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Exhibit
10.3
BOARD MEMBERSHIP
AGREEMENT
BOARD MEMBERSHIP AGREEMENT,
dated as of February 8, 2008 (this “ Agreement
”), among PAETEC Holding Corp., a Delaware corporation
(“ Parent ”), each Person listed on the
signature pages hereof under the heading “Fidelity
Stockholders” (collectively and as more fully defined below,
the “ Fidelity Stockholders ”), and each Person
listed on the signature pages hereof under the heading
“Wayzata Stockholders” (collectively and as more fully
defined below, the “ Wayzata Stockholders
”);
WHEREAS, as of the date
hereof (the “ Effective Date ”), Parent has
consummated a merger transaction pursuant to which the common
stock, par value $0.01 per share, of McLeodUSA Incorporated (the
“ Seller Common Stock ”) held by the Fidelity
Stockholders has been converted into the right to receive
12,185,815 shares of common stock, par value $0.01 per share, of
Parent (the “ Parent Common Stock ”) and the
Seller Common Stock held by the Wayzata Stockholders has been
converted into the right to receive 11,477,800 shares of the Parent
Common Stock; and
WHEREAS, Parent, the Fidelity
Stockholders and the Wayzata Stockholders wish to enter into this
Agreement to set forth their mutual agreement with respect to the
board membership and board observer rights provided for
herein;
NOW, THEREFORE, in
consideration of the foregoing and the mutual promises and
agreements contained herein, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1.
Definitions . As used in this Agreement, the following terms
have the meanings set forth below:
“ Affiliate
” has the same meaning as in Rule 12b-2 promulgated under the
Exchange Act as in effect on the date hereof.
“ Beneficial
owner ” and to “ beneficially own ”
has the same meaning as in Rule 13d-3 promulgated under the
Exchange Act as in effect on the date hereof; provided that a
Person shall not be deemed to be the beneficial owner of any Parent
Common Stock solely because such Person is a party to this
Agreement, if such Person would not be deemed to be the beneficial
owner of such Parent Common Stock within the meaning of such Rule
13d-3 if such Person were not a party to this Agreement.
“ Board of
Directors ” means the Board of Directors of
Parent.
“ Director
” means a member of the Board of Directors.
“ Exchange Act
” means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
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“ Fidelity Board
Observer Period ” means the period beginning on the
Effective Date and expiring on the earlier to occur of (a) the
date on which the Fidelity Stockholders collectively shall cease to
own of record and beneficially at least 6,092,907 Merger Shares, as
such number of Merger Shares shall be proportionately adjusted in
connection with any stock split, stock dividend, reverse stock
split or other combination, reclassification or other similar event
affecting the Parent Common Stock, and (b) February 8,
2010.
“ Fidelity
Stockholders ” means the Persons listed on the signature
pages hereof under the heading “Fidelity Stockholders”
and any other Affiliate of FMR Corp. advised by FMR
Corp.
“ Merger ”
means the merger consummated on the Effective Date pursuant to the
Merger Agreement.
“ Merger
Agreement ” means the Agreement and Plan of Merger, dated
as of September 17, 2007, as amended from time to time, among
Parent, PS Acquisition Corp., a wholly-owned subsidiary of Parent,
and McLeodUSA Incorporated.
“ Merger Shares
” means the Parent Common Stock issued by Parent in the
Merger pursuant to the Merger Agreement to the Fidelity
Stockholders or the Wayzata Stockholders, as the case may
be.
“ Person ”
means any individual, corporation, partnership, limited liability
company, limited partnership, joint venture, association,
joint-stock company, trust, unincorporated organization or
government body.
“ Wayzata Board
Membership Period ” means the period beginning on the day
following the Effective Date and, subject to Section 2.2(a),
expiring on the earliest to occur of (a) the date on which the
Wayzata Stockholders collectively shall cease to own of record and
beneficially at least 5,738,900 Merger Shares , as such
number of Merger Shares shall be proportionately adjusted in
connection with any stock split, stock dividend, reverse stock
split or other combination, reclassification or other similar event
affecting the Parent Common Stock, (b) February 8, 2010
and (c) March 24, 2008, but only if the Wayzata
Stockholders shall not have made an initial designation pursuant to
Section 2.1 on or before March 24, 2008.
“ Wayzata
Stockholders ” means the Persons listed on the signature
pages hereof under the heading “Wayzata Stockholders”
and any Affiliate of Wayzata Investment Partners LLC.
ARTICLE II
SECTION 2.1. Designation
of Director . During the Wayzata Board Membership Period, the
Wayzata Stockholders collectively shall be entitled to designate
one individual for appointment or for nomination for election to
the Board of Directors who shall be reasonably acceptable to
Parent. Any such designation shall be made in writing and addressed
to the Board of Directors. The designee identified in the initial
designation pursuant to this Section 2.1 shall be appointed to
Class III of the Board of Directors with a term expiring at
Parent’s annual meeting of stockholders in 2009.
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SECTION 2.2. Vacancies
Resignations .
(a) Subject to
Section 2.2(b), during the Wayzata Board Membership Period, in
the event that a vacancy is created at any time by the death,
disability, retirement, resignation or removal of the Director
designated for appointment or for nomination for election to the
Board of Directors pursuant to Section 2.1, the Wayzata
Stockholders shall collectively have the right, by written notice
to Parent, to designate a replacement individual for appointment or
nomination for election to the Board of Directors to fill such
vacancy. Each such replacement designee shall be reasonably
acceptable to Parent. If the Wayzata Stockholders do not designate
any such replacement to fill such vacancy within 30 days after
receipt by the Wayzata Stockholders of written notice from Parent
that the Wayzata Stockholders have 30 days to designate a
replacement to fill such vacancy, the Board of Directors shall be
entitled to fill such vacancy or to reduce the number of authorized
Directors by one, and the Wayzata Stockholders thereafter shall not
have any rights to designate a Director pursuant to this Agreement.
The Director appointed or elected to the Board of Directors
pursuant to a designation made by Wayzata Stockholders in
accordance with this Section 2.2(a) shall be deemed for
purposes of this Article II to be a Director who was designated for
appointment or nomination for election to the Board of Directors
pursuant to Section 2.1.
(b) Promptly upon the
expiration of the Wayzata Board Membership Period, the Wayzata
Stockholders shall take all necessary actions (including actions as
stockholders of Parent) to cause the Director they have previously
designated for appointment or nomination for election to the Board
of Directors pursuant to Section 2.1 to resign from the Board
of Directors as soon as reasonably practicable.
SECTION 2.3. Action by
Wayzata Stockholders . All communications by and to the Wayzata
Stockholders relating to the exercise of their rights pursuant to
Sections 2.1 and 2.2 shall be directed to and by a single
representative of the Wayzata Stockholders designated in writing by
the Wayzata Stockholders to Parent from time to time. Parent may
rely upon any such designation that is executed and delivered by
Wayzata Stockholders that collectively own of record and
beneficially at least a majority of the Merger Shares then owned of
record and beneficially by all Wayzata Stockholders. The initial
representative of the Wayzata Stockholders shall be John D.
McEvoy.
SECTION 2.4. Undertaking
By Parent . During the Wayzata Board Membership Period, Parent
agrees to take such action as shall be necessary to cause each
individual designated by the Wayzata Stockholders pursuant to
Section 2.1 to be appointed as a Director or to be nominated
for election by Parent’s stockholders as a Director,
including, without limitation, having such individual named as a
management nominee for whom proxies would be solicited for the
management slate.
ARTICLE III
BOARD OBSERVER
RIGHTS
SECTION 3.1. Board
Observer Rights . During the Fidelity Board Observer Period,
the Fidelity Stockholders shall have the right to appoint one
representative (the
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“ Observer Representative
”) to attend each meeting of the Board of Directors as a
non-voting observer, whether such meeting is
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