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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
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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;
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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.
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"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.
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"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
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"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 Xxxxx Xxxxxx 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.
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"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
12
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
13
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)).
15
(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
16
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.
17
(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
18
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.
19
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 xxxx 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.
20
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.
21
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.
22
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
23
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,
24
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
25
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,
26
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,
27
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
28
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.
0000 Xxxxx 000, Xxxxx 000
Xxxxxxxxxx, XX 00000
Attention: Chief Financial Officer
29
To the Warrant Agent:
The Chase Manhattan Bank
000 Xxxx 00xx Xx., 00xx Xxxxx
Xxx Xxxx, XX 00000-0000
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
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
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.
32
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/ Xxxxxxx Xxxxxxxx
By: ---------------------------------------------
Name: Xxxxxxx Xxxxxxxx
Title: Vice President, Chief Financial
Officer
THE CHASE MANHATTAN BANK, as Warrant Agent
/s/ X. Xxxxx
By: ---------------------------------------------
Name: X. Xxxxx
Title: Vice President
LUCENT TECHNOLOGIES INC.
/s/ Xxxxxx X. Xxxxxx
By: ---------------------------------------------
Name:
Title:
NEWCOURT COMMERCIAL FINANCE CORPORATION
/s/ Xxxx X. Xxxxxx, III
By: ---------------------------------------------
Name: Xxxx X. Xxxxxx, III
Title: Vice President
33
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
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
000 Xxxx 00xx Xx., 00xx Xxxxx
Xxx Xxxx, XX 00000-0000
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
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.
36
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: Xxxxxxx Xxxxxxxx
Title: Vice President, Chief Financial
Officer and Secretary
Dated: February __, 1999
Countersigned:
THE CHASE MANHATTAN BANK,
as Warrant Agent
By: -----------------------------
Name:
Title:
37
FORM OF REVERSE OF WARRANT CERTIFICATE
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: The Chase Manhattan Bank
000 Xxxx 00xx Xx., 00xx Xxxxx
Xxx Xxxx, XX 00000-0000
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
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]
40
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.
41
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]
42
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.
0000 Xxxxx 000, Xxxxx 000
Xxxxxxxxxx, XX 00000
The Chase Manhattan Bank
000 Xxxx 00xx Xx., 00xx Xxxxx
Xxx Xxxx, XX 00000-0000
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
43
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.
0000 Xxxxx 000, Xxxxx 000
Xxxxxxxxxx, XX 00000
The Chase Manhattan Bank
000 Xxxx 00xx Xx., 00xx Xxxxx
Xxx Xxxx, XX 00000-0000
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
44
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.
45
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
46
EXHIBIT C
[Date]
KMC Telecom Holdings, Inc.
0000 Xxxxx 000, Xxxxx 000
Xxxxxxxxxx, XX 00000
The Chase Manhattan Bank
000 Xxxx 00xx Xx., 00xx Xxxxx
Xxx Xxxx, XX 00000-0000
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)
47
(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:_______
48
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: Xxxxxxxx Xxxxx
Title:
KMC TELECOM HOLDINGS, INC.
By:----------------------------------------------
Name:
Title:
49
APPENDIX A
LIST OF FINANCIAL EXPERTS
Alex. Xxxxx & Sons
Bear, Xxxxxxx & Co., Inc.
Xxxxxx, Read & Co. Inc.
Xxxxxxxxx, Lufkin & Xxxxxxxx Securities Corporation
Xxxxxxx, Sachs & Co.
Lazard Freres & Co.
Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated
Xxxxxx Xxxxxxx & Co. Incorporated
PaineWebber Incorporated
Prudential Securities Inc.
Salomon Brothers Inc
Xxxxxx Brothers
50
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
