KMC TELECOM HOLDINGS, INC.
$275,000,000 OF 13 1/2% SENIOR NOTES DUE 2009
PURCHASE AGREEMENT
May 19, 1999
KMC TELECOM HOLDINGS, INC.
PURCHASE AGREEMENT
May 19, 1999
Morgan Stanley & Co. Incorporated
Credit Suisse First Boston Corporation
First Union Capital Markets Corp.
CIBC World Markets Corp.
BancBoston Robertson Stephens Inc.
Wasserstein Perella Securities, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036-8293
Dear Sirs and Mesdames:
KMC Telecom Holdings, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the initial purchasers named in Schedule I hereto
(the "Initial Purchasers") an aggregate of $275,000,000 of 13 1/2% Senior Notes
Due 2009 of the Company (the "Notes") to be issued pursuant to the provisions of
an indenture (the "Indenture") between the Company and The Chase Manhattan Bank,
as trustee (in such capacity, the "Trustee"), to be dated as of the Closing Date
(as defined below).
The Indenture will provide that on the Closing Date the Company will
cause its wholly-owned restricted subsidiary, KMC Telecom Financing, Inc. (the
"Guarantor"), to purchase and pledge to the Trustee for the benefit of the
registered holders of the Notes (collectively, the "Note Holders"), pursuant to
the terms of a Collateral Pledge and Security Agreement (the "Pledge
Agreement"), a portfolio of United States Treasury securities and/or security
entitlements relating thereto in an amount sufficient, upon receipt of scheduled
interest and principal payments on such securities, to provide for the payment
in full of the first six scheduled interest payments on the Notes (the "Pledged
Securities").
The Notes will be offered without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), to qualified
institutional buyers in compliance with the exemption from registration provided
by Rule 144A under the Securities Act and in offshore transactions in reliance
on Regulation S under the Securities Act ("Regulation S").
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The Initial Purchasers and their direct and indirect transferees will
be entitled to the benefits of a Registration Rights Agreement relating to the
Notes, to be dated the date hereof, and to be substantially in the form attached
hereto as Exhibit A (the "Registration Rights Agreement").
In connection with the sale of the Notes, the Company has prepared a
preliminary private placement memorandum dated May 6, 1999 (the "Preliminary
Memorandum") and will prepare a final private placement memorandum (including
any supplements thereto, the "Final Memorandum" and, with the Preliminary
Memorandum, each a "Memorandum") setting forth or including a description of the
terms of the Notes, the terms of the offering and a description of the Company
and its business.
1. Representations and Warranties. The Company represents and warrants
to, and agrees with, you that as of the date hereof:
(a) The Preliminary Memorandum as of the date hereof does not
contain and the Final Memorandum, in the form used by the Initial
Purchasers to confirm sales and on the Closing Date, will not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this paragraph do not
apply to statements or omissions in either Memorandum based upon
information relating to the Initial Purchasers furnished to the Company
in writing by the Initial Purchasers expressly for use therein.
(b) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State
of Delaware, has the corporate power and authority to own its property
and to conduct its business as described in each Memorandum and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(c) Each subsidiary of the Company is listed on Exhibit B
hereto (each a "Subsidiary" and, collectively, the "Subsidiaries") and
has been duly incorporated or otherwise organized, is validly existing
as a corporation or limited liability company, as the case may be, in
good standing under the laws of the jurisdiction of its incorporation
or organization, has the corporate and/or limited liability company
power and authority, as appropriate, to own its property and to conduct
its business as described in each Memorandum and is duly qualified to
transact business and is in good standing in each jurisdiction in which
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the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on the Company and the Subsidiaries, taken as a whole;
all of the issued shares of capital stock or membership interests of
each Subsidiary of the Company have been duly and validly authorized
and issued, are fully paid and non-assessable and are owned, directly
or indirectly, by the Company, free and clear of all liens,
encumbrances, equities or claims, other than those indicated in either
Memorandum.
(d) This Purchase Agreement has been duly authorized,
executed and delivered by the Company.
(e) The Notes have been duly authorized by the Company and,
when executed and authenticated in accordance with the Indenture, and
delivered to and paid for by the Initial Purchasers in accordance with
the terms of this Purchase Agreement, will (x) be valid and binding
obligations of the Company enforceable in accordance with their terms,
except as (A) the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium or similar laws affecting creditors' rights
generally and (B) rights of acceleration, if applicable, and the
availability of equitable remedies may be limited by equitable
principles of general applicability and (y) be entitled to the benefits
of the Indenture pursuant to which such Notes are to be issued, the
Registration Rights Agreement and the Pledge Agreement.
(f) Each of the Indenture and the Registration Rights
Agreement has been duly authorized by the Company and, when executed
and delivered by the Company, will be a valid and binding agreement of,
the Company, enforceable in accordance with its terms except that (w)
the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium or similar laws affecting creditors' rights generally, (x)
rights of acceleration, if applicable, and the availability of
equitable remedies may be limited by equitable principles of general
applicability, (y) rights to indemnification and contribution may be
limited by public policy and (z) provisions of the Indenture, if any,
requiring any waiver of stay or extension laws, diligent performance or
other acts on the part of the Trustee may be unenforceable under
principles of public policy.
(g) The Pledge Agreement has been duly authorized by the
Guarantor and, when executed and delivered by the Guarantor, will be a
valid and binding agreement of the Guarantor enforceable in accordance
with its terms, except as (x) the enforceability thereof may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally and subject to general equitable principles whether
considered in a proceeding in equity or at law.
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(h) Upon the delivery to the Trustee of the certificates or
instruments, if any, representing the Pledged Securities, the pledge of
and grant of a security interest in the Pledged Securities for the
benefit of the Trustee and the Note Holders, as the case may be, will
constitute a first priority security interest in the Pledged
Securities, enforceable against all creditors of the Guarantor (and any
persons purporting to purchase any of the Pledged Securities from the
Guarantor).
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Purchase
Agreement, the Indenture, the Registration Rights Agreement and the
Notes (collectively, the "Transaction Documents") and the issuance,
sale and delivery of the Notes by the Company in accordance with the
terms of the Notes and the Indenture will not contravene (i) any
provision of applicable law, (ii) the certificate of incorporation or
bylaws of the Company, (iii) any agreement or other instrument binding
upon the Company or any of its Subsidiaries, or (iv) any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over the Company or any Subsidiary, except with respect to
clauses (i) and (iii) to the extent that any contravention would not
have a material adverse effect on the Company and its Subsidiaries,
taken as a whole, and no consent, approval, authorization or order of,
or qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under the Transaction
Documents, except (x) such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale of
the Notes, (y) such as may be required by Federal and state securities
laws with respect to the Company's obligations under the Registration
Rights Agreement and (z) for any consents, approvals, authorizations,
orders or qualifications, the failure to obtain which would not have a
material adverse effect on the ability of the Company to perform its
obligations under the Transaction Documents.
(j) The execution and delivery by the Guarantor of, and the
performance by the Guarantor of its obligations under, the Indenture,
the First Supplemental Indenture, the Pledge Agreement and the Control
Agreement (collectively, the "Guarantor Transaction Documents") will
not contravene (i) any provision of applicable law, (ii) the
certificate of incorporation or bylaws of the Guarantor, (iii) any
agreement or other instrument binding upon the Guarantor, or (iv) any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Guarantor, except with respect to clauses
(i) and (iii) to the extent that any contravention would not have a
material adverse effect on the Guarantor, and no consent, approval,
authorization or order of, or qualification with, any governmental body
or agency is required for the performance by the Guarantor of its
obligations under the Guarantor Transaction Documents, except (x) such
as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Notes and (y) for
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any consents, approvals, authorizations, orders or qualifications, the
failure to obtain which would not have a material adverse effect on the
ability of the Guarantor to perform its obligations under the Guarantor
Transaction Documents.
(k) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its Subsidiaries, taken as a whole, from
that set forth in the Preliminary Memorandum. Furthermore, (1) the
Company and its Subsidiaries have not incurred any material liability
or obligation, direct or contingent, nor entered into any material
transaction not in the ordinary course of business; (2) the Company has
not purchased (except for the repurchase of shares of its common stock
from employees, officers, directors, consultants or other persons
providing services to the Company or any of its Subsidiaries pursuant
to agreements under which the Company has the option to repurchase such
shares of its common stock at cost upon the occurrence of certain
events such as the termination of employment or other service-providing
relationship) any of its outstanding capital stock, nor declared, paid
or otherwise made any dividend or distribution of any kind on its
capital stock other than ordinary and customary dividends; and (3)
there has not been any material change in the capital stock, short-term
debt or long-term debt of the Company and its consolidated Subsidiaries
taken as a whole, except in each case as described in the Final
Memorandum.
(l) There are no legal or governmental proceedings pending or,
to the knowledge of the Company, threatened to which the Company or any
of its Subsidiaries is a party or to which any of the properties of the
Company or any of its Subsidiaries is subject other than proceedings
accurately described in all material respects in each Memorandum and
proceedings that are not reasonably likely to have a material adverse
effect on the Company and its Subsidiaries, taken as a whole, or on the
power or ability of the Company to perform its obligations under any of
the Transaction Documents or to consummate the transactions
contemplated by the Final Memorandum.
(m) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D under the Securities Act, an "Affiliate") of the
Company has directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any
security (as defined in the Securities Act) which is or will be
integrated with the sale of the Notes in a manner that would require
the registration under the Securities Act of the Notes or (ii) engaged
in any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) in connection
with the offering of the Notes or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act.
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(n) The Company is not, and after giving effect to the
offering and sale of the Notes and the application of the proceeds
thereof as described in the Final Memorandum, will not be an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended.
(o) It is not necessary in connection with the offer, sale and
delivery of the Notes to the Initial Purchasers in the manner
contemplated by this Purchase Agreement to register the Notes under the
Securities Act or to qualify the Indenture under the Trust Indenture
Act of 1939, as amended.
(p) The Company and its Subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its Subsidiaries, taken as a
whole.
(q) There are no costs and liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the Company and its Subsidiaries,
taken as a whole.
(r) The Notes satisfy the requirements set forth in Rule
144A(d)(3) under the Securities Act.
(s) None of the Company, its Affiliates or any person acting
on its or their behalf (other than the Initial Purchasers) has engaged
in any directed selling efforts (as that term is defined in Regulation
S under the Securities Act) with respect to the Notes, and the Company
and its Affiliates and any person acting on its or their behalf (other
than the Initial Purchasers) have complied with the offering
restrictions requirement of Regulation S.
(t) Except as described in each Memorandum, the Company and
its Subsidiaries (i) have all necessary consents, authorizations,
approvals, orders, certificates and permits of and from, and have made
all declarations and filings with, all federal, state, local and other
governmental, administrative or regulatory authorities, all
self-regulatory organizations and all courts and other tribunals, to
own, lease, license and use their properties and assets and to conduct
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their business in the manner described in each Memorandum, except to
the extent that the failure to obtain such consents, authorizations,
approvals, orders, certificates or permits or make such declarations or
filings would not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole; and (ii) has not received any notice of
proceedings relating to the violation, revocation or modification of
any such license, consent, authorization, approval, order, certificate
or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected
to result in a material adverse change in the condition, financial or
otherwise, in the earnings, business or operations of the Company and
its Subsidiaries, taken as a whole.
(u) The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, taken as a whole, in each
case free and clear of all liens, encumbrances and defects except (i)
such as are described in each Memorandum, (ii) such as do not
materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company
and its Subsidiaries; or (iii) such as do not have a material adverse
effect on the Company and its Subsidiaries taken as a whole; and any
real property and buildings held under lease by the Company and its
Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not materially
interfere with the use made and proposed to be made of such property
and buildings by the Company and its Subsidiaries, in each case except
as described in or contemplated by each Memorandum.
(v) The Company and its Subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and
trade names currently employed by them in connection with the business
now operated by them, and, except as set forth in each Memorandum,
neither the Company nor any of its Subsidiaries has received any notice
of infringement of or conflict with asserted rights of others with
respect to any of the foregoing which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would be
reasonably likely to result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its Subsidiaries, taken as a whole.
(w) No material labor dispute with the employees of the
Company or any of its Subsidiaries exists, except as described in or
contemplated by each Memorandum, or, to the knowledge of the Company,
is imminent; and the Company is not aware of any existing, threatened
or imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors that might reasonably be
expected to result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business or operations of
the Company and its Subsidiaries, taken as a whole.
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(x) The Company and its Subsidiaries are insured against such
losses and risks and in such amounts as the Company reasonably believes
are prudent and customary in the businesses in which they are engaged;
neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor
any such Subsidiary has any reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially
and adversely affect the condition, financial or otherwise, or the
earnings, business or operations of the Company and its Subsidiaries,
taken as a whole, except as described in or contemplated by each
Memorandum.
(y) The Company and its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences.
(z) The terms of the Notes and the Indenture conform in all
material respects to the description thereof contained in the Final
Memorandum under the headings "Description of the Notes."
(aa) The Company has reviewed its operations and that of its
Subsidiaries to evaluate the extent to which the business or operations
of the Company or any of its Subsidiaries will be affected by the Year
2000 Problem (that is, any significant risk that computer hardware or
software applications used by the Company and its Subsidiaries will
not, in the case of dates or time periods occurring after December 31,
1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000); as a result of such
review, (i) the Company has no reason to believe, and does not believe,
that (A) there are any issues related to the Company's preparedness to
address the Year 2000 Problem that are of a character required to be
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described or referred to in each Memorandum which have not been
accurately described in each Memorandum and (B) with respect to the
systems of the Company and its Subsidiaries, the Year 2000 Problem will
have a material adverse effect on the condition, financial or
otherwise, or on the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole, or result in any material loss
or interference with the business or operations of the Company and its
Subsidiaries, taken as a whole; and (ii) the Company reasonably
believes, after due inquiry, that the suppliers, vendors, customers or
other material third parties used or served by the Company and such
Subsidiaries are addressing or will address the Year 2000 Problem in a
timely manner, except to the extent that a failure to address the Year
2000 Problem by any supplier, vendor, customer or material third party
would not have a material adverse effect on the condition, financial or
otherwise, or on the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole.
2. Agreements to Sell and Purchase. The Company hereby agrees
to sell to the several Initial Purchasers and each Initial Purchaser, upon the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees to purchase from the Company the
respective principal amount of Notes set forth in Schedule I hereto opposite its
name, at a purchase price of 96.5% of the principal amount thereof (the
"Purchase Price") plus accrued interest, if any, on the Notes from May 24, 1999
to the Closing Date.
The Company hereby agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Initial
Purchasers, it will not, during the period beginning on the date hereof and
continuing to and including the Closing Date, offer, sell, contract to sell or
otherwise dispose of any debt of the Company or warrants to purchase debt of the
Company substantially similar to the Notes (other than the sale of the Notes
under this Purchase Agreement).
3. Terms of Offering. You have advised the Company that the
Initial Purchasers will make an offering of the Notes purchased by the Initial
Purchasers hereunder on the terms set forth in the Final Memorandum, as soon as
practicable after this Purchase Agreement is entered into as in your judgment is
advisable.
4. Payment and Delivery. Payment for the Notes shall be made
to the Company in Federal or other funds immediately available in New York City
against delivery of the Notes at a closing (the "Closing") to be held at the
office of Shearman & Sterling, 599 Lexington Avenue, New York, New York, at
10:00 A.M., local time, on May 24, 1999, or at such other time on the same or
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such other date, not later than June 7, 1999, as shall be designated in writing
by you. The time and date of such payment are herein referred to as the "Closing
Date."
Certificates for the Notes shall be in definitive form or
global form, as specified by you, and registered in such names and in such
denominations as you shall request in writing not later than one full business
day prior to the Closing Date. The certificates evidencing the Notes shall be
delivered to you on the Closing Date for the respective accounts of the several
Initial Purchasers, with any transfer taxes payable in connection with the
transfer of the Notes to the Initial Purchasers duly paid, against payment of
the purchase price therefor.
5. Conditions to the Initial Purchasers' Obligations . The
several obligations of the Initial Purchasers to purchase and pay for the Notes
on the Closing Date is subject to the following conditions:
(a) Subsequent to the execution and delivery of this
Purchase Agreement and prior to the Closing Date,
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded any of the Company's securities by any
nationally recognized statistical rating organization," as
such term is defined for purposes of Rule 436(g)(2) under the
Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations, of the Company and its subsidiaries, taken as a
whole, from that set forth in the Final Memorandum (exclusive
of any amendments or supplements thereto subsequent to the
date of this Purchase Agreement) that, in the judgment of
Morgan Stanley & Co. Incorporated, as representative of the
Initial Purchasers, is material and adverse and that makes it,
in the judgment of Morgan Stanley & Co. Incorporated, as
representative of the Initial Purchasers, impracticable to
market the Notes on the terms and in the manner contemplated
in the Final Memorandum.
(b) The Initial Purchasers shall have received on the Closing
Date a certificate, dated the Closing Date and signed by an executive
officer of the Company, to the effect set forth in Section 5(a)(i) of
this Purchase Agreement and to the effect that the representations and
warranties of the Company contained in this Purchase Agreement are true
and correct as of the Closing Date and that the Company has complied
with all of the agreements and satisfied all of the conditions
contained herein on its part to be performed or satisfied hereunder on
or before the Closing Date.
The officer signing and delivering such certificate may rely
upon the best of his or her knowledge as to proceedings threatened.
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(c) The Initial Purchasers shall have received on the Closing
Date an opinion of Kelley Drye & Warren LLP, outside counsel to the
Company, dated the Closing Date, to the effect set forth in Exhibit C.
Such opinion shall be rendered to the Initial Purchasers at the request
of the Company and shall so state therein.
(d) The Initial Purchasers shall have received on the Closing
Date an opinion of Swidler Berlin Shereff Friedman, LLP, regulatory
counsel to the Company, dated the Closing Date, to the effect set forth
in Exhibit D. Such opinion shall be rendered to the Initial Purchasers
at the request of the Company and shall so state therein.
(e) The Initial Purchasers shall have received on the Closing
Date an opinion of Shearman & Sterling, counsel to the Initial
Purchasers, dated the Closing Date, in form and substance satisfactory
to you.
(f) The Initial Purchasers shall have received on each of the
date hereof and the Closing Date a letter, dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Initial Purchasers, from Ernst & Young LLP, independent public
accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Final Memorandum; provided that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier
than the date hereof.
(g) The Transaction Documents shall have been executed and
shall be in full force and effect.
(h) The Initial Purchasers shall have received payment in
full, no later than the Closing Date, of all fees and expenses due in
connection with the offering by the Company of the Notes pursuant to
the Final Memorandum.
(i) You shall have received such other documents and
certificates as are reasonably requested by you or your counsel.
6. Covenants of the Company. In further consideration of the
agreements of the Initial Purchasers contained in this Purchase Agreement, the
Company covenants with the Initial Purchasers as follows:
(a) To use its reasonable best efforts to furnish to you in
New York City, without charge, prior to 10:00 a.m. New York City time
on the business day next succeeding the date of this Purchase Agreement
and during the period mentioned in Section 6(c), as many copies of the
Final Memorandum and any supplements and amendments thereto as you may
reasonably request.
(b) Before amending or supplementing either Memorandum, to
furnish to you a copy of each such proposed amendment or supplement and
not to use any such proposed amendment or supplement to which Morgan
Stanley & Co. Incorporated objects without unreasonable delay.
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(c) If, during such period after the date hereof and prior to
the date on which all of the Notes shall have been sold by the Initial
Purchasers, any event shall occur or condition exist as a result of
which it is necessary to amend or supplement the Final Memorandum in
order to make the statements therein, in the light of the circumstances
when the Final Memorandum is delivered to a purchaser, not misleading,
or if, in the opinion of counsel to the Initial Purchasers it is
necessary to amend or supplement the Final Memorandum to comply with
applicable law, forthwith to prepare and furnish, at its own expense,
to the Initial Purchasers, either amendments or supplements to the
Final Memorandum so that the statements in the Final Memorandum as so
amended or supplemented will not, in the light of the circumstances
when the Final Memorandum is delivered to a purchaser, be misleading or
so that the Final Memorandum, as so amended or supplemented, will
comply in all material respects with applicable law.
(d) To endeavor to qualify the Notes for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not
now so qualified or to take any action which would subject it to
taxation in any jurisdiction where it is not now so subject or to
service or process in suits, other than those arising out of the
offering or sale of the Notes in any jurisdiction where it is not now
so subject.
(e) Whether or not the transactions contemplated in this
Purchase Agreement are consummated or this Purchase Agreement is
terminated, to pay or cause to be paid all expenses incident to the
performance of its obligations under this Purchase Agreement,
including: (i) the preparation of each Memorandum and all amendments
and supplements thereto, (ii) the preparation, issuance and delivery of
the Notes, (iii) the fees and disbursements of the Company's counsel
and accountants and the Trustee and its counsel, (iv) the qualification
of such Notes under securities or Blue Sky laws in accordance with the
provisions of Section 6(d), including filing fees and the fees and
disbursements of one counsel for the Initial Purchasers in connection
therewith and in connection with the preparation of any Blue Sky or
legal investment memoranda, (v) the printing and delivery to the
Initial Purchasers in quantities as hereinabove stated of copies of the
Memorandum and any amendments or supplements thereto, (vi) any fees
charged by rating agencies, (vii) all document production charges and
expenses of one counsel to the Initial Purchasers (but not including
their fees for professional services) in connection with the
preparation of this Purchase Agreement, (viii) the fees and expenses,
if any, incurred in connection with the admission of such Notes for
trading in PORTAL or any other appropriate market system, (ix) the
fees, expenses and losses, if any, incurred in connection with the
purchase of the Pledged Securities, (x) the costs and expenses of the
Company relating to investor presentations on any "road show"
undertaken in connection with the marketing of the offering of the
Notes, including, without limitation, expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with
the prior approval of the Company, travel and lodging expense of the
representatives and officers of the Company and any such consultants,
and the cost of any aircraft chartered in connection with the road show
with the prior approval of the Company, and (xi) all other costs and
expenses incident to the performance of the obligations of the Company
hereunder for which provision is not otherwise made in this Section. It
is understood, however, that except as provided in this Section,
Section 8 and Section 11, the Initial Purchasers will pay all of their
costs and expenses, including fees and disbursements of their counsel,
transfer taxes payable on resale of any of the Notes by them and any
advertising expenses connected with any offers they may make.
(f) Neither the Company nor any Affiliate will sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in the Securities Act) which could be integrated
with the sale of the Notes in a manner which would require the
registration under the Securities Act of such Notes.
13
(g) Neither the Company nor any Affiliate will solicit any
offer to buy or offer or sell the Notes by means of any form of general
solicitation or general advertising (as those terms are used in
Regulation D under the Securities Act) or in any manner involving a
public offering within the meaning of Section 4(2) of the Securities
Act, except as may be contemplated by the Registration Rights
Agreement.
(h) While any of the Notes remain "restricted securities"
within the meaning of the Securities Act, to make available, upon
request, to any seller of such Notes the information specified in Rule
144A(d)(4) under the Securities Act, unless the Company is then subject
to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act").
(i) Except as may be contemplated by the Registration Rights
Agreement, none of the Company, its Affiliates or any person acting on
its or their behalf (other than the Initial Purchasers) will engage in
any directed selling efforts (as that term is defined in Regulation S)
with respect to the Notes, and the Company and its Affiliates and each
person acting on its or their behalf (other than the Initial
Purchasers) will comply with the offering restrictions of Regulation S.
(j) To refuse, and to cause the Trustee to refuse, to register
any transfer of the Notes sold pursuant to Regulation S if such
transfer is not made in accordance with the provisions of Regulation S
and the Indenture.
(k) To use its reasonable best efforts to permit the Notes to
be designated PORTAL securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers,
Inc. relating to trading in the PORTAL Market.
(l) The Company shall not, and shall use its best efforts to
cause its Affiliates not to, purchase and then resell or otherwise
transfer any Notes.
7. Offering of Notes; Restrictions on Transfer. (a) Each
Initial Purchaser, severally and not jointly, represents and warrants that such
Initial Purchaser is a qualified institutional buyer as defined in Rule 144A
under the Securities Act (a "QIB"). Each Initial Purchaser agrees with the
Company that (i) it will not solicit offers for, or offer or sell the Notes by
any form of general solicitation or general advertising (as those terms are used
in Regulation D under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act and (ii) it
14
will solicit offers for the Notes only from, and will offer such Notes only to,
persons that it reasonably believes to be (A) in the case of offers inside the
United States, QIBs and (B) in the case of offers outside the United States, to
persons other than U.S. persons ("foreign purchasers", which term shall include
dealers or other professional fiduciaries in the United States acting on a
discretionary basis for foreign beneficial owners (other than an estate or
trust)) in reliance upon Regulation S under the Securities Act that, in each
case, in purchasing such Notes are deemed to have represented and agreed as
provided in the Final Memorandum under the caption "Transfer Restrictions."
(b) Each Initial Purchaser, severally and not jointly,
represents, warrants, and agrees with respect to offers and sales
outside the United States that:
(i) it understands that no action has been or will be
taken in any jurisdiction by the Company that would permit a
public offering of the Notes, or possession or distribution of
either Memorandum or any other offering or publicity material
relating to the Notes, in any country or jurisdiction where
action for that purpose is required;
(ii) such Initial Purchaser will comply with all
applicable laws and regulations in each jurisdiction in which
it acquires, offers, sells or delivers Notes or has in its
possession or distributes either Memorandum or any such other
material, in all cases at its own expense;
(iii) the Notes have not been and will not be
registered under the Securities Act and may not be offered or
sold within the United States or to, or for the account or
benefit of, U.S. persons except in accordance with Rule 144A
or Regulation S under the Securities Act or pursuant to
another exemption from the registration requirements of the
Securities Act;
(iv) such Initial Purchaser has offered the Notes and
will offer and sell the Notes (A) as part of their
distribution at any time and (B) otherwise until 40 days after
the Closing Date only in accordance with Rule 903 of
Regulation S or as otherwise permitted in Section 7(a);
accordingly, neither such Initial Purchaser, its Affiliates
nor any persons acting on its or their behalf have engaged or
will engage in any directed selling efforts (within the
meaning of Regulation S) with respect to the Notes, and any
such Initial Purchaser, its Affiliates and any such persons
have complied and will comply with the offering restrictions
requirement of Regulation S;
(v) such Initial Purchaser has (A) not offered or
sold and, prior to the date six months after the Closing Date,
will not offer or sell any Notes to persons in the United
Kingdom except to persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (B) complied and will comply with
all applicable provisions of the Financial Services Act 1986
with respect to anything done by it in relation to the Notes
in, from or otherwise involving the United Kingdom; and (C)
only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with
the issue of the Notes to a person who is of a kind described
in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a
person to whom such document may otherwise lawfully be issued
or passed on;
(vi) such Initial Purchaser understands that the
Notes have not been and will not be registered under the
Securities and Exchange Law of Japan, and represents that it
has not offered or sold, and agrees that it will not offer or
sell, any Notes, directly or indirectly in Japan or for the
15
account of any resident thereof except pursuant to any
exemption from the registration requirements of the Securities
and Exchange Law of Japan and otherwise in compliance with
applicable provisions of Japanese law; and
(vii) such Initial Purchaser agrees that, at or prior
to confirmation of sales of the Notes, it will have sent to
each distributor, dealer or person receiving a selling
concession, fee or other remuneration that purchases Notes
from it during the restricted period a confirmation or notice
to substantially the following effect:
"The Notes covered hereby have not been registered under the
U.S. Securities Act of 1933 (the "Securities Act") and may
not be offered and sold within the United States or to, or
for the account or benefit of, U.S. persons (i) as part of
their distribution at any time or (ii) otherwise until 40
days after the closing date, except in either case in
accordance with Regulation S (or Rule 144A if available)
under the Securities Act. Terms used above have the meaning
given to them by Regulation S."
Terms used in this Section 7(b) have the meanings given to them by
Regulation S.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Initial Purchaser, and each person, if any, who
controls any Initial Purchaser within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in either Memorandum (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact necessary to make the statements therein in the light of
the circumstances under which they were made not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Initial Purchaser furnished to the Company in
writing by such Initial Purchaser expressly for use therein.
(b) Each Initial Purchaser agrees, severally and not jointly,
to indemnify and hold harmless the Company, its directors, its officers
and each person, if any, who controls the Company within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange
Act to the same extent as the foregoing indemnity from the Company to
such Initial Purchaser, but only with reference to information relating
to such Initial Purchaser furnished to the Company in writing by such
Initial Purchaser expressly for use in either Memorandum or any
amendments or supplements thereto.
16
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to either Section 8(a) or 8(b),
such person (the "indemnified party") shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In
any such proceeding, any indemnified party shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local
counsel) for all such indemnified parties and that all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated in the case
of parties indemnified pursuant to Section 8(a) and by the Company in
the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with
such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by
the second and third sentences of this paragraph, the indemnifying
party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement
is entered into more than 60 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall
not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party,
effect any settlement of any pending or threatened proceeding in
respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject
matter of such proceeding.
(d) To the extent the indemnification provided for in Section
8(a) or 8(b) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to
therein, then each indemnifying party under such section, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company,
on the one hand, and the Initial Purchasers, on the other hand, from
the offering of such Notes or (ii) if the allocation provided by clause
8(d)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in
17
clause 8(d)(i) above but also the relative fault of the Company on the
one hand and the Initial Purchasers on the other hand in connection
with the statements or omissions that resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the
one hand and the Initial Purchasers on the other hand in connection
with the offering of such Notes shall be deemed to be in the same
respective proportions as the net proceeds from the offering of such
Notes (before deducting expenses) received by the Company and the total
discounts and commissions received by the Initial Purchasers in respect
thereof bear to the aggregate offering price of such Notes. The
relative fault of the Company on the one hand and of the Initial
Purchasers on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company or by the Initial
Purchasers and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
(e) The Company and the Initial Purchasers agree that it would
not be just or equitable if contribution pursuant to this Section 8
were determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations
referred to in Section 8(d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and
liabilities referred to in Section 8(d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, the Initial
Purchasers shall not be required to contribute any amount in excess of
the amount by which the total price at which the Notes resold by them
in the initial placement of such Notes were offered to investors
exceeds the amount of any damages that such Initial Purchaser has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Section 8 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in
this Section 8 and the representations, warranties and other statements
of the Company contained in this Purchase Agreement shall remain
operative and in full force and effect regardless of (i) any
termination of this Purchase Agreement, (ii) any investigation made by
or on behalf of any Initial Purchaser or any person controlling any
Initial Purchaser or by or on behalf of the Company, its officers or
directors or any person controlling the Company and (iii) acceptance of
and payment for any of the Notes.
9. Termination. This Purchase Agreement shall be subject to
termination by notice given by Morgan Stanley & Co. Incorporated, as
representative of the Initial Purchasers, to the Company, if (a) after the
execution and delivery of this Purchase Agreement and prior to the Closing Date
(i) trading generally shall have been suspended or materially limited on or by,
as the case may be, any of the New York Stock Exchange, the American Stock
Exchange, the National Association of Securities Dealers, Inc., the Chicago
Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board
of Trade, (ii) trading of any securities of the Company shall have been
18
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities in New York shall have been declared
by either Federal or New York State authorities or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in the judgment of Morgan Stanley & Co.
Incorporated, as representative of the Initial Purchasers, is material and
adverse and (b) in the case of any of the events specified in clauses 9(a)(i)
through 9(a)(iv), such event singly or together with any other such event makes
it, in the judgment of Morgan Stanley & Co. Incorporated, as representative of
the Initial Purchasers, impracticable to market the Notes on the terms and in
the manner contemplated in the Final Memorandum.
10. Effectiveness. This Purchase Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
11. Miscellaneous. If, on the Closing Date any one or more of
the Initial Purchasers shall fail or refuse to purchase Notes that it or they
have agreed to purchase hereunder on such date, and the amount of Notes which
such defaulting Initial Purchaser or Initial Purchasers agreed but failed or
refused to purchase is not more than one-tenth of the aggregate amount of Notes
to be purchased on such date, the other Initial Purchasers shall be obligated
severally in the proportions that the amount of Notes set forth opposite their
respective names in Schedule I bears to the aggregate amount of Notes set forth
opposite the names of all such non-defaulting Initial Purchasers, or in such
other proportions as you may specify, to purchase the Notes which such
defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused
to purchase on such date; provided that in no event shall the amount of Notes
that any Initial Purchaser has agreed to purchase pursuant to Section 2 be
increased pursuant to Section 11 by an amount in excess of one-ninth of such
amount of Notes without the written consent of such Initial Purchaser. If, on
the Closing Date, any Initial Purchaser or Initial Purchasers shall fail or
refuse to purchase Notes which it or they have agreed to purchase hereunder on
such date and the aggregate amount of Notes with respect to which such default
occurs is more than one-tenth of the aggregate amount of Notes to be purchased
on such date and arrangements satisfactory to you and the Company for the
purchase of such Notes are not made within 36 hours after such default, this
Purchase Agreement shall terminate without liability on the part of any
non-defaulting Initial Purchaser or the Company. In any such case either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Final Memorandum or in any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting Initial
Purchaser from liability in respect of any default of such Initial Purchaser
under this Purchase Agreement.
If this Purchase Agreement shall be terminated by the Initial
Purchasers, or any of them, because of any failure or refusal on the part of the
Company to comply with the terms or to fulfill any of the conditions of this
Purchase Agreement, or if for any reason the Company shall be unable to perform
its obligations under this Purchase Agreement (other than by reason of a breach
of this Purchase Agreement by the Initial Purchasers, or any of them), the
Company will reimburse the Initial Purchasers or such Initial Purchasers who
have so terminated this Purchase Agreement for all out-of-pocket expenses
(including the fees and disbursements of its counsel) reasonably incurred by
such Initial Purchaser in connection with this Purchase Agreement or the
offering contemplated hereunder.
19
12. Notices. All notices and other communications required or
permitted to be given under this Purchase Agreement shall be in writing and
shall be deemed to have been duly given if delivered personally to the parties
hereto as follows:
(a) If to the Initial Purchasers:
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Attention: Gregory Attori
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: James S. Scott, Sr.
(b) If to the Company:
KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, NJ 07921
Attention: James D. Grenfell
with a copy to:
Kelley Drye & Warren LLP
101 Park Ave.
New York, NY 10178
Attention: Brian J. Calvey
13. Counterparts. This Purchase Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
14. Applicable Law. This Purchase Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York.
15. Headings. The headings of the sections of this Purchase
Agreement have been inserted for convenience of reference only and shall not be
deemed a part of this Purchase Agreement.
Please confirm your agreement to the foregoing by signing in
the space provided below for that purpose and returning to us a copy hereof,
whereupon this Purchase Agreement shall constitute a binding agreement between
us.
Very truly yours,
KMC TELECOM HOLDINGS, INC.
By:___________________________
Name:
Title:
Agreed, May 19, 1999
MORGAN STANLEY & CO. INCORPORATED
CREDIT SUISSE FIRST BOSTON CORPORATION
FIRST UNION CAPITAL MARKETS CORP.
CIBC WORLD MARKETS CORP.
BANCBOSTON ROBERTSON STEPHENS INC.
WASSERSTEIN PERELLA SECURITIES, INC.
By: MORGAN STANLEY & CO. INCORPORATED
In its individual capacity and as representative
of the other Initial Purchasers
By: ______________________________
Name:
Title:
SCHEDULE I
Principal Amount of
13 1/2% Senior Notes
Initial Purchasers To Be Purchased
Morgan Stanley & Co. Incorporated...................... $196,250,000
Credit Suisse First Boston Corporation................. $33,750,000
First Union Capital Markets Corp....................... $27,000,000
CIBC World Markets Corp................................ $9,000,000
BancBoston Robertson Stephens Inc...................... $4,500,000
Wasserstein Perella Securities, Inc. .................. $4,500,000
------------
Total................................................ $275,000,000
-----------
EXHIBIT A
---------
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT B
---------
SUBSIDIARIES OF KMC TELECOM HOLDINGS, INC.
Name of Subsidiary Jurisdiction of Incorporation or Organization
- ------------------ ---------------------------------------------
KMC Telecom Inc. Delaware
KMC Telecom II, Inc. Delaware
KMC Telecom Leasing I LLC Delaware
KMC Telecom Leasing II LLC Delaware
KMC Telecom of Virginia, Inc. Virginia
KMC Telecom III, Inc. Delaware
KMC Telecom III Holdings, Inc. Delaware
KMC Telecom Leasing III LLC Delaware
KMC Telecom Financing, Inc. Delaware
EXHIBIT C
FORM OF OPINION OF
KELLEY DRYE & WARREN LLP
Pursuant to Section 5(c) of the Purchase Agreement, Kelley
Drye & Warren shall deliver an opinion to the effect that:
(A) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State
of Delaware, has the corporate power and authority to own its property
and to conduct its business as described in the Final Memorandum
(references herein to the Final Memorandum being taken to mean the
same, as amended or supplemented), and is duly qualified to transact
business and is in good standing in New Jersey;
(B) each subsidiary of the Company listed in Exhibit B to the
Purchase Agreement has been duly organized, is validly existing as a
corporation or limited liability company, as the case may be, in good
standing under the laws of the jurisdiction of its organization, has
the corporate and/or limited liability company power and authority, as
appropriate, to own its property and to conduct its business as
described in the Final Memorandum, except as otherwise noted therein,
and is duly qualified to transact business and is in good standing in
each jurisdiction listed opposite its name on Annex I hereto;
(C) the Purchase Agreement has been duly authorized,
executed and delivered by the Company;
(D) the Notes have been duly authorized and, when executed,
authenticated and delivered to and paid for in accordance with the
terms of the Purchase Agreement, will (x) be valid and binding
obligations of the Company enforceable in accordance with their terms,
except as (A) the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium or similar laws affecting creditors' rights
generally, and (B) rights of acceleration, if applicable, and the
availability of equitable remedies may be limited by equitable
principles of general applicability and (y) be entitled to the benefits
of the Indenture, the Registration Rights Agreement, the Pledge
Agreement and the Control Agreement;
(E) each of the Indenture, the First Supplemental Indenture
and the Registration Rights Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms except as (w) the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium or similar laws affecting creditors' rights generally, (x)
rights of acceleration, if applicable, and the availability of
equitable remedies may be limited by equitable principles of general
applicability, (y) rights to indemnification and contribution may be
limited by public policy and (z) provisions of the Indenture, if any,
requiring any waiver of stay or extension laws, diligent performance or
other acts on the part of the Trustee may be unenforceable under
principles of public policy;
(F) each of the Pledge Agreement and Control Agreement has
been duly authorized, executed and delivered by the Guarantor, and
assuming due authorization, execution and delivery by the Trustee, each
of the Pledge Agreement and Control Agreement will constitute a valid
and legally binding obligation of the Company, enforceable against the
Guarantor in accordance with its terms, except as the enforceability
thereof may be limited by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws affecting
creditors' rights generally and equitable principles (whether
considered in a proceeding in equity or at law);
(G) upon (i) the execution and delivery of the Pledge
Agreement and the Control Agreement, (ii) the execution and delivery of
the Control Agreement by The Chase Manhattan Bank in its capacity as a
securities intermediary, (iii) the identification by book-entry by The
Chase Manhattan Bank as a securities intermediary of the Pledged
Securities as belonging to, or otherwise subject to a security interest
in favor of, the Trustee, and (iv) the filing of financing statements
with the Secretary of State of the State of New York and the City
Register of New York City; the Trustee will have in the case of each
Pledged Security and the Pledged Account (as defined in the Pledge
Agreement), a valid and perfected, first-priority security interest
therein for the benefit of the holders of the Notes as security for the
Secured Obligations (as defined in the Pledge Agreement) with respect
to the Notes;
(H) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Purchase
Agreement, the Indenture, the First Supplemental Indenture, the
Registration Rights Agreement and the Notes (collectively, the
"Transaction Documents") and the issuance, sale and delivery of the
Notes by the Company will not contravene (i) any provision of
applicable law, (ii) the certificate of incorporation or by-laws of the
Company, (iii) to such counsel's knowledge, any agreement or other
instrument binding upon the Company or any of its Subsidiaries that is
material to the Company and its Subsidiaries, taken as a whole, or (iv)
to such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company
or any Subsidiary, except, in the case of clauses (i), (iii) and (iv),
for such contraventions which would not have a material adverse on the
Company and its Subsidiaries, taken as a whole and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company or its subsidiaries of their obligations under the Transaction
Documents, except such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the
Notes;
(I) after inquiry of the executive officers of the Company, to
such counsel's knowledge, there is not now pending or threatened any
legal or governmental proceedings to which the Company or any of its
subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject other than proceedings
fairly summarized in all material respects in the Final Memorandum and
proceedings which such counsel believes are not reasonably likely to
have a material adverse effect on the Company and its Subsidiaries,
taken as a whole, or on the power or ability of the Company to perform
its obligations under the Transaction Documents or to consummate the
transactions contemplated by the Final Memorandum;
(J) the Company is not, and after giving effect to the
offering and sale of the Notes and the application of the proceeds
thereof as described in the Final Memorandum, will not be an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended;
(K) the statements in the Final Memorandum under the captions
"Business - Legal and Administrative Proceedings", "Description of
Certain Indebtedness", "Private Placement" and "Transfer Restrictions",
in each case insofar as such statements constitute summaries of the
legal matters, documents or proceedings referred to therein, fairly
summarize the matters referred to therein in all material respects;
(L) the statements in the Final Memorandum, under the caption
"Certain United States Federal Income Tax Considerations" are accurate
in all material respects and fairly summarize the matters referred to
therein; and
(M) based upon the representations, warranties, and agreements
of the Company in the Purchase Agreement and of the Initial Purchasers
in Section 7 of the Purchase Agreement, it is not necessary in
connection with the offer, sale and delivery of the Notes to the
Initial Purchasers under the Purchase Agreement or in connection with
the initial resale of such Notes by the Initial Purchasers in
accordance with Section 7 of the Purchase Agreement to register the
Notes under the Securities Act of 1933, it being understood that no
opinion is expressed as to any subsequent resale of any Note.
ATTACHMENT A
TO
FORM OF KELLEY DRYE & WARREN LLP OPINION
In the course of the preparation by the Company of the Final
Memorandum, we have participated in conferences with officers, directors and
representatives of the Company, its independent auditors, your representatives
and representatives of your counsel at which conferences the contents of the
Final Memorandum and related matters were discussed. Although we have not
independently verified the accuracy or completeness of, or otherwise verified
the statements made in the Final Memorandum (other than as expressly provided
above), nothing has come to our attention that has led us to believe that the
Final Memorandum, as of its date or the date hereof, contained an untrue
statement of a material fact or omitted to state a material fact necessary in
order the make the statements therein in the light of the circumstances under
which they were made, not misleading. Notwithstanding the foregoing, we are not
expressing any opinion or belief as to the financial statements and supporting
notes and schedules and other financial data contained in the Final Memorandum
nor with respect to any FCC data contained therein. Nor are we expressing any
opinion or belief as to any statements in the Final Memorandum under the
captions "Risk Factors - Government Regulation" and "Business Regulation"
insofar as such statements constitute a summary of the legal matters, documents,
or proceedings of the FCC and any state authority overseeing telecommunication
matters with respect to telecommunications regulation referred to therein.
ANNEX I
TO
KELLEY DRYE & WARREN OPINION
KMC TELECOM INC. Delaware
Alabama
Florida
Georgia
Indiana
Illinois
Kansas
Louisiana
Maryland
Michigan
Minnesota
Mississippi
New Hampshire
New Jersey
North Carolina
Puerto Rico
South Carolina
Texas
Wisconsin
KMC TELECOM II, INC. Delaware
Florida
Georgia
Indiana
Illinois
Kansas
Maryland
Michigan
Minnesota
Mississippi
Nevada
New Hampshire
New Jersey
North Carolina
Ohio
Tennessee
Texas
KMC TELECOM LEASING I LLC Delaware
Alabama
Florida
Georgia
Louisiana
New Jersey
Texas
Wisconsin
KMC TELECOM LEASING II LLC Delaware
Florida
Georgia
Indiana
Kansas
Maryland
Michigan
Minnesota
New Jersey
North Carolina
Texas
KMC TELECOM OF VIRGINIA, INC. New Jersey
Virginia
KMC TELECOM III, INC. Alabama
Delaware
Florida
Indiana
Louisiana
Maryland
Michigan
Mississippi
New Jersey
North Carolina
Ohio
South Carolina
Tennessee
Texas
KMC Telecom Leasing III LLC Delaware
Florida
Louisiana
Michigan
New Jersey
Ohio
South Carolina
KMC TELECOM III HOLDINGS, INC. Delaware
Georgia
New Jersey
KMC TELECOM FINANCING, INC. Delaware
New Jersey
EXHIBIT D
FORM OF OPINION OF
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
Pursuant to Section 5(d) of the Purchase Agreement, Swidler &
Berlin, Chartered , regulatory counsel for the Company, shall furnish an opinion
to the effect that:
(A) (1) the execution and delivery of the Purchase Agreement
by KMC Telecom Holdings, Inc. and the consummation of the transactions
contemplated thereby do not violate (i) the federal Communications Act
of 1934, as amended, and the Telecommunications Act of 1996, any rules
or regulations of the Federal Communications Commission ("FCC")
applicable to the Company (collectively, the "Communications Act"),
(ii) any state telecommunications law, rules or regulations ("State
Law") applicable to the Company, and (iii) to the best of such
counsel's knowledge, any decree from any court, and (2) no consent,
approval, authorization or order of or filing with the FCC or any state
authority overseeing telecommunications matters ("State Authority"), is
necessary for the execution and delivery of the Purchase Agreement by
KMC Telecom Holdings, Inc. and except to the extent that the failure to
obtain such consents, approvals, authorizations or orders or to make
filings with, the FCC or any State Authority would not, individually or
in the aggregate, have a material adverse effect on the prospects,
condition (financial or otherwise) or in the earnings, business or
operations of KMC Telecom Holdings, Inc. and KMC Telecom Inc., KMC
Telecom II, Inc., KMC Telecom Leasing I LLC, KMC Telecom Leasing II LLC
and KMC Telecom of Virginia, Inc. (the "Subsidiaries") taken as a
whole;
(B) except as indicated in this paragraph B, to the best of
our knowledge, based on our understanding of operations of the Company
and its Subsidiaries from the Certificate [see Attachment A] (1) the
Company and its Subsidiaries have made all reports and filings, and
paid all fees, required by the FCC and the State Authorities, and have
all certificates, orders, permits, licenses, authorizations, consents
and approvals of and from, and have made all filings and registrations,
with the FCC and the State Authorities necessary to own, lease, license
and use its properties and assets and to conduct its respective
business in the manner described in the Preliminary and Final
Memorandum, except for those filings, fees, and approvals the failure
to obtain or file of which would not have material adverse effect on
the financial condition, or on the earnings, business, or operations of
the Company and its Subsidiaries, taken as a whole; (2) has not
received any notice of proceedings relating to the violation,
revocation or modification of any such certificates, orders, permits,
licenses, authorizations,consents or approvals, or the qualification or
rejection of any such filing or registration, the effect of which,
singly or in the aggregate, would have a material adverse effect on the
prospects, condition, financial or otherwise, or in the earnings,
business or operations of the Company, taken as a whole; and (3)
neither the Company nor its Subsidiaries is in violation of, or in
default under the Communications Act or State Law, the effect of which,
singly or in the aggregate, would have a material adverse effect on the
prospects, condition, financial or otherwise, or in the earnings,
business or operations of the Company and its Subsidiaries, taken as a
whole;
D-2
(C) to the best of such counsel's knowledge after due inquiry
(i) no adverse judgment, decree or order of the FCC or any State
Authority has been issued against the Company or its Subsidiaries and
(ii) no litigation, proceeding, inquiry or investigation has been
commenced or threatened against the Company or its Subsidiaries before
or by the FCC or any State Authority which, if decided adversely to the
interests of the Company or its Subsidiaries would have a material
adverse effect on the Company and its Subsidiaries, taken as a whole;
and
(D) the statements in the Final Memorandum under the captions
"Risk Factors - Our Industry is Extremely Competitive and Many of our
Competitors Have Greater Resources Than We Do," "Risk Factors - We Are
Subject to Significant Government Regulation Which May Change in an
Adverse Manner," "Business - Industry Overview" and "Business -
Regulation," insofar as such statements constitute a summary of the
legal matters, documents or proceedings of the FCC and State
Authorities with respect to telecommunications regulation referred to
therein, fairly summarize the matters referred to therein.
D-3
ATTACHMENT A
TO
FORM OF OPINION OF SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
CERTIFICATE OF OFFICER
Except as otherwise stated herein, all capitalized terms used
herein shall have the respective meanings ascribed to them in the Swidler &
Berlin Opinion Letter, dated May ___, 1999 or the documents referred to in the
Opinion Letter.
The undersigned is an officer of KMC Telecom Holdings, Inc.,
KMC Telecom III Holdings, Inc., KMC Telecom Inc., KMC Telecom II, Inc., KMC
Telecom III, Inc., KMC Telecom Leasing I LLC, KMC Telecom Leasing II LLC and KMC
Telecom of Virginia, Inc.
(collectively, "KMC").
The undersigned, in the capacity as an officer of KMC and not
in an individual capacity, does hereby certify to Swidler Berlin Shereff
Friedman, LLP, that:
1. KMC has all certificates, orders, permits, licenses,
authorizations, consents, and approvals of and from, and has made all
filings and registrations with, the FCC and the State Authorities
necessary to own, lease, license and use its properties and assets and
to provide the services authorized by the certifications listed in
Exhibit A hereto. As of the date of this Certificate, KMC Telecom Inc.,
KMC Telecom II, Inc. and KMC Telecom III, Inc. are not providing any
services other than those authorized by the terms and conditions of the
certificates issued to them by the State Authorities listed in Exhibit
A thereto. In addition, KMC Telecom Leasing I, LLC, and KMC Telecom
Leasing II, LLC do not hold out or provide telecommunications services
to the public. KMC Telecom Holdings, Inc. is a holding company and does
not hold out or provide telecommunications services to the public.
2. KMC has made all reports and periodic filings, and paid all
fees, required by the FCC and the State Authorities.
3. KMC has not received notice of any litigation, complaint,
inquiry or investigation, formal or informal, pending or threatened by
or before the FCC or any State Authority based on any alleged
violations by the Company or its Subsidiaries of a character which, if
adversely determined, is likely to impair materially the FCC or any of
the State Authority authorizations held by the Company or its
Subsidiaries. KMC has not received notice of any proceedings or
threatened proceedings relating to the revocation, restriction, or
modification of any of the licenses or certifications listed in Exhibit
A hereto.
4. To the best of my knowledge, based on a review of the
Offering Memorandum, the description in the Offering Memorandum of the
manner in which the Company and its Subsidiaries conduct their
respective businesses and the factual representations made therein are
complete and accurate.
This Certificate is given with the express understanding that
it will be relied upon by the law firm of Swidler Berlin Shereff Friedman, LLP,
in rendering its opinion pursuant to Section 5(e) of the Purchase Agreement.
IN WITNESS WHEREOF, the undersigned has set his/her hand this
___ day of May, 1999.
By: __________________________
Name:
Title: