COLLATERAL PLEDGE AND SECURITY AGREEMENT
This COLLATERAL PLEDGE AND SECURITY AGREEMENT (this "Pledge
Agreement") is made and entered into as of May 24, 1999 by KMC Telecom
Financing, Inc., a Delaware corporation (the "Pledgor"), having its principal
office at 1545 Route 206, Suite 300, Bedminster, New Jersey 07921, in favor of
THE CHASE MANHATTAN BANK, a New York banking corporation, having an office at
450 West 33rd Street, 15th Floor, New York, New York 10001-2697, in its capacity
as trustee (the "Trustee") for the registered holders from time to time (the
"Holders") of the Notes (as defined herein), issued by KMC (as defined below)
under the Indenture referred to below. Capitalized terms used and not defined in
this Pledge Agreement have the meanings set forth or referred to in the
Indenture.
W I T N E S S E T H
WHEREAS, KMC TELECOM HOLDINGS, INC., a Delaware corporation ("KMC"),
and the Trustee have entered into that certain indenture dated as of the date
hereof (as amended, restated, supplemented or otherwise modified from time to
time, the "Indenture"), pursuant to which KMC is issuing on the date hereof
$275,000,000 in aggregate principal amount of 13 1/2% Senior Notes due 2009 (the
"Notes");
WHEREAS, the Pledgor is a wholly owned subsidiary of KMC;
WHEREAS, KMC has agreed, pursuant to the Indenture, to cause the
Pledgor to (i) purchase or cause the purchase of the Pledged Security
Entitlements (as defined herein) in an amount that will be sufficient upon
receipt of scheduled interest and principal payments in respect thereof to
provide for the payment of the first six scheduled interest payments due on the
Notes (including any additional interest that may be payable if the Exchange
Offer is not consummated and the Shelf Registration Statement is not declared
effective in a timely manner as provided in the Indenture) and (ii) place such
Pledged Security Entitlements (or cause them to be placed) in the Pledged
Account (as defined herein), in each case held by the Trustee for the benefit of
Holders of the Notes; provided that the Pledged Security Entitlements may be
purchased by Morgan Stanley & Co. Incorporated ("Morgan Stanley") on behalf of
the Pledgor;
WHEREAS, the Pledgor is the beneficial owner of (i) the United States
Treasury securities and/or security entitlements identified by CUSIP number in
Schedule I hereto and (ii) $18,929,583.74 delivered to the Trustee on the date
hereof for deposit into the Pledged Account (as defined herein) and to be used
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by the Trustee on the date hereof for the purchase of the United States Treasury
securities and/or security entitlements identified by CUSIP number in Schedule
II hereto (collectively, the "Pledged Security Entitlements");
WHEREAS, the Pledgor has opened a trust account (the "Pledged
Account") with The Chase Manhattan Bank at its office at 450 West 33rd Street,
15th Floor, New York, New York 10001-2697, Account No. C 28947, in the name of
"The Chase Manhattan Bank, as Trustee for the benefit of the holders of the 13
1/2% Senior Notes Due 2009 of KMC Telecom Holdings, Inc. Collateral Pledge
Account";
WHEREAS, to secure the obligations of KMC under the Indenture
and the Notes to pay in full each of the first six scheduled interest payments
on the Notes and to secure repayment of the principal, premium (if any) and
interest on the Notes in the event that the Notes become due and payable prior
to such time as the first six scheduled interest payments thereon shall have
been paid in full (collectively, the "Obligations"), KMC has agreed to cause the
Pledgor (i) to pledge to the Trustee for its benefit and the ratable benefit of
the Holders of the Notes, a security interest in the Collateral (as defined
herein) and (ii) to execute and deliver this Pledge Agreement in order to secure
the payment and performance by KMC of all of the Obligations;
WHEREAS, it is a condition precedent to the initial purchase of the
Notes by the initial Holders thereof that the Pledgor shall have granted the
security interest and made the pledge contemplated by this Pledge Agreement;
WHEREAS, the Pledgor will derive substantial direct and indirect
benefits from the transactions contemplated by the Indenture; and
WHEREAS, unless otherwise defined herein or in the Indenture, terms
used in Articles 8 or 9 of the Uniform Commercial Code as in effect in the State
of New York ("UCC") are used herein as therein defined.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and in order to induce the initial Holders of the Notes to purchase
the Notes, the Pledgor hereby agrees with the Trustee, for the benefit of the
Trustee and for the ratable benefit of the Holders of the Notes, as follows:
SECTION 1. Pledge and Grant of Security Interest. The Pledgor hereby
pledges to the Trustee for its benefit and for the ratable benefit of the
Holders of the Notes, and hereby grants to the Trustee for its benefit and for
the ratable benefit of the Holders of the Notes, a continuing security interest
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in and to all of the following, whether now owned or hereafter acquired by the
Pledgor, wherever located and whether now or hereafter existing (hereinafter
collectively referred to as the "Collateral"), whether characterized as
investment property, general intangibles or otherwise:
(a) the Pledged Security Entitlements and all dividends,
interest, cash, instruments and other property from time to time
received, receivable or otherwise distributed or distributable in
respect of or in exchange for any or all of such Pledged Security
Entitlements;
(b) the Pledged Account, all securities, security entitlements
and other financial assets from time to time carried in the Pledged
Account, any and all securities accounts in which the Pledged Security
Entitlements are carried, and all dividends, interest, cash,
instruments and other property from time to time received, receivable
or otherwise distributed or distributable in respect of or in exchange
for any or all of such securities, security entitlements or other
financial assets;
(c) all securities, securities entitlements and other
financial assets acquired by the Pledgor pursuant to Article Ten of the
Indenture; and
(d) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds that constitute property of
the types described in clauses (a), (b) and (c) of this Section 1) and,
to the extent not otherwise included, all cash.
SECTION 2. Security for Obligations; Limitation of Liability. (a) This
Pledge Agreement and the grant of a security interest in the Collateral
hereunder secures the prompt and complete payment and performance when due
(whether at stated maturity, by acceleration or otherwise) of (i) all the
Obligations, whether for principal, interest, fees or otherwise, now or
hereafter existing, under the Notes or the Indenture and (ii) all of the
Pledgor's obligations under this Agreement (all such Obligations and all such
obligations of the Pledgor being collectively, the "Secured Obligations").
Without limiting the generality of the foregoing, this Agreement and the grant
of a security interest in the Collateral hereunder secures the payment of all
amounts that constitute part of the Secured Obligations and would be owed by KMC
to the Trustee or the Holders under the Notes or the Indenture but for the fact
that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving KMC.
(b) The Pledgor, and by its acceptance of this Agreement, the Trustee
and each Holder, hereby confirms that it is the intention of all such Persons
that this Pledge Agreement and the Secured Obligations hereunder not constitute
a fraudulent transfer or conveyance for purposes of Bankruptcy Law (as
hereinafter defined), the Uniform Fraudulent Conveyance Act, the Uniform
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Fraudulent Transfer Act or any similar foreign, federal or state law to the
extent applicable to this Agreement and the Secured Obligations of the Pledgor
hereunder. To effectuate the foregoing intention, the Trustee, the Holders and
the Pledgor hereby irrevocably agree that the Secured Obligations of the Pledgor
under this Pledge Agreement at any time shall be limited to the maximum amount
as will result in the Secured Obligations of the Pledgor under this Pledge
Agreement not constituting a fraudulent transfer or conveyance. For purposes
hereof, "Bankruptcy Law" means any proceeding instituted by or against KMC or
any of its subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property, or Title
11, U.S. Code, or any similar foreign, federal or state law for the relief of
debtors.
SECTION 3. Maintaining the Pledged Account. Until such time as this
Pledge Agreement shall terminate in accordance with the provisions of Section
15.9 hereof:
(a) The Pledgor will maintain separately the Pledged Account
with The Chase Manhattan Bank.
(b) It shall be a term and condition of the Pledged Account,
notwithstanding any term or condition to the contrary in any other
agreement relating to the Pledged Account, and except as otherwise
provided by the provisions of Section 5 and Section 15.9, that no
amount shall be paid or released to or for the account of, or
withdrawn by or for the account of, the Pledgor or any other Person
from the Pledged Account.
The Pledged Account shall be subject to such applicable laws, and such
applicable regulations of the Board of Governors of the Federal Reserve System
and of any other appropriate banking or governmental authority, as may now or
hereafter be in effect.
SECTION 4. Delivery of Collateral. (a) All cash, certificates or
instruments representing or evidencing the Pledged Security Entitlements or the
Pledged Account shall be delivered to and held by or on behalf of the Trustee
pursuant hereto and shall be in suitable form for transfer by delivery, or shall
be accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance satisfactory to the Trustee. The Trustee shall have
the right, at any time in its discretion and without notice to the Pledgor, to
transfer to or to register in the name of the Trustee or any of its nominees any
or all of the Collateral.
(b) With respect to any Collateral that constitutes a security and is
not represented or evidenced by a certificate or an instrument, the Pledgor
shall cause the issuer thereof either (i) to register the Trustee as the
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registered owner of such security or (ii) to agree in writing with the Pledgor
and the Trustee that such issuer will comply with instructions with respect to
such security originated by the Trustee without further consent of the Pledgor,
such agreement to be in form and substance satisfactory to the Trustee.
(c) With respect to any Collateral that constitutes a security
entitlement, the Pledgor shall cause the securities intermediary with respect to
such security entitlement either (i) to identify in its records the Trustee as
having such security entitlement against such securities intermediary or (ii) to
agree in writing with the Pledgor and the Trustee that such securities
intermediary will comply with entitlement orders (that is, notifications
communicated to such securities intermediary directing transfer or redemption of
the financial asset to which the Pledgor has a security entitlement) originated
by the Trustee without further consent of the Pledgor, such agreement to be in
form and substance satisfactory to the Trustee.
(d) With respect to any Collateral that constitutes a securities
account, the Pledgor will comply with subsection (c) of this Section 4 with
respect to all security entitlements carried in such securities account.
(e) Prior to or concurrently with the execution and delivery hereof
and prior to the transfer to the Trustee of the Pledged Security Entitlements,
as provided in subsections (a) through (c) of this Section 4, the Trustee shall
establish the Pledged Account on its books as a separate account segregated from
all other custodial or collateral accounts at its office at 450 West 33rd
Street, New York, New York 10001-2697, Attention: Capital Markets Fiduciary
Services or at such other offices in the City of New York as the Trustee shall
maintain as its principal corporate trust office. Upon transfer of the Pledged
Security Entitlements to the Trustee, as confirmed to the Trustee by the
Securities Intermediary, the Trustee shall make appropriate book entries
indicating that the Pledged Security Entitlements have been credited to and are
held in the Pledged Account. Subject to the other terms and conditions of this
Pledge Agreement, all funds or other property held by the Trustee pursuant to
this Pledge Agreement shall be held in the Pledged Account subject (except as
expressly provided in Sections 5(a), (b) and (c) hereof) to the exclusive
dominion and control of the Trustee and exclusively for the benefit of the
Trustee and for the ratable benefit of the Holders of the Notes and segregated
from all other funds or other property otherwise held by the Trustee.
(f) All Collateral shall be retained in the Pledged Account pending
disbursement pursuant to the terms hereof.
(g) Concurrently with the execution and delivery of this
Pledge Agreement, the Trustee is delivering to the Pledgor and Morgan Stanley &
Co. Incorporated, on behalf of itself and Credit Suisse First Boston
Corporation, First Union Capital Markets Corp., CIBC World Markets Corp.,
BancBoston Robertson Stephens Inc. and Wasserstein Perella Securities, Inc. (the
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"Initial Purchasers"), a duly executed Control Agreement ("Control Agreement"),
in the form of Annex A hereto, of an officer of the Trustee, confirming the
Trustee's establishment and separate maintenance of the Pledged Account, its
receipt and holding of the Pledged Security Entitlements and the crediting of
the Pledged Security Entitlements to the Pledged Account, all in accordance with
this Pledge Agreement.
(h) Within ten days of the execution and delivery of this Pledge
Agreement, the Pledgor shall deliver to the Trustee acknowledgment copies or
stamped receipt copies of proper financing statements, duly filed on or before
the Closing Date under the UCC, covering the Collateral described in this Pledge
Agreement.
(i) Promptly following the execution and delivery of this Pledge
Agreement, the Trustee shall apply the cash on deposit in the Pledged Account,
to the extent such cash is sufficient therefore, to the purchase of the United
States Treasury securities and/or security entitlements listed on Schedule II
hereto.
SECTION 5. Disbursements. (a) Three Business Days prior to the due
date of any of the first six scheduled interest payments on the Notes, the
Pledgor may, pursuant to written instructions given by the Pledgor to the
Trustee (an "Issuer Order"), direct the Trustee to release from the Pledged
Account and pay to the Holders of the Notes proceeds sufficient to provide for
payment in full of such interest then due on the Notes. Upon receipt of an
Issuer Order, the Trustee will release funds in an amount sufficient to provide
for the payment of the interest on the Notes in accordance with such Issuer
Order and the payment provisions of the Indenture to the Holders of the Notes
from (and to the extent of) proceeds of the Pledged Security Entitlements in the
Pledged Account. Nothing in this Section 5 shall affect the Trustee's rights to
apply the Collateral to the payments of amounts due on the Notes upon
acceleration thereof.
(b) If KMC makes any interest payment or portion of an interest
payment for which the Collateral is security from a source of funds other than
the Pledged Account ("Pledgor Funds"), the Pledgor may, after payment in full of
such interest payment, direct the Trustee pursuant to an Issuer Order to release
to the Pledgor or to another party at the direction of the Pledgor (the
"Pledgor's Designee") proceeds from the Pledged Account in an amount less than
or equal to the amount of Pledgor Funds applied to such interest payment. Upon
receipt by the Trustee of such Issuer Order and provided the Trustee has
received such interest payment, the Trustee shall pay over to the Pledgor or the
Pledgor's Designee, as the case may be, the requested amount from proceeds in
the Pledged Account as soon as practicable.
(c) At least three Business Days prior to the due date of each of the
first six scheduled interest payments on the Notes, the Pledgor shall give the
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Trustee notice (by Issuer Order) as to whether such interest payment will be
made pursuant to Section 5(a) or 5(b) above and the respective amounts of
interest that will be paid from the Pledged Account and from Pledgor Funds. Any
Pledgor Funds to be used to make any interest payment shall be delivered to the
Trustee, in immediately available funds, prior to 10:00 a.m. (New York City
time) on such interest payment date. If no such notice is given or such Pledgor
Funds have not been so delivered, the Trustee will act pursuant to Section 5(a)
above as if it had received an Issuer Order pursuant thereto for the payment in
full of the interest then due from the Pledged Account.
(d) The Trustee shall liquidate Collateral in the Pledged Account
(pursuant to written instructions from the Pledgor) in order to make any
scheduled payment of interest pursuant to the Notes, unless there are sufficient
funds in the Pledged Account on such interest payment date.
(e) Nothing contained in this Pledge Agreement shall (i) afford KMC or
the Pledgor any right to issue entitlement orders with respect to any of the
Pledged Security Entitlements or any securities account in which any such
security entitlement may be carried, or otherwise afford the Pledgor control of
any Pledged Security Entitlement or (ii) otherwise give rise to any rights of
KMC or the Pledgor with respect to the Pledged Security Entitlements or any
securities account in which any such security entitlement may be carried, other
than the Pledgor's rights under this Pledge Agreement as the beneficial owner of
Collateral pledged to and subject to the exclusive dominion and control (except
as expressly provided in Sections 5(a) and (b) hereof) of the Trustee in its
capacity as such (and not as a securities intermediary). The Pledgor
acknowledges, confirms and agrees, in such capacity, that the Trustee is an
entitlement holder of the Pledged Security Entitlements solely as Trustee for
the itself and Holders of the Notes and not as a securities intermediary.
SECTION 6. Representations and Warranties. The Pledgor hereby
represents and warrants that:
(a) The execution and delivery by the Pledgor of, and the
performance by the Pledgor of its obligations under, this Pledge
Agreement will not contravene any provision of applicable law or the
Certificate of Incorporation of the Pledgor or any material agreement
or other material instrument binding upon the Pledgor or any of its
subsidiaries or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Pledgor or any of
its subsidiaries, or result in the creation or imposition of any Lien
on any assets of the Pledgor, except for the security interests
granted under this Pledge Agreement.
(b) No consent of any other Person and no approval,
authorization, order of, action by or qualification with, any
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governmental authority, regulatory body, agency or other third party is
required (i) for the execution, delivery or performance by the Pledgor
of its obligations under this Pledge Agreement, (ii) for the grant by
the Pledgor of the security interest created hereby or (iii) for the
pledge by the Pledgor of the Collateral pursuant to this Pledge
Agreement, except for any such consents, approvals, authorizations or
orders required to be obtained by the Trustee (or the Holders) for
reasons other than the consummation of this transaction, for the
exercise by the Trustee of the rights provided for in this Pledge
Agreement.
(c) The Pledgor is the beneficial owner of the Collateral,
free and clear of any Lien or claims of any Person (except for the
security interests created by this Pledge Agreement). No financing
statement or instrument similar in effect covering all or any part of
the Pledgor's interest in the Collateral is on file in any public or
recording office, other than the financing statements filed pursuant to
this Pledge Agreement. The Pledgor has no trade names.
(d) This Pledge Agreement has been duly authorized, validly
executed and delivered by the Pledgor and constitutes a valid and
binding agreement of the Pledgor, enforceable against the Pledgor in
accordance with its terms, except as (i) the enforceability hereof may
be limited by bankruptcy, insolvency, fraudulent conveyance,
preference, reorganization, moratorium or similar laws now or hereafter
in effect relating to or affecting creditors' rights or remedies
generally, (ii) the availability of equitable remedies may be limited
by equitable principles of general applicability, (iii) the exculpation
provisions and rights to indemnification hereunder may be limited by
U.S. federal and state securities laws and public policy considerations
and (iv) the waiver of rights and defenses contained in Section 12(d),
Section 15.11 and Section 15.15 hereof may be limited by applicable
law.
(e) Upon the transfer to the Trustee of the Pledged Security
Entitlements, in accordance with Section 3 above, the pledge and grant
of a security interest in the Collateral pursuant to this Pledge
Agreement for the benefit of the Trustee and the Holders of the Notes
will constitute a valid and perfected first-priority security interest
in such Collateral, securing the payment of the Secured Obligations,
enforceable as such against all creditors of the Pledgor (and any
Persons purporting to purchase any of the Collateral from the Pledgor).
(f) There are no legal or governmental proceedings pending or,
to the best of the Pledgor's knowledge, threatened to which the Pledgor
or any of its subsidiaries is a party or to which any of the properties
of the Pledgor or any such subsidiary is subject that would materially
adversely affect the power or ability of the Pledgor to perform its
obligations under this Pledge Agreement or to consummate the
transactions contemplated hereby.
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(g) The pledge of the Collateral pursuant to this Pledge
Agreement is not prohibited by law or governmental regulation
(including, without limitation, Regulations G, T, U and X of the Board
of Governors of the Federal Reserve System) applicable to the Pledgor.
(h) No Event of Default (as defined below) exists.
SECTION 7. Further Assurances. (a) The Pledgor agrees that from time
to time, at the expense of the Pledgor, the Pledgor will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable or required by law, or that the Trustee may
reasonably request, in order to perfect and protect the first priority of any
pledge or security interest granted or purported to be granted hereby or to
enable the Trustee to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. Without limiting the generality of the
foregoing, the Pledgor will: (i) if any Collateral shall be evidenced by a
promissory note or other instrument, deliver and pledge to the Trustee hereunder
such note or instrument duly indorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
the Trustee; and (ii) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as may
be necessary or desirable, or as the Trustee may reasonably request, in order to
perfect and preserve the pledge, assignment and security interest granted or
purported to be granted hereby.
(b) The Pledgor hereby authorizes the Trustee to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of the Pledgor where permitted
by law. A photocopy or other reproduction of this Pledge Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Pledgor will furnish to the Trustee from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Trustee may
reasonably request, all in reasonable detail.
(d) The Pledgor will promptly pay all reasonable costs incurred in
connection with any of the foregoing within 45 days of receipt of an invoice
therefor.
SECTION 8. Covenants. (a) The Pledgor covenants and agrees with the
Trustee and the Holders of the Notes that from and after the date of this Pledge
Agreement until the earlier of payment in full in cash of (x) each of the first
six scheduled interest payments due on the Notes under the terms of the
Indenture or (y) all obligations due and owing under the Indenture and the Notes
in the event such obligations become due and payable prior to the payment of the
first six scheduled interest payments on the Notes:
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(i) that (A) it will not (and will not purport to) sell or
otherwise dispose of, or grant any option or warrant with respect to,
any of the Collateral or its beneficial interest therein, and (B) it
will not create or permit to exist any Lien or other adverse interest
in or with respect to its beneficial interest in any of the Collateral
(except for the security interests granted under this Pledge
Agreement); and
(ii) that it will not (A) enter into any agreement or
understanding that restricts or inhibits or purports to restrict or
inhibit the Trustee's rights or remedies hereunder, including, without
limitation, the Trustee's right to sell or otherwise dispose of the
Collateral or (B) fail to pay or discharge any tax, assessment or levy
of any nature with respect to its beneficial interest in the Collateral
not later than five days prior to the date of any proposed sale under
any judgment, writ or warrant of attachment with respect to such
beneficial interest.
SECTION 9. Power of Attorney. In addition to all of the powers granted
to the Trustee pursuant to the Indenture, the Pledgor hereby appoints and
constitutes the Trustee as the Pledgor's attorney-in-fact (with full power of
substitution), with full authority in the place and stead of the Pledgor and in
the name of the Pledgor or otherwise, from time to time in the Trustee's
discretion to take any action and to execute any instrument that the Trustee may
deem necessary or advisable to accomplish the purposes of this Pledge Agreement,
including, without limitation:
(a) to ask for, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral,
(b) to receive, indorse and collect any drafts or other
instruments, documents and chattel paper, in connection with clause (a)
above,
(c) to file any claims or take any action or institute any
proceedings that the Trustee may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights
of the Trustee with respect to any of the Collateral, and
(d) to pay or discharge taxes or Liens levied or placed upon
the Collateral that the Pledgor has failed to pay or discharge in
accordance herewith, the legality or validity thereof and the amounts
necessary to discharge the same to be determined by the Trustee in its
sole reasonable discretion, and such payments made by the Trustee to
become part of the Obligations of the Pledgor to the Trustee, due and
payable immediately upon demand;
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provided, however, that the Trustee shall have no obligation to perform any of
the foregoing actions. The Trustee's authority under this Section 9 shall
include, without limitation, the authority to endorse and negotiate any checks
or instruments representing proceeds of Collateral in the name of the Pledgor,
execute and give receipt for any certificate of ownership or any document
constituting Collateral, transfer title to any item of Collateral, sign the
Pledgor's name on all financing statements (to the extent permitted by
applicable law) or any other documents deemed necessary or appropriate by the
Trustee to preserve, protect or perfect the security interest in the Collateral
and to file the same, prepare, file and sign the Pledgor's name on any notice of
Lien, and to take any other actions arising from or incident to the powers
granted to the Trustee in this Pledge Agreement. This power of attorney is
coupled with an interest and is irrevocable by the Pledgor.
SECTION 10. No Assumption of Duties; Reasonable Care. The rights and
powers conferred on the Trustee hereunder are solely to preserve and protect the
security interest of the Trustee and the Holders of the Notes in and to the
Collateral granted hereby and shall not be interpreted to, and shall not impose
any duties on the Trustee in connection therewith other than those expressly
provided herein or imposed under applicable law. Except as provided by
applicable law or by the Indenture, the Trustee shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which the Trustee accords similar property held by the Trustee for its own
account, it being understood that the Trustee in its capacity as such shall not
have any responsibility for (a) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities or other matters relative to any
Collateral, whether or not the Trustee has or is deemed to have knowledge of
such matters, (b) taking any necessary steps to preserve rights against any
parties with respect to any Collateral or (c) investing or reinvesting any of
the Collateral or any loss on any investment. The Trustee shall be entitled to
all the rights, benefits, privileges and immunities accorded to it under the
Indenture.
SECTION 11. Indemnity. The Pledgor shall indemnify, hold harmless and
defend the Trustee and its directors, officers, agents and employees, from and
against any and all claims, actions, obligations, liabilities and expenses,
including reasonable defense costs, reasonable investigative fees and costs, and
reasonable legal fees and damages arising from the Trustee's performance as
Trustee under this Pledge Agreement, except to the extent that such claim,
action, obligation, liability or expense is directly attributable to the bad
faith, gross negligence or wilful misconduct of such indemnified person. This
indemnification shall survive the resignation or removal of the Trustee under
the Indenture and the termination of this Pledge Agreement.
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SECTION 12. Remedies Upon Event of Default. If any Event of Default
under the Indenture or default hereunder (any such Event of Default or default
being referred to in this Pledge Agreement as an "Event of Default") shall have
occurred and be continuing:
(a) The Trustee and the Holders of the Notes may exercise, in
addition to all other rights given by law or by this Pledge Agreement
or the Indenture, all of the rights and remedies with respect to the
Collateral of a secured party under the UCC (whether or not the UCC
applies to the affected Collateral) and also may (i) require the
Pledgor to, and the Pledgor hereby agrees that it will at its expense
and upon request of the Trustee forthwith, assemble all or part of the
Collateral as directed by the Trustee and make it available to the
Trustee at a place to be designated by the Trustee that is reasonably
convenient to both parties and (ii) without notice except as specified
below, sell the Collateral or any part thereof in one or more parcels
at any broker's board or at public or private sale, in one or more
sales or lots, at any of the Trustee's offices or elsewhere, for cash,
on credit or for future delivery, and upon such other terms as the
Trustee may deem commercially reasonable. The Pledgor agrees that, to
the extent notice of sale shall be required by law, at least ten days'
notice to the Pledgor of the time and place of any public sale or the
time after which any private sale is to be made shall constitute
reasonable notification. The Trustee shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. The
Trustee may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was
so adjourned. The purchaser of any or all Collateral so sold shall
thereafter hold the same absolutely, free from any claim, encumbrance
or right of any kind whatsoever created by or through the Pledgor. Any
sale of the Collateral conducted in conformity with reasonable
commercial practices of banks, insurance companies, commercial finance
companies, or other financial institutions disposing of property
similar to the Collateral shall be deemed to be commercially
reasonable. The Trustee or any Holder of Notes may, in its own name or
in the name of a designee or nominee, buy any of the Collateral at any
public sale and, if permitted by applicable law, at any private sale.
All expenses (including court costs and reasonable attorneys' fees,
expenses and disbursements) of, or incident to, the enforcement of any
of the provisions hereof shall be recoverable from the proceeds of the
sale or other disposition of the Collateral.
(b) All cash proceeds received by the Trustee in respect of
any sale of, collection from, or other realization upon all or any part
of the Collateral may, in the discretion of the Trustee, be held by the
Trustee as collateral for, and/or then or at any time thereafter
applied (after payment of any amounts payable to the Trustee pursuant
to Section 13) in whole or in part by the Trustee for the ratable
13
benefit of the Holders of the Notes against, all or any part of the
Secured Obligations in such order as the Trustee shall elect. Any
surplus of such cash or cash proceeds held by the Trustee and remaining
after payment in full of all the Secured Obligations shall be paid over
to the Pledgor or to whomsoever may be lawfully entitled to receive
such surplus.
(c) The Trustee may, without notice to the Pledgor except as
required by law and at any time or from time to time, charge, set-off
and otherwise apply all or any part of the Secured Obligations against
the Pledged Account or any part thereof.
(d) The Pledgor further agrees to use its reasonable best
efforts to do or cause to be done all such other acts as may be
necessary to make such sale or sales of all or any portion of the
Collateral pursuant to this Section 12 valid and binding and in
compliance with any and all other applicable requirements of law. The
Pledgor further agrees that a breach of any of the covenants contained
in this Section 12 will cause irreparable injury to the Trustee and the
Holders of the Notes, that the Trustee and the Holders of the Notes
have no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section 12
shall be specifically enforceable against the Pledgor, and the Pledgor
hereby waives and agrees not to assert any defenses against an action
for specific performance of such covenants except for a defense that no
Event of Default has occurred and is continuing.
SECTION 13. Expenses. The Pledgor will, upon demand, pay to the
Trustee the amount of any and all reasonable expenses, including, without
limitation, the reasonable fees, expenses and disbursements of its counsel,
experts and agents retained by the Trustee, that the Trustee may incur in
connection with (a) the review, negotiation and administration of this Pledge
Agreement, (b) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (c) the exercise or
enforcement of any of the rights of the Trustee and the Holders of the Notes
hereunder or (d) the failure by the Pledgor to perform or observe any of the
provisions hereof.
SECTION 14. Security Interest Absolute. The obligations of the Pledgor
under this Pledge Agreement are independent of the Secured Obligations, and a
separate action or actions may be brought and prosecuted against the Pledgor to
enforce this Pledge Agreement, irrespective of whether any action is brought
against KMC or whether KMC is joined in any such action or actions. All rights
of the Trustee and the Holders of the Notes and the security interest hereunder,
and all obligations of the Pledgor hereunder, shall be irrevocable, absolute and
unconditional irrespective of, and the Pledgor hereby irrevocably waives (to the
maximum extent permitted by applicable law) any defenses it may now have or may
hereafter acquire in any way relating to, any or all of the following:
(a) any lack of validity or enforceability of the Indenture
or Notes or any other agreement or instrument relating thereto;
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(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Secured Obligations or any
other amendment or waiver of or any consent to any departure from the
Indenture;
(c) any taking, exchange, release or non-perfection of any
liens on any Collateral or any other collateral for all or any of the
Secured Obligations;
(d) any manner of application of Collateral or any other
collateral, or proceeds thereof, to all or any of the Secured
Obligations, or any manner of sale or other disposition of any
Collateral or any other collateral for all or any of the Secured
Obligations or any other assets of the Pledgor;
(e) any change, restructuring or termination of the
corporate structure or existence of KMC or the Pledgor;
(h) to the extent permitted by applicable law, any other
circumstance (including, without limitation, any statute of
limitations) that might otherwise constitute a defense available to, or
a discharge of, the Pledgor in respect of the Secured Obligations or of
this Pledge Agreement.
This Pledge Agreement shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Secured Obligations is
rescinded or must otherwise be returned by the Trustee or any Holder of a Note
upon the insolvency, bankruptcy or reorganization of KMC or the Pledgor or
otherwise, all as though such payment had not been made.
SECTION 15. Miscellaneous Provisions.
Section 15.1. Notices. Any notice or communication given
hereunder shall be sufficiently given if in writing and delivered in person or
mailed by first class mail, commercial courier service or telecopier
communication, addressed as follows:
if to the Pledgor:
KMC Telecom Financing, Inc.
1545 Route 206, Suite 300
Bedminster, New Jersey 07921
Attention: Chief Financial Officer
15
with a copy to:
KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, NJ 07921
Attention: Chief Financial Officer
and a copy to:
Kelley Drye & Warren LLP
101 Park Ave.
New York, NY 10178
Attention: Brian J. Calvey
if to the Trustee:
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001-2697
Attention: Capital Markets Fiduciary Services
with a copy to:
Pryor Cashman Sherman & Flynn, LLP
410 Park Avenue
New York, New York 10022
Attention: Eric M. Hellige
All such notices and other communications shall, when mailed,
delivered or telecopied, respectively, be effective when deposited in the mails,
delivered or telecopied, respectively, addressed as aforesaid; provided,
however, that notices and other communications to the Trustee shall be effective
only upon receipt by the Trustee.
Section 15.2. No Adverse Interpretation of Other Agreements. This
Pledge Agreement may not be used to interpret another pledge, security or debt
agreement of the Pledgor or any subsidiary thereof. No such pledge, security or
debt agreement (other than the Indenture) may be used to interpret this Pledge
Agreement.
Section 15.3. Severability. The provisions of this Pledge Agreement
are severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
16
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Pledge Agreement in any jurisdiction.
Section 15.4. Headings. The headings in this Pledge Agreement have
been inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
Section 15.5. Counterpart Originals. This Pledge Agreement may be
signed in two or more counterparts, each of which shall be deemed an original,
but all of which shall together constitute one and the same agreement.
Section 15.6. Benefits of Pledge Agreement. Nothing in this Pledge
Agreement, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Holders of the Notes, any benefit
or any legal or equitable right, remedy or claim under this Pledge Agreement.
Section 15.7. Amendments, Waivers and Consents. Any amendment or
waiver of any provision of this Pledge Agreement and any consent to any
departure by the Pledgor from any provision of this Pledge Agreement shall be
effective only if in writing, signed by the Trustee and made or duly given in
compliance with all of the terms and provisions of the Indenture, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. Neither the Trustee nor any Holder of Notes
shall be deemed, by any act, delay, indulgence, omission or otherwise, to have
waived any right or remedy hereunder or to have acquiesced in any Default or
Event of Default or in any breach of any of the terms and conditions hereof.
Failure of the Trustee or any Holder of Notes to exercise, or delay in
exercising, any right, power or privilege hereunder shall not preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Trustee or any Holder of Notes of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy that the Trustee or such Holder of Notes would otherwise have on any
future occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or remedies
provided by law.
Section 15.8. Interpretation of Agreement. To the extent a term or
provision of this Pledge Agreement conflicts with the Indenture, the Indenture
shall control with respect to the subject matter of such term or provision.
Acceptance of or acquiescence in a course of performance rendered under this
Pledge Agreement shall not be relevant to determine the meaning of this Pledge
Agreement even though the accepting or acquiescing party had knowledge of the
nature of the performance and opportunity for objection.
17
Section 15.9. Continuing Security Interest; Termination. (a) This
Pledge Agreement shall create a continuing security interest in and to the
Collateral and shall, unless otherwise provided in this Pledge Agreement, remain
in full force and effect until the payment in full in cash of the Secured
Obligations. This Pledge Agreement shall be binding upon the Pledgor, its
transferees, successors and assigns, and shall inure, together with the rights
and remedies of the Trustee hereunder, to the benefit of the Trustee, the
Holders of the Notes and their respective successors, transferees and assigns.
(b) So long as no Event of Default shall have occurred and be
continuing, this Pledge Agreement (other than Pledgor's obligations under
Sections 11 and 13) shall terminate upon the earlier of (i) the payment in full
in cash of the Secured Obligations and (ii) the payment in full in cash of the
first six scheduled interest payments on all of the Notes. At such time, the
Trustee shall, pursuant to an Issuer Order, reassign and redeliver to the
Pledgor all of the Collateral hereunder that has not been sold, disposed of,
retained or applied by the Trustee in accordance with the terms of this Pledge
Agreement and the Indenture and take all actions that are necessary to release
the security interest created by this Pledge Agreement in and to the Collateral,
including the execution and delivery of all termination statements necessary to
terminate any financing or continuation statements filed with respect to the
Collateral. Such reassignment and redelivery shall be without warranty by or
recourse to the Trustee in its capacity as such, except as to the absence of any
Liens on the Collateral created by or arising through the Trustee, and shall be
at the expense of the Pledgor.
Section 15.10. Survival of Representations and Covenants. All
representations, warranties and covenants of the Pledgor contained herein shall
survive the execution and delivery of this Pledge Agreement, and shall terminate
only upon the termination of this Pledge Agreement.
Section 15.11. Waivers. The Pledgor waives presentment and demand for
payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices to which the
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
Section 15.12. Authority of the Trustee. (a) The Trustee shall have
and be entitled to exercise all powers hereunder that are specifically granted
to the Trustee by the terms hereof, together with such powers as are reasonably
incident thereto. The Trustee may perform any of its duties hereunder or in
connection with the Collateral by or through agents or employees and shall be
entitled to retain counsel and to act in reliance upon the advice of counsel
concerning all such matters. Except as otherwise expressly provided in this
Pledge Agreement or the Indenture, neither the Trustee nor any director,
officer, employee, attorney or agent of the Trustee shall be liable to the
Pledgor for any action taken or omitted to be taken by the Trustee, in its
18
capacity as Trustee, hereunder, except for its own bad faith, gross negligence
or willful misconduct, and the Trustee shall not be responsible for the
validity, effectiveness or sufficiency hereof or of any document or security
furnished pursuant hereto. The Trustee and its directors, officers, employees,
attorneys and agents shall be entitled to rely on any communication, instrument
or document believed by it or them to be genuine and correct and to have been
signed or sent by the proper Person or Persons.
(b) The Pledgor acknowledges that the rights and responsibilities of
the Trustee under this Pledge Agreement with respect to any action taken by the
Trustee or the exercise or non-exercise by the Trustee of any option, right,
request, judgment or other right or remedy provided for herein or resulting or
arising out of this Pledge Agreement shall, as between the Trustee and the
Holders of the Notes, be governed by the Indenture and by such other agreements
with respect thereto as may exist from time to time among them, but, as between
the Trustee and the Pledgor, the Trustee shall be conclusively presumed to be
acting as agent for the Holders of the Notes with full and valid authority so to
act or refrain from acting, and the Pledgor shall not be obligated or entitled
to make any inquiry respecting such authority.
Section 15.13 Final Expression. This Pledge Agreement, together with
the Indenture and any other agreement executed in connection herewith, is
intended by the parties as a final expression of this Pledge Agreement and is
intended as a complete and exclusive statement of the terms and conditions
thereof.
Section 15.14. Rights of Holders of the Notes. No Holder of Notes
shall have any independent rights hereunder other than those rights granted to
individual Holders of the Notes pursuant to Section 6.06 of the Indenture;
provided that nothing in this subsection shall limit any rights granted to the
Trustee under the Notes or the Indenture.
Section 15.15. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
JURY TRIAL; WAIVER OF DAMAGES. (a) THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY
AND INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT
TO ANY CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE OTHER THAN GENERAL OBLIGATIONS
LAW ss. 5-1401), AND ANY DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE PLEDGOR, THE TRUSTEE AND
THE HOLDERS OF THE NOTES IN CONNECTION WITH THIS PLEDGE AGREEMENT, AND WHETHER
ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. NOTWITHSTANDING THE FOREGOING: THE
MATTERS IDENTIFIED IN 31 C.F.R. PART 357, 61 FED. REG. 43626 (AUG. 23, 1996),
SHALL BE GOVERNED SOLELY BY THE LAWS SPECIFIED THEREIN.
19
(b) THE PLEDGOR HAS APPOINTED CT CORPORATION SYSTEM AS ITS AGENT FOR
SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS PLEDGE
AGREEMENT AND FOR ACTIONS BROUGHT UNDER U.S. FEDERAL OR STATE SECURITIES LAWS
BROUGHT IN ANY FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW YORK AND AGREES
TO SUBMIT TO THE JURISDICTION OF ANY SUCH COURT.
(c) THE PLEDGOR AGREES THAT THE TRUSTEE SHALL, IN ITS CAPACITY AS
TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF NOTES, HAVE THE RIGHT, TO
THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE PLEDGOR OR THE
COLLATERAL IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH (AND
HAVING PERSONAL OR IN REM JURISDICTION OVER THE PLEDGOR OR THE COLLATERAL, AS
THE CASE MAY BE) TO ENABLE THE TRUSTEE TO REALIZE ON SUCH COLLATERAL, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE TRUSTEE. THE
PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS
IN ANY PROCEEDING BROUGHT BY THE TRUSTEE TO REALIZE ON SUCH PROPERTY OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE TRUSTEE, EXCEPT FOR SUCH
COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS WHICH, IF NOT ASSERTED IN ANY SUCH
PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR ASSERTED. THE PLEDGOR WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN THE CITY OF NEW YORK
ONCE THE TRUSTEE HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS.
(d) THE PLEDGOR AGREES THAT NEITHER ANY HOLDER OF NOTES NOR (EXCEPT AS
OTHERWISE PROVIDED IN THIS PLEDGE AGREEMENT OR THE INDENTURE) THE TRUSTEE IN ITS
CAPACITY AS TRUSTEE SHALL HAVE ANY LIABILITY TO THE PLEDGOR (WHETHER ARISING IN
TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE PLEDGOR IN CONNECTION
WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED
AND THE RELATIONSHIP ESTABLISHED BY THIS PLEDGE AGREEMENT, OR ANY ACT, OMISSION
OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL
AND NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING ON THE TRUSTEE OR SUCH
HOLDER OF NOTES, AS THE CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF ACTS OR
OMISSIONS ON THE PART OF THE TRUSTEE OR SUCH HOLDERS OF NOTES, AS THE CASE MAY
BE, CONSTITUTING BAD FAITH, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
20
(e) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR WAIVES THE
POSTING OF ANY BOND OTHERWISE REQUIRED OF THE TRUSTEE OR ANY HOLDER OF NOTES IN
CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO ENFORCE ANY JUDGMENT OR
OTHER COURT ORDER PERTAINING TO THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT
OR DOCUMENT ENTERED IN FAVOR OF THE TRUSTEE OR ANY HOLDER OF NOTES, OR TO
ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR
PERMANENT INJUNCTION, THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT
BETWEEN THE PLEDGOR ON THE ONE HAND AND THE TRUSTEE AND/OR THE HOLDERS OF THE
NOTES ON THE OTHER HAND.
[The remainder of this page intentionally left blank.]
IN WITNESS WHEREOF, the Pledgor and the Trustee have each caused this
Pledge Agreement to be duly executed and delivered as of the date first above
written.
Pledgor:
KMC TELECOM FINANCING, INC.
By: /s/ James D. Grenfell
------------------------
Name: JAMES D. GRENFELL
Title: EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
Trustee:
THE CHASE MANHATTAN BANK,
as Trustee
By: /s/ P. Kelly
------------------------
Name:
Title:
The foregoing is agreed to this 24th day of May, 1999,
KMC TELECOM HOLDINGS, INC.
By: /s/ James D. Grenfell
------------------------
Name: JAMES D. GRENFELL
Title: EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
SCHEDULE I
Pledged Securities
Security; Coupon; Maturity CUSIP No. Amount (U.S.$)
- -------------------------- --------- --------------
SCHEDULE II
Pledged Securities
Security; Coupon; Maturity CUSIP No. Amount (U.S.$)
- -------------------------- --------- --------------
ANNEX A
CONTROL AGREEMENT