Act, and the registration statement with respect to the sale of
such securities shall have become effective under the Securities Act or such
securities shall have been sold under circumstances in which all applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act are met or may be sold pursuant to Rule 144(k), (ii) such
securities shall have been otherwise transferred, new certificates for them not
bearing a legend restricting further transfer shall have been delivered by the
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Company and subsequent disposition of such securities shall not require
registration or qualification of such securities under the Securities Act or any
state securities or blue sky laws then in force in a preponderance of states, or
(iii) such securities shall cease to be outstanding.
"REORGANIZATION" means the reorganization effected pursuant to that
certain Amendment and Assignment of Amended and Restated Note Purchase and
Investment Agreement, dated as of September 22, 1997, by and among KMC Telecom
Inc., Nassau Capital Partners L.P., NAS Partners I L.L.C., ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and
KMC Telecom Holdings, Inc., of the Amended and Restated Note Purchase and
Investment Agreement, dated as of October 22, 1996, by and among KMC Telecom,
Inc., Nassau Capital Partners L.P., NAS Partners I L.L.C. and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
"REQUISITE SERIES G HOLDERS" means (i) the holders of at least a
majority of the outstanding shares of Series G Convertible Preferred Stock if
the Company has received aggregate gross cash proceeds of at least $250,000,000
from the issuance of Series G Convertible Preferred Stock pursuant to the Series
G Purchase Agreement or (ii) the holders of at least two-thirds of the
outstanding shares of Series G Convertible Preferred Stock if the Company has
not received aggregate gross cash proceeds of at least $250,000,000 from the
issuance of Series G Convertible Preferred Stock pursuant to the Series G
Purchase Agreement.
"SERIES G CERTIFICATE OF DESIGNATIONS" means the certificate of the
Powers, Designations Preferences and Rights of the Series G-1 Voting Convertible
Preferred Stock and the Series G-2 Non-Voting Convertible Preferred Stock filed
with the Secretary of State of Delaware on July 7, 2000.
"SENIOR MANAGER" means the Chief Executive Officer, the President
or the Chief Financial Officer of the Corporation.
"SERIES G CONVERTIBLE PREFERRED STOCK" means, collectively, the
Company's Series G-1 Voting Convertible Preferred Stock, par value $.01 per
share and the Company's Series G-2 Non-Voting Convertible Preferred Stock, par
value $.01 per share.
"SERIES G PURCHASE AGREEMENT" means the Securities Purchase
Agreement dated as of the date hereof by and among the Company, the Series G
Holders and the other parties, if any, named therein.
"STOCKHOLDERS" shall mean Nassau, Kamine, AT&T, GECC, CoreStates,
the Series G Holders and any transferee thereof who has agreed to be bound by
the terms and conditions of this Agreement in accordance with Section 2.4, and
the term "Stockholder" shall mean any such Person.
2. AGREEMENT TO BE BOUND. Each Series G Holder hereby agrees that
upon execution of this Amendment, it shall become a party to the Stockholders
Agreement and shall be fully bound by, and subject to, all of the covenants,
terms and conditions of the Stockholders Agreement as though an original party
thereto and shall be deemed a Stockholder for all purposes thereof. The parties
agree that all Common Stock and Convertible Preferred Stock held or acquired by
such Series G Holder shall be deemed Shares for all purposes of the Stockholders
Agreement.
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3. AMENDMENT OF SECTION 2.2.1 OF THE STOCKHOLDERS AGREEMENT. Section
2.2.1 of the Stockholders Agreement is hereby amended to read in its entirety as
follows:
2.2.1 TRANSFERS BY NASSAU, AT&T, GECC, CORESTATES AND
THE SERIES G HOLDERS. At any time, each of Nassau, AT&T, GECC, CoreStates,
each of the Series G Holders and any Permitted Transferees thereof which
are Accredited Investors may (a) subject to Sections 2.3 and 2.4, transfer
Shares to any Affiliate and with respect to Dresdner, transfer Shares
having an aggregate initial purchase price of not more than $25,000,000
pursuant to the terms of the Letter Agreement dated as of July 6, 2000
among Dresdner, one of its Affiliates and the Company and (b) subject to
Sections 2.3, 2.4, 3.1 and 4.5, transfer Shares to any Person.
Notwithstanding the foregoing, Lucent shall not, without the prior consent
of the Company (which consent shall not be unreasonably withheld or
delayed), be permitted to transfer any Shares to any Person if (i)
following such transfer such Person would be eligible to designate the
Lucent Director pursuant to Section 4.5(d) hereof or (ii) such Person is
deemed to be a competitor of the Company, in each case, as determined in
good faith by the Board of Directors.
4. ADDITION OF SECTION 2.5 TO THE STOCKHOLDERS AGREEMENT. The
following Section 2.5 shall be inserted immediately following Section 2.4 of the
Stockholders Agreement:
2.5. SALE OF THE COMPANY.
2.5.1. In the event of an Approved Sale, each
Stockholder will (i) consent to, vote for, and raise no objections against
the Approved Sale or the process pursuant to which the Approved Sale was
arranged, (ii) waive any dissenter's rights and other similar rights with
regard to such Approved Sale, and (iii) if the Approved Sale is structured
as a sale of stock, each Stockholder will agree to sell its Shares on the
terms and conditions of the Approved Sale. Each Stockholder will take all
necessary and desirable actions as reasonably requested by the Board of
Directors in connection with the consummation of any Approved Sale,
including without limitation executing the applicable purchase agreement;
PROVIDED that each Stockholder will be required to make representations
and warranties only with respect to such Stockholder and the Shares to be
sold by it or him as may be set forth in any agreement approved by the
Board of Directors.
2.5.2. The obligations of each Stockholder under this
Section 2.5 are subject to the satisfaction of the following conditions:
(i) in connection with an Approved Sale, each Stockholder shall receive in
consideration for the Shares held by such Stockholder the net amount that
such Stockholder would have received if all in-the-money equity securities
had been fully exercised, converted and exchanged for or into Common Stock
immediately prior to such Approved Sale and the aggregate consideration
from such Approved Sale (plus an amount equal to the cash payable in
connection with such exercise, conversion and exchange of in-the-money
equity securities) had been distributed by the Company in complete
liquidation pursuant to the rights and preferences set forth in the
Company's certificate of incorporation as in effect immediately prior to
such Approved Sale (and the obligation of each Series G Holder shall be
subject to its receipt of the Redemption Price (as defined in the Series G
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Certificate of Designations)), (ii) if the holders of Common Stock and/or
then outstanding Convertible Preferred Stock are given an option as to the
form and consideration to be received, all holders of Common Stock and
then outstanding Convertible Preferred Stock shall be given the same
option, and (iii) each holder of then currently exercisable rights to
acquire Shares shall be given an opportunity to exercise such rights prior
to the consummation of the Approved Sale and participate in such sale as a
holder of such Shares.
2.5.3. If the Company or the holders of the Company's
securities enter into any negotiation or transaction for which Rule 506
(or any similar rule then in effect) under the Securities Act may be
available with respect to such negotiation or transaction (including,
without limitation, a merger, consolidation or other reorganization), the
Stockholders who are not accredited investors (as that term is defined in
Rule 501 under the Securities Act) will, at the request of the Company,
appoint a purchaser representative (as such term is defined in Rule 501
under the Securities Act) reasonably acceptable to the Company. If any
such Stockholder appoints a purchaser representative designated by the
Company, the Company will pay the reasonable fees of such purchaser
representative, but if any such Stockholder declines to appoint the
purchaser representative designated by the Company such holder will
appoint another purchaser representative (reasonably acceptable to the
Company), and such holder will be responsible for the fees of the
purchaser representative so appointed.
2.5.4. All Stockholders will bear their respective
portions (as determined pursuant to Section 2.5.5) of the reasonable costs
of any sale of Shares pursuant to an Approved Sale to the extent such
costs are approved by the Approving Stockholders and are not otherwise
paid by the Company or the acquiring party; including the reasonable fees
and disbursements of one law firm designated by a majority of the
Approving Stockholders in connection with an Approved Sale. Other costs
incurred by any Stockholder on its own behalf will not be considered costs
of the transaction hereunder.
2.5.5. A Stockholder's portion of any cost described in
Section 2.5.4 will equal the amount by which the portion of the aggregate
consideration from the Approved Sale received by such Stockholder would
have been reduced had the amount of such cost been paid out of such
aggregate proceeds of such Approved Sale prior to their allocation
pursuant to Section 2.5.2.
2.5.6. The provisions of this Section 2.5 shall
terminate upon the consummation of a Qualified Public Offering.
5. AMENDMENTS TO SECTION 4.3.1 OF THE STOCKHOLDERS AGREEMENT.
Section 4.3 of the Stockholders Agreement is amended to read as follows:
4.3. ELECTION OF DIRECTORS.
4.3.1. NUMBER AND COMPOSITION. Subject to Section 4.3.2,
each Stockholder agrees that the number of directors shall be ten (10) and
each Stockholder shall vote its or his Shares at any Stockholders Meeting,
or act by Written Consent with respect to such Shares, and take all other
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actions necessary to ensure that the number of directors constituting the
entire Board of Directors shall be ten (10), as provided for below. Each
Stockholder shall vote its or his Shares at any Stockholders Meeting
called for the purpose of filling the positions on the Board of Directors,
or in any Written Consent executed for such purpose, and to take all other
actions necessary to ensure, including, without limitation, using its or
his best efforts to cause the Board of Directors to take such actions to
ensure: (i) the election to the Board of Directors of (A) subject to
paragraph (a) of Section 4.5, three individuals designated by Nassau (the
"Nassau Directors"), (B) subject to paragraph (b) of Section 4.5, two
individuals designated by Kamine (the "Kamine Directors"), (C) one
independent director who shall be mutually acceptable to Nassau, Kamine
and either AT&T or the Majority Series C Holders, provided that it is
agreed that ▇▇▇▇ ▇. ▇▇▇▇▇▇ shall serve as an independent director
beginning November 1, 1997, (D) subject to paragraph (c) of Section 4.5,
one director designated by Dresdner (the "Dresdner Director"), (E) subject
to paragraph (d) of Section 4.5, and further subject to the approval of a
majority of the other members of the Board of Directors (which approval
may not be unreasonably withheld) one director designated by Lucent or its
transferee as contemplated by Section 4.5(d) (the "Lucent Director"), (F)
the President of the Company from time to time elected pursuant to Article
IV of the By-Laws and who shall initially be ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇, and (G)
the Chief Executive Officer of the Company from time to time elected
pursuant to Article IV of the By-Laws and who shall initially be ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇; (ii) the election to each committee of the Board of Directors
of one Nassau Director and one Kamine Director; (iii) the election of an
independent director to the compensation committee of the Board of
Directors, (iv) the election of one representative designated by the
Requisite Series G Holders (who shall be a member of the Board of
Directors) to all committees of the Board of Directors other than the
executive committee; PROVIDED that the Dresdner Director shall be
designated to serve on at least one committee of the Board of Directors,
and (vi) the election of three directors to the executive committee of the
Board of Directors, one of whom shall be a Nassau Director, one of whom
shall be a Kamine Director, and a third director (who is neither a Kamine
Director nor a Nassau Director) designated by a majority of the Board of
Directors.
6. AMENDMENT OF SECTION 4.4(B) AND ADDITION OF SECTION 4.4(C) AND
SECTION 4.4(D) TO THE STOCKHOLDERS AGREEMENT. Section 4.4(b) of the Stockholders
Agreement shall be hereby amended in its entirety as follows and the following
Section 4.4(c) and Section 4.4(d) shall be inserted immediately following
Section 4.4(b) of the Stockholders Agreement:
(b) Kamine shall be entitled at any time and for any reason
(or for no reason) to designate any or all of the Kamine Directors for
removal. Subject to Section 4.5, if at any time, a vacancy is created on
the Board of Directors by reason of death, removal or resignation of any
Kamine Director, then each Stockholder shall, as soon as practicable after
the date such vacancy first occurs, and in any event prior to the
transaction of any other business by the Stockholders or the Board of
Directors, take any action, including the voting of its Shares, to elect a
director or directors designated by Kamine to fill such vacancy or
vacancies.
(c) Dresdner shall be entitled at any time and for any reason (or
for no reason) to designate the Dresdner Director for removal. Subject to
Section 4.5, if at any time, a vacancy is created on the Board of
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Directors by reason of the death, removal or resignation of the Dresdner
Director, then each Stockholder shall, as soon as practicable after the
date such vacancy first occurs, and in any event prior to the transaction
of any other business by the Stockholders or the Board of Directors, take
action, including the voting of its Shares, to elect a director designated
by Dresdner to fill such vacancy.
(d) Lucent (or its transferee as contemplated by Section 4.5(d))
shall be entitled at any time and for any reason (or for no reason) to
designate the Lucent Director for removal. Subject to Section 4.5, if at
any time, a vacancy is created on the Board of Directors by reason of the
death, removal or resignation of the Lucent Director, then each
Stockholder shall, as soon as practicable after the date such vacancy
first occurs, and in any event prior to the transaction of any other
business by the Stockholders or the Board of Directors, take action,
including the voting of its Shares, to elect a director designated by
Lucent (or its transferee as contemplated by Section 4.5(d)) to fill such
vacancy.
7. AMENDMENT TO SECTION 4.5(B) TO THE STOCKHOLDERS AGREEMENT.
Section 4.5(b) of the Stockholders Agreement shall be hereby amended in its
entirety as follows:
(b) Notwithstanding anything herein to the contrary, (i)
from and after the date that Kamine and his Affiliates own in the
aggregate Shares representing less than one-third of the Shares (on an as
if fully converted basis) owned in the aggregate by them immediately
following the Reorganization, Kamine shall have the right to designate
only one (1) director for election or removal pursuant to Section 4.3.1 or
4.4 (and shall cause such number of Kamine Directors to resign such that
one Kamine Director remains on the Board of Directors) and (ii) at such
time as Kamine and his Affiliates own less than 5% of the Shares on a
Fully Diluted Basis, Kamine shall not be entitled to designate any
director for election or removal pursuant to Section 4.3.1 or 4.4 (and
shall cause all Kamine Directors to resign).
8. ADDITION OF SECTIONS 4.5(C) AND 4.5(D) TO THE STOCKHOLDERS
AGREEMENT. The following Sections 4.5(c) and 4.5(d) shall be inserted
immediately following Section 4.5(b) of the Stockholders Agreement:
(c) Notwithstanding anything herein to the contrary, at
such time as Dresdner and its Affiliates own less than 30% of the shares
of Series G Convertible Preferred Stock (or shares of Common Stock issued
upon conversion thereof) originally purchased by Dresdner and its
Affiliates pursuant to the Series G Purchase Agreement, Dresdner shall not
be entitled to designate any person to serve as a director on the Board of
Directors, and shall cause the Dresdner Director to resign from the Board
of Directors).
(d) Notwithstanding anything herein to the contrary,
Lucent shall have no right to designate an individual to serve as the
Lucent Director at any time prior to March 31, 2001; provided that if
prior to March 31, 2001, Lucent transfers (in a transaction or series of
related transactions subject to the provisions of Section 3.1) shares of
Series G Convertible Preferred Stock having an aggregate Liquidation
Preference of at least $50,000,000 to an unaffiliated third party, the
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transferee of such shares may thereafter designate the Lucent Director.
Lucent may (but has no obligation to) assign its right to designate the
Lucent Director to an unaffiliated third party transferee of shares of
Series G Convertible Preferred Stock having an aggregate Liquidation
Preference of at least $50,000,000. The right of Lucent to designate the
Lucent Director shall terminate upon the consummation of a Qualified
Public Offering. The right of any unaffiliated third party transferee of
Lucent who has purchased shares of Series G Convertible Preferred Stock
having an aggregate Liquidation Preference of at least $50,000,000 and has
been assigned the right to designate the Lucent Director shall survive a
Qualified Public Offering. The right of Lucent or its transferee to
designate the Lucent Director shall terminate at such time as the holder
of the right to designate the Lucent Director holds shares of Series G
Convertible Preferred Stock (or shares of Common Stock issuable upon
conversion thereof) having an aggregate Liquidation Preference of less
than $15,000,000.
9. ADDITION OF SECTION 4.6 AND 4.7 TO THE STOCKHOLDERS AGREEMENT.
The following Sections 4.6 and 4.7 shall be inserted immediately following
Section 4.5 of the Stockholders Agreement:
4.6 ACTIONS REQUIRING APPROVAL OF MAJORITY OF BOARD. The
Company shall not, without the prior approval of at least a majority of
the Board of Directors:
(a) directly or indirectly declare or pay any dividends
or make any distributions upon any of its capital stock or other equity
securities other than those required of the Company pursuant to agreements
in existence on the date hereof;
(b) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise
acquire, any of the Company's or any Subsidiary's capital stock or other
equity securities (including, without limitation, warrants, options and
other rights to acquire such capital stock or other equity securities)
other than (a) pursuant to the terms of any of the Convertible Preferred
Stock, the Series E Preferred Stock, the Series F Preferred Stock or any
series of preferred stock the issuance of which is approved pursuant to
this Section 4.6, (b) pursuant to repurchase of equity securities by the
Corporation pursuant to the exercise of its right of first offer as
provided in Section 3 of this Stockholders Agreement and (c) repurchases
of Common Stock or other equity securities including warrants, options and
other rights to acquire Common Stock or equity securities or stock
appreciation rights, phantom stock plans or similar rights or plans, from
former employees of the Company and its Subsidiaries upon termination of
employment pursuant to arrangements approved by the Board of Directors;
(c) authorize, issue or enter into any agreement
providing for the authorization, creation, or issuance (contingent or
otherwise) of, (a) any notes or debt securities containing equity features
(including, without limitation, any notes or debt securities convertible
into or exchangeable for capital stock or other equity securities, issued
in connection with the issuance of capital stock or other equity
securities or containing profit participation features), (b) any capital
stock or other equity securities (or any securities convertible into or
exchangeable for any capital stock or other equity securities) which are
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senior to or on a parity with the Series G Convertible Preferred Stock
with respect to the payment of dividends, redemptions or distributions
upon liquidation or otherwise;
(d) authorize or enter into any agreement leading to a
registered offering after which the Company's common equity securities are
first traded or quoted on a national or regional securities exchange or
the NASDAQ Stock Market;
(e) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, any assets of the
Company or its Subsidiaries involving an aggregate consideration in excess
of $1,000,000 in any twelve-month period (other than any sale or lease of
assets made in the ordinary course of business in connection with any
capitalized leases entered into by the Company or any of its Subsidiaries
as lessor in the ordinary course of business and other than any Liens to
lending institutions incurred or granted by the Company or any of its
Subsidiaries in the ordinary course of business in connection therewith);
(f) enter into any partnership, joint venture or other
similar joint business undertaking not contemplated by the existing
business plan;
(g) appoint the Company's independent auditors;
(h) enter into, amend, modify or supplement, or permit
any Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, employees, stockholders or Affiliates or with any
individual related by blood, marriage or adoption to any such individual
or with any entity in which any such Person or individual owns a
beneficial interest, except for (i) customary employment arrangements and
benefit programs on reasonable terms, (ii) agreements, transactions,
commitments or arrangements entered into in the ordinary course of
business and (iii) except as otherwise expressly contemplated by this
Stockholders Agreement;
(i) initiate or settle any lawsuit the judgment or
settlement value of which could exceed $250,000;
(j) amend, modify or terminate any material insurance
coverage of the Company;
(k) retain any investment banker or financial consultant
whose remuneration could exceed $150,000;
(l) appoint or establish any committee of the Board
of Directors;
(m) adopt the annual budget, any capital expenditure
plan or any working capital allocation plan; and
(n) appoint or terminate the employment of any Senior
Manager.
10
4.7 REIMBURSEMENT OF EXPENSES. The Company shall reimburse
each director for the reasonable travel and out-of-pocket expenses
incurred in connection with attending meetings of the Board of Directors:
10. AMENDMENTS TO SECTION 5 OF THE STOCKHOLDERS AGREEMENT. Paragraph
(a) of Section 5 of the Stockholders Agreement is hereby amended in its entirety
to read as follows:
PUT RIGHT. (a) Subject to the covenants contained in the
indentures entered into in connection with the Senior Discount Notes and
2009 Senior Notes, if no Liquidity Event shall have occurred by the later
of October 22, 2003 or 90 days following the final maturity date of debt
securities issued in the HYDO II, then each of Nassau and its Affiliates,
AT&T, GECC, CoreStates and each of the Series G Holders shall have the
right, at any time thereafter, by giving written notice to the Company (a
"PUT NOTICE"), to require the Company to repurchase (a "PUT") all or any
portion of the shares of Convertible Preferred Stock or Common Stock held
by such Stockholder for an amount (the "PUT AMOUNT") equal to (A) the fair
market value of the shares subject to such Put as determined within 30
days after the delivery of each Put Notice by an investment banking firm
of national reputation which is mutually acceptable to the Company and
holders of a majority of the voting power of Common Stock and Common Stock
Equivalents held by all parties exercising the Put hereunder or (B) in the
case of any shares of Convertible Preferred Stock, at the liquidation
preference thereof plus all accrued and unpaid dividends, PROVIDED that
AT&T, GECC, CoreStates and each of the Series G Holders shall not have the
right to exercise a Put hereunder unless Nassau or its Affiliates have
exercised a Put; and provided further that the Company may not repurchase
any shares of Convertible Preferred Stock or Common Stock hereunder so
long as the Series E Preferred Stock or the Series F Preferred Stock
remain outstanding unless the requisite holders of the Series E Preferred
Stock and the holders of the Series F Preferred Stock have waived in
writing their right to have the Company repurchase their Series E
Preferred Stock and Series F Preferred Stock prior to the repurchase by
the Company of any shares of Convertible Preferred Stock or Common Stock
hereunder. The Company shall give AT&T, GECC, CoreStates and each of the
Series G Holders prompt notice of Nassau's exercise of a Put. The Company
shall give notice to Nassau and other Stockholders of any exercise of the
Put right under Section 14 of either of the Subsidiary Warrants or
hereunder. The Company shall pay to the party exercising a Put the Put
Amount within 60 days of the date of such determination of fair market
value. Any unpaid balance of a Put Amount thereafter shall bear interest,
which interest shall be paid together with any payment of such Put Amount,
at the rate of 18.0% per annum (the "DEFAULT RATE"); PROVIDED that accrual
of interest at the Default Rate shall not constitute a waiver of any party
exercising a Put hereunder to receive immediate payment of the Put Amount.
11. AMENDMENTS TO SECTIONS 6.1(A) AND (B) OF THE STOCKHOLDERS
AGREEMENT. Sections 6.1(a) and (b) of the Stockholders Agreement are hereby
amended in their entirety to read as follows:
6.1. DEMAND REGISTRATIONS.
11
(a) RIGHT TO DEMAND. Subject to Section 6.1(b), at any
time and from time to time following the Demand Rights Commencement Date
and the applicable events specified in Section 6.1(b), the applicable
parties set forth in Section 6.1(b) (each of which is referred to in this
Section 6 as a "DEMAND HOLDER") may request the Company to register their
Registrable Securities in the manner set forth herein by written notice
(the "REGISTRATION NOTICE") to the Company only if a disposition of the
Registrable Securities may not, in the opinion of the Demand Holder, be
effected in the public marketplace (as opposed to a private transaction
under the Securities Act) at equally favorable net terms to the Demand
Holder without registration of such shares under the Securities Act. In
the event that the Company receives a Registration Notice, the Company
shall effect a registration under the Securities Act of the number of
Registrable Securities determined in accordance with Section 6.1(c) on
Form S-1 or any similar long-form registration ("LONG-FORM REGISTRATIONS")
or on Form S-2 or S-3 or any similar short-form registration ("SHORT-FORM
REGISTRATIONS") if available. All registrations requested pursuant to this
Section 6.1 are referred to herein as "DEMAND REGISTRATIONS."
(b) NUMBER OF DEMAND REGISTRATIONS. Each of Nassau and
Kamine will be entitled following the Demand Rights Commencement Date to
obtain up to two (2) Long-Form Registrations and two (2) Short-Form
Registrations. So long as AT&T or any of its Affiliates shall hold any
Registrable Securities, then AT&T, or if AT&T and its Affiliates no longer
hold any Registrable Securities, then the holders of at least 50% of the
aggregate number of Registrable Securities transferred by AT&T which are
Registrable Securities on the date such request is being made, will be
entitled following the Demand Rights Commencement Date to obtain up to an
aggregate of two (2) Registrations (which may be Short-Form Registrations,
at the Company's option, if the Company is then eligible therefor). The
Majority Series C Holders (for themselves and on behalf of all
Stockholders holding shares of Common Stock into which shares of Series C
Convertible Preferred Stock have been, or may be, converted) will be
entitled following the Demand Rights Commencement Date to obtain up to an
aggregate of two (2) Registrations (which may be Short-Form Registrations,
at the Company's option, if the Company is then eligible therefor). The
Majority Series G Holders (for themselves and for the benefit of all
Stockholders holding shares of Common Stock into which shares of Series G
Convertible Preferred Stock have been, or may be, converted) will be
entitled following the Demand Rights Commencement Date to two (2)
Long-Form Registrations (provided that any such registration involves
shares having an aggregate gross offering price of not less than
$25,000,000) and two (2) Short-Form Registrations (provided that any such
registration involves shares having an aggregate gross offering price of
not less than $10,000,000). In addition, the holders of outstanding shares
of Series G Convertible Preferred Stock (for themselves and for the
benefit of all Stockholders holding shares of Common Stock into which
shares of Series G Convertible Preferred Stock have been, or may be,
converted) will be entitled following the Demand Rights Commencement Date
to unlimited Short Form Registrations so long as the holders participating
in such registrations bear the entire expense thereof; PROVIDED that in no
event will the holder of shares of Series G Preferred Stock be entitled to
more than one such registration in any six-month period. A registration
will not count as a Long-Form Registration or Short-Form Registration, as
12
the case may be, until such Demand Registration has become effective and
unless the Demand Holder is able to register and sell at least 66_% of the
Registrable Securities requested to be included in such registration.
Demand Registrations will be Short-Form Registrations whenever the Company
is permitted to use any applicable short form. After the Company has
become subject to the reporting requirements of the Exchange Act, the
Company will use its best efforts to make Short-Form Registrations
available for the sale of Registrable Securities. The Company shall not be
required to pay for any expenses of any registration proceeding begun
pursuant to this Section 6.1(b) (including the Company's internal costs in
proceeding on such request, as reasonable determined by the Company's
Board of Directors) if the registration request is subsequently withdrawn,
unless the Demand Holder agrees to treat the withdrawn request as a
registration undertaken pursuant to this Section 6.1(b); PROVIDED, that if
the Demand Holder withdraws a request as a result of a material adverse
change in the condition, business or prospects of the Company or in the
market for the Company's securities from that known to the Demand Holder
at the time of its request, the Company, and not the Demand Holder, shall
be required to pay all the expenses relating to the proposed registration
and such request shall not be treated as a Demand Registration for
purposes of this Section 6.1(b).
12. AMENDMENT TO SECTION 6.3 OF THE STOCKHOLDERS AGREEMENT. Section
6.3 of the Stockholders Agreement is hereby amended in its entirety to read as
follows:
6.3. HOLDBACK AGREEMENTS.
(a) Each holder of Registrable Securities agrees not to
effect any public sale or distribution (including sales pursuant to Rule
144) of equity securities, including, without limitation, the Common
Stock, of the Company, or any securities convertible into or exchangeable
or exercisable for such securities, during the seven days prior to and a
period reasonably requested by the underwriters managing such offering
(not to exceed 180 days) beginning on the effective date of any Demand
Registration or Piggyback Registration for a public offering to be
underwritten on a firm commitment basis (except as part of such
underwritten registration), unless the investment bankers or underwriters
managing the public offering otherwise agree.
(b) The Company agrees (i) not to effect any public sale
or distribution of its equity securities, including, without limitation,
the Common Stock, or any securities convertible into or exchangeable or
exercisable for Common Stock, during the seven days prior to and during
the 180-day period beginning on the effective date of any underwritten
Demand Registration or Piggyback Registration (except as part of such
underwritten registration), unless the underwriters managing the
registered public offering otherwise agree, and (ii) to use its best
efforts to cause (A) each holder of at least 5% (on a Fully Diluted Basis)
of its equity securities, including, without limitation, Common Stock, or
any securities convertible into or exchangeable or exercisable for such
securities, and (B) each officer and director of the Company that holds
any such securities to agree not to effect any public sale or distribution
(including sales pursuant to Rule 144) of any such securities during such
period (except as part of such underwritten registration), unless the
underwriters managing the public offering or distribution otherwise agree.
13
13. ADDITION OF SECTION 6.9 TO THE STOCKHOLDERS AGREEMENT. The
following Section 6.9 shall be inserted immediately following Section 6.8 of the
Stockholders Agreement:
6.9. ASSIGNMENT OF REGISTRATION RIGHTS.
6.9.1. The rights to cause the Company to register
Registrable Securities under Section 6.1 and Section 6.2 may be assigned
by a Demand Holder to a transferee or assignee (i) that is an Affiliate of
the Demand Holder or (ii) if the aggregate initial purchase price of such
Registrable Securities transferred or assigned was not less than
$10,000,000 or such lesser amount if all such Demand Holder's shares are
transferred or assigned, provided in each case that (a) the Company is,
within 15 days prior to any transfer or assignment, furnished with written
notice of the name and address of the proposed transferee or assignee; (b)
prior to the transfer or assignment, the transferee or assignee agrees in
writing to be bound by all of the provisions of this Agreement; (c) the
Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and
the securities with respect to which such registration rights are being
assigned; and (d) such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act.
6.9.2. Each Demand Holder covenants and agrees that it
will not transfer or assign any rights to cause the Company to register
Registrable Securities pursuant to this Section 6.9 if, within five days
prior to such transfer or assignment, the Company furnishes the Demand
Holder with a certificate of the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such transfer or
assignment to be made because the proposed transferee is an actual or
proposed competitor of the Company. This agreement shall be enforceable in
equity.
14. AMENDMENT TO SECTION 9.2 (B) OF THE STOCKHOLDERS AGREEMENT.
Section 9.2(b) of the Stockholders Agreement is hereby amended in its entirety
to read as follows:
(b) Any amendment, supplement or modification of or to
any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by any party from the terms of
any provision of this Agreement, shall be effective (i) only if it is made
or given in writing and signed by Nassau, Kamine, AT&T, GECC, CoreStates
and a Majority of the Series G Holders and (ii) only in the specific
instance and for the specific purpose for which made or given; provided,
however, that any such amendment, supplement or modification to this
Agreement shall not be effective to withdraw, deny or adversely affect the
rights of any Stockholder who has not consented in writing to such
amendment, supplement or modification.
15. Except as expressly amended hereby, all of the provisions of the
Stockholders Agreement are hereby affirmed and shall continue in full force and
effect in accordance with their terms. Each of the parties hereto agree that
they will amend and restate the Stockholders Agreement in its entirety in
14
connection with a Subsequent Closing (as such term is defined in the Series G
Purchase Agreement) as may be necessary or desirable to reflect the terms of
this Agreement.
16. This Amendment shall be governed and construed in accordance
with the laws of the state of Delaware applicable to agreements made and to be
performed entirely within such state, without regard to the principles of
conflicts of laws thereof.
17. This Amendment may be executed in one or more counterparts, each
of which shall be deemed an original and all of which, taken together, shall
constitute one and the same instrument.
* * * * *
15
IN WITNESS WHEREOF, the undersigned have executed, or caused to be
executed, this Agreement as of the date first above written.
KMC TELECOM HOLDINGS, INC.
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Executive Vice President and CFO
NASSAU CAPITAL PARTNERS IV, L.P.
By: Nassau Capital LLC, its General Partner
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Member
NAS PARTNERS I L.L.C.
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Member
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
in his individual capacity
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
FIRST UNION NATIONAL BANK
By:/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Vice President
CORESTATES HOLDINGS, INC.
By:/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Vice President
GENERAL ELECTRIC CAPITAL
CORPORATION
By:/s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-----------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇
Title: Manager - Operations
DRESDNER KLEINWORT ▇▇▇▇▇▇ PRIVATE
EQUITY PARTNERS LP
By:Dresdner Kleinwort ▇▇▇▇▇▇ Private Equity
LLC
Its:General Partner
By:/s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Authorized Person
By:/s/ I. D. Leigh
---------------
Name: I. D. Leigh
Title: Authorized Person
▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ASSOCIATES, LLC
By:Kleinwort ▇▇▇▇▇▇ (USA) Inc.
Its:Attorney-in-Fact
By:/s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Authorized Person
By:/s/ I. D. Leigh
---------------
Name: I. D. Leigh
Title: Authorized Person
LUCENT TECHNOLOGIES INC.
By:/s/ ▇▇▇▇ ▇▇▇▇
-------------
Name: ▇▇▇▇ ▇▇▇▇
Title: Director - NA Customer Finance
CIT LENDING SERVICES
CORPORATION FORMERLY KNOWN AS
NEWCOURT COMMERICIAL FINANCE
CORPORATION
By:/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: