AMENDMENT NO. 2
TO WARRANT AGREEMENT
This Amendment No. 2 to Warrant Agreement dated as of February 4, 1999
(as heretofore amended, the "Agreement"), is made as of June 1, 1999, by KMC
Telecom Holdings, Inc. (the "Company"), The Chase Manhattan Bank ("Warrant
Agent"), Newcourt Commercial Finance Corporation ("Newcourt') and Lucent
Technologies Inc. ("Lucent").
W I T N E S S E T H
WHEREAS, Newcourt and Lucent own warrants to purchase shares of the
Company's Common Stock ("Warrants");
WHEREAS, the Company has issued Warrants to First Union Investors,
Inc, ("First Union") pursuant to a warrant agreement dated as of April 30, 1999
(the "First Union Warrant Agreement");
WHEREAS, under the First Union Warrant Agreement, First Union is,
under certain circumstances, entitled to and obligated to sell shares of Common
Stock for which it Warrants may be exercised;
WHEREAS, Xxxxxx X. Xxxxxx ("Xxxxxx") and Nassau Capital Partners L. P.
("Nassau") are parties to the First Union Warrant Agreement for limited
purposes;
WHEREAS, Newcourt and Lucent wish to have the rights and obligations
to sell shares of Common Stock for which their Warrants may be exercised as
First Union has under the First Union Warrant Agreement, and Kamine and Nassau
are willing to agree to, the extension of such rights and obligations to
Newcourt and Lucent.
NOW, THEREFORE, in consideration of the premises, the parties hereto
agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, all capitalized
terms defined in the Agreement and used herein are used as so defined. In
addition, the following terms shall have the meanings set forth below:
"Buyout Notice" has the meaning ascribed to such term in Section 8.6.
"Capital Stock" means capital stock or share capital of, and/or other
equity participations in, the Company, including, without limitation partnership
interests, and/or conversion privileges, warrants, options and/or other rights
to acquire such capital stock, share capital and/or other equity participations.
"Common Stock Equivalents" means any security or obligation which is
by its terms convertible into shares of Common Stock and any option, warrant or
other subscription or purchase right with respect to Common Stock.
"Existing Stockholders" means those stockholders who are from time to
time parties to the Stockholders Agreement dated as of October 31, 1997, as
amended.
"Fully Diluted" or "Fully Diluted Basis" means, at any date as of
which the number of shares of Common Stock is to be determined, such number of
shares determined on a basis that includes all shares of Common Stock
outstanding at such date and the maximum shares of Common Stock issuable in
respect of Common Stock Equivalents (giving effect to the then current
respective conversion prices) and other rights to purchase (directly or
indirectly) shares of Common Stock or Common Stock Equivalents, outstanding on
such date, whether or not such rights to convert, exchange or exercise
thereunder are presently exercisable,
"Principal Holders" means each of the following two groups (i) Nassau
Capital Partners L. P. and its general and limited partners and any Affiliates
of the foregoing and (ii) Xxxxxx X. Xxxxxx and his parents, siblings, spouse,
descendants, heirs and devices, and any trust or Person the sole beneficiaries
or equity holders of which are the foregoing Persons.
"Tag-Along Notice" has the meaning ascribed to such term in Section
8.5.
"Tag-Along Purchaser" has the meaning ascribed to such term in Section
8.5.
"Tag-Along Shares" has the meaning ascribed to such term in Section
8.5.
"Third Party Purchaser" has the meaning ascribed to such term in
Section 8.6.
2. ADDITION OF SECTION 8.5. A new Section 8.5 is added to the
Agreement to read in its entirety as follows:
SECTION 8.5. TAG-ALONG RIGHT. (a) If any Principal Holder intends to
transfer to any Person (other than another Person that is included within the
defined group of such Principal Holder, provided that such transferee agrees in
writing to be bound by the terms of this Section 8.5 and new stock certificates
containing a restrictive legend referring to the transfer restrictions of this
Section 8.5 are issued to such transferee) (the "TAG-ALONG PURCHASER"), in one
transaction or a series of related transactions (excluding securities offerings
registered under the Securities Act), shares of Capital Stock constituting, in
the aggregate, more than 20% of the total number of shares of Common Stock on a
Fully Diluted Basis owned by such Principal Holder as of April 30, 1999, then
such Principal Holder shall permit each of the Purchasers, at such Purchaser's
option, to transfer, for the same consideration, and on the same terms and
conditions, if any, upon which the Principal Holder intends to transfer such
shares, a number of shares of Common Stock (including shares subject to then
exercisable Warrants and Warrants that will become exercisable as a result of
such transaction or series of transactions) then owned by such Purchaser
determined in accordance with this Section 8.5(a) (the "TAG-ALONG SHARES"). Such
Purchaser shall have the right, pursuant to this Section 8.5(a), to sell
pursuant to the offer by the Tag-Along Purchaser, a percentage of the shares of
Common Stock (including shares subject to then exercisable Warrants) held by
such Purchaser equal to the Applicable Percentage.
(b) For purposes hereof, the "APPLICABLE PERCENTAGE" shall be
determined as follows:
(i) if such transaction or series of related transactions
constitutes the first instance in which the rights under Section 8.5(a) apply,
the Applicable Percentage shall be equal to the percentage of the holdings of
Capital Stock (on a Fully Diluted Basis) then owned by the applicable Principal
Holder being transferred in such transaction or series of related transactions
by such Principal Holder (the "APPLICABLE HOLDER" for such transaction(s));
(ii) if such transaction or series of related transactions does
not constitute the first instance in which the rights under Section 8.5(a)
apply, the Applicable Percentage shall be equal to the percentage of the
holdings of Capital Stock (on a Fully Diluted Basis) then owned by the
Applicable Holder being transferred in such transaction or series of related
transactions by the Applicable Holder; provided that the Applicable Percentage
shall be zero if the percentage of the holdings of Capital Stock (on a Fully
Diluted Basis) then owned by the Applicable Holder being transferred in such
transaction or series of related transactions by the Applicable Holder is not
greater than five percent.
(c) Not less than 15 Business Days prior to any proposed transfer
pursuant to this Section 8.5, the Principal Holders shall deliver to each of the
Purchasers written notice thereof (the "TAG-ALONG Notice"), which notice shall
set forth the consideration to be paid by the Tag-Along Purchaser and the other
terms and conditions, if any, of such transaction. If any Purchaser elects to
transfer some or all of the Tag-Along Shares pursuant to this Section 8.5, then
(i) such Purchaser shall so notify the Principal Holders within 10 Business Days
after the date of such Purchaser's receipt of Tag-Along Notice, and, (ii) at the
Principal Holders' request not less than two Business Days prior to the proposed
transfer, such Purchaser shall deliver to counsel to the Principal Holders, to
be held in escrow, certificates representing such Tag-Along Shares (and/or other
appropriate documentation to permit the exercise of Warrants), duly endorsed or
with duly completed and executed stock powers attached, in proper form for
transfer, together with a limited power-of-attorney authorizing the Principal
Holders to transfer the Tag-Along Shares to the Tag-Along Purchaser (in
accordance with the terms and conditions set forth in the Tag-Along Notice) and
to execute all other documents required to be executed in connection with such
transaction.
(d) If, within 30 Business Days after any Purchaser notifies the
Principal Holder of such Purchaser's election to transfer some or all of its
Tag-Along Shares, no transfer of shares held by the Principal Holders and
Tag-Along Shares in accordance with the provisions of this Section 8.5 shall
have been completed, then such Purchaser shall have the right at any time
thereafter to revoke its prior election relating to the Tag--Along Shares. Upon
any such revocation, or earlier if the Principal Holder shall determine not to
proceed with such transfer, then the Principal Holder's counsel shall promptly
return to such Purchaser, in proper form, all certificates representing the
Tag-Along Shares and the limited power-of-attorney previously delivered by such
Purchaser to the Principal Holders. If, within 30 Business Days after such
Purchaser notifies the Principal Holder of such Purchaser's decision not to
transfer any Tag--Along Shares (or, if no such notice is given, the expiration
of the 10 Business Day period for notice of an election to transfer Tag--Along
Shares), no transfer of shares held by the Principal Holders shall have been
completed in accordance with the Tag--Along Notice, then the Principal Holders
must comply again with all of the provisions of this Section 8.5, including
without limitation a new Tag--Along Notice and another opportunity for each of
the Purchasers to elect to transfer Tag--Along Shares.
(e) Concurrently with the consummation of the transfer of the
Tag-Along Shares pursuant to this Section 8.5, the Principal Holders shall remit
or cause to be remitted to such Purchaser the consideration with respect to the
Tag-Along Shares so transferred and shall furnish such other evidence of the
completion of such transfer and the terms and conditions (if any) thereof as may
reasonably be requested by such Purchaser.
(f) The provisions of this Section 8.5 shall remain in effect,
notwithstanding any return to any Purchaser of Tag-Along Shares as provided
herein.
(g) Notwithstanding the exercise date described in Section 3.2, in the
event that such Purchaser holds Warrants that are not then exercisable under
Section 3.2 and such Purchaser would be entitled to tag-along rights pursuant to
this Section 8.5 if such Warrants were exercisable, then such Warrants shall
become exercisable, at the election of such Purchaser, to the extent necessary
to permit such Purchaser to utilize all of such tag-along rights. Alternatively,
such Purchaser shall be entitled to transfer to the Tag-Along Purchaser such
portion of its Warrants representing the number of Tag-Along Shares which would
be transferred to the Tag-Along Purchaser if such Warrants were exercisable, in
exchange for the consideration which would be payable with respect to such
Tag-Along Shares, less the Exercise Price for such Warrants.
3. ADDITION OF SECTION 8.6. A new Section 8.6 is added to the
Agreement to read in its entirety as follows:
SECTION 8.6. BRING ALONG RIGHT. If the Company or one or more of the
Existing Stockholders receives a bona fide offer from a person or persons not
then an Affiliate or Affiliates of the Company or such Existing Stockholders (a
"Third Party Purchaser") to purchase Capital Stock representing more than 50% of
the total number of shares of Common Stock then outstanding on a Fully Diluted
Basis, then the Company shall have the right to deliver a written notice (a
"Buyout Notice") to each of the Purchasers which shall state (i) that the
Company or such Existing Stockholders propose to effect such transaction, (ii)
the proposed purchase price per share of Capital Stock to be paid by the Third
Party Purchaser, and (iii) the name or names of the Third Party Purchaser, and
which attaches a copy of all writings between the Company or such Existing
Stockholders and the other parties to such transaction necessary to establish
the terms of such transaction. Each of the Purchasers agrees that, upon receipt
of a Buyout Notice, it shall be obligated to sell a percentage of its shares of
Common Stock equal to the Bring Along Percentage (as defined below) upon the
terms and conditions of such transaction (and otherwise take all necessary
action to cause consummation of the proposed transaction); PROVIDED, HOWEVER,
that each such Purchaser shall only be obligated as provided above in this
Section 8.6 if (i) more than 50% of the total number of shares of Common Stock
then outstanding on a Fully Diluted Basis actually is sold to the Third Party
Purchaser pursuant to the terms contained in the Buyout Notice, (ii) each such
Purchaser receives the same per share (or per share equivalent) consideration as
the Company or such Existing Stockholders receive in the transaction and (iii)
the consideration received by such Purchaser is in the form of cash or a
combination of cash and securities that will become freely tradable in the
public securities markets within 180 days of receipt of such consideration by
such Purchaser. The Bring Along Percentage shall be the percentage of the total
number of shares of Common Stock outstanding an a Fully Diluted Basis that is
actually sold to the Third Party Purchaser pursuant to the terms contained in
the Buyout Notice; PROVIDED THAT if, after giving effect to such sale, the
Existing Stockholders would own not more than twenty percent of the
fully-diluted common equity interests in the Company, the Bring Along Percentage
shall be one hundred percent.
4. Except as expressly amended hereby, all of the provisions of the
Agreement are hereby affirmed and shall continue in full force and effect in
accordance their terms.
5. This Amendment shall be governed and construed in accordance with
the laws of the state of New York applicable to agreements made and to be
performed entirely within, such state, without regard to the principles of
conflicts of laws thereof.
6. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together, shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed, or have caused to
be executed, this Agreement on the date first written above.
KMC TELECOM HOLDINGS, INC.
By: /s/ Xxxxx X. Xxxxxxxx
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Name: Xxxxx X. Xxxxxxxx
Title. Chief Financial Officer
THE CHASE MANHATTAN BANK
By: /s/ X. Xxxxx
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Name: Xxxxxxxx Xxxxx
Title. Vice President
NEWCOURT COMMERCIAL FINANCE
CORPORATION
By: /s/ Xxxx X. Xxxxxx, XX
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Name: Xxxx X. Xxxxxx, XX
Title. Vice President
LUCENT TECHNOLOGIES INC,
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title. Managing Director
Signature page to
Amendment
No. 2 to existing Warrant
Agreement
CONSENT
Xxxxxx X. Xxxxxx and Nassau Capital Partners, L. P. hereby consent to
the foregoing Amendment No. 1 for the purpose of being bound by Sections 8.5 and
8.6 added to the Warrant Agreement by the Amendment.
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Xxxxxx X. Xxxxxx
NASSAU CAPITAL PARTNERS, L.P.
By: Nassau Capital L.L.C.,
its General Partner
By: /s/ Xxxx X. Xxxxxxx
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Name: Xxxx X. Xxxxxxx
Title. Member
Signature page to
Amendment
No. 2 to existing Warrant
Agreement