RHYTHMS NETCONNECTIONS INC.
(a Delaware corporation)
$150,365,000 Gross Proceeds
Units consisting of 13 1/2% Senior Discount Notes due 2008 and Warrants
PURCHASE AGREEMENT
Dated: April 28, 1998
TABLE OF CONTENTS
Page
----
PURCHASE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . 2
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY . . . . . . . 2
(b OFFICER'S CERTIFICATES. . . . . . . . . . . . . . . . . . . 11
SECTION 2. SALE AND DELIVERY TO INITIAL PURCHASERS; CLOSING. . . . . . 11
(a) SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . 11
(b) PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(c) QUALIFIED INSTITUTIONAL BUYER . . . . . . . . . . . . . . . 12
(d) DENOMINATIONS; REGISTRATION . . . . . . . . . . . . . . . . 12
SECTION 3. COVENANTS OF THE COMPANY. . . . . . . . . . . . . . . . . . 12
(a) OFFERING MEMORANDUM . . . . . . . . . . . . . . . . . . . . 12
(b) NOTICE AND EFFECT OF MATERIAL EVENTS. . . . . . . . . . . . 13
(c) AMENDMENT TO OFFERING MEMORANDUM AND SUPPLEMENTS. . . . . . 13
(d) QUALIFICATION OF SECURITIES FOR OFFER AND SALE. . . . . . . 13
(e) CERTIFICATE OF AMENDMENT. . . . . . . . . . . . . . . . . . 13
(f) DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(g) USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . 14
(h) RESTRICTION ON SALE OF SECURITIES . . . . . . . . . . . . . 14
(i) PRESS RELEASES. . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4 PAYMENT OF EXPENSES . . . . . . . . . . . . . . . . . . . . 14
(a) EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . 14
SECTION 5. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS . . . . . . . 15
(a) OPINIONS OF COUNSEL FOR COMPANY . . . . . . . . . . . . . . 15
(b) OPINION OF COUNSEL FOR INITIAL PURCHASERS . . . . . . . . . 15
(c) OFFICERS' CERTIFICATE . . . . . . . . . . . . . . . . . . . 15
(d) ACCOUNTANT'S COMFORT LETTER . . . . . . . . . . . . . . . . 15
(e) BRING-DOWN COMFORT LETTER . . . . . . . . . . . . . . . . . 16
(f) CERTIFICATE OF AMENDMENT. . . . . . . . . . . . . . . . . . 16
(g) PORTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(h) REGISTRATION RIGHTS AGREEMENTS. . . . . . . . . . . . . . . 16
(i) ADDITIONAL DOCUMENTS. . . . . . . . . . . . . . . . . . . . 16
(j) TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . 16
SECTION 6. SUBSEQUENT OFFERS AND RESALES OF THE SECURITIES . . . . . . 16
(a) OFFER AND SALE PROCEDURES . . . . . . . . . . . . . . . . . 16
(b) COVENANTS OF THE COMPANY. . . . . . . . . . . . . . . . . . 18
(c) RESALE PURSUANT TO RULE 903 OF REGULATION S
OR RULE 144A. . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 7. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 19
(a) INDEMNIFICATION OF INITIAL PURCHASERS . . . . . . . . . . . 19
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. . . . . 20
(c) ACTIONS AGAINST PARTIES, NOTIFICATION . . . . . . . . . . . 21
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. . . . . 21
SECTION 8. CONTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. . . . . . . . . . . . . . . . . . . . . . . . . . 23
i
SECTION 10 TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . 23
(a) TERMINATION, GENERAL. . . . . . . . . . . . . . . . . . . . 23
(b) LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 11 DEFAULT BY ONE OR MORE OF THE INITIAL PURCHASERS. . . . . . 23
SECTION 12 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 13 PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 14 GOVERNING LAW AND TIME. . . . . . . . . . . . . . . . . . . 24
SECTION 15 EFFECT OF HEADINGS. . . . . . . . . . . . . . . . . . . . . 24
ii
$150,365,000 Gross Proceeds
RHYTHMS NETCONNECTIONS, INC.
(a Delaware corporation)
Units consisting of 13 1/2% Senior Discount Notes due 2008 and Warrants
PURCHASE AGREEMENT
April 28, 1998
XXXXXXX XXXXX & CO.
Xxxxxxx Xxxxx Xxxxxx, Xxxxxx & Xxxxx
Incorporated
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities
Corporation
as Representative(s) of the several Initial Purchasers
c/x Xxxxxxx Xxxxx & Co.
Xxxxxxx Xxxxx, Xxxxxx Xxxxxx & Xxxxx
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Rhythms NetConnections, Inc., a Delaware corporation (the "Company"),
confirms its agreement with Xxxxxxx Xxxxx & Co., Xxxxxxx Lynch, Pierce, Xxxxxx &
Xxxxx Incorporated ("Xxxxxxx Xxxxx") and each of the other Initial Purchasers
named in Schedule A hereto (collectively, the "Initial Purchasers", which term
shall also include any initial purchaser substituted as hereinafter provided in
Section 11 hereof), for whom Xxxxxxx Xxxxx and Xxxxxxxxx, Xxxxxx & Xxxxxxxx
Securities Corporation are acting as representatives (in such capacity, the
"Representatives"), with respect to the issue and sale by the Company and the
purchase by the Initial Purchasers, acting severally and not jointly, of the
respective quantities set forth in said Schedule A of 290,000 of the Company's
Units ($150,365,000 gross proceeds) consisting of 13 1/2% Senior Discount Notes
due 2008 and Warrants (the "Securities"). The Securities are to be issued
pursuant to an indenture to be dated on or about May 5, 1998 (the "Indenture")
between the Company and State Street Bank and Trust Company of California, N.A.,
as trustee (the "Trustee") and a warrant agreement to be dated on or about May
5, 1998 (the "Warrant Agreement") between the Company and State Street Bank and
Trust Company of California, N.A., as warrant agent (the "Warrant Agent").
Securities issued in book-entry form will be issued to Cede & Co. as nominee of
The Depository Trust Company ("DTC") pursuant to one or more letter agreements,
to be dated as of the Closing Time (as defined in Section 2(b))(collectively,
the "DTC Agreement"), among the Company, the Trustee, the Warrant Agent and DTC.
The Company understands that the Initial Purchasers propose to make an
offering of the Securities on the terms and in the manner set forth herein and
agrees that the Initial Purchasers may resell, subject to the conditions set
forth herein, all or a portion of the Securities to purchasers ("Subsequent
Purchasers") at any time after the date of this Agreement. The Securities are to
be offered and sold through the Initial Purchasers without being registered
under the Securities Act of 1933, as amended (the "1933 Act"), in reliance upon
exemptions therefrom. Pursuant to the terms of the Securities, the Indenture and
the Warrant Agreement, investors that acquire Securities may only resell or
otherwise transfer such Securities if such Securities are hereafter registered
under the 1933 Act or if an exemption from the registration requirements of the
1933 Act is available (including the exemption afforded by Rule 144A ("Rule
144A") or Regulation S ("Regulation S") of the rules and regulations promulgated
under the 1933 Act by the Securities and Exchange Commission (the
"Commission")).
The Company has prepared and delivered to each Initial Purchaser copies
of preliminary offering memoranda dated April , 1998 and April 9, 1998
(collectively, the "Preliminary Offering Memorandum") and has prepared and will
deliver to each Initial Purchaser, on the date hereof or the next succeeding
day, copies of a final offering memorandum dated April 28, 1998 (the "Final
Offering Memorandum"), each for use by such Initial Purchaser in connection with
its solicitation of purchases of, or offering of, the Securities. "Offering
Memorandum" means, with respect to any date or time referred to in this
Agreement, the most recent offering memorandum (whether the Preliminary Offering
Memorandum or the Final Offering Memorandum, or any amendment or supplement to
either such document), which has been prepared and delivered by the Company to
the Initial Purchasers in connection with their solicitation of purchases of, or
offering of, the Securities.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to each Initial Purchaser as of the date hereof, and
will represent as of the Closing Time referred to in Section 2(b) hereof by
means of the certificate described in Section 5(c) hereof, and agrees with each
Initial Purchaser as follows:
(i) SIMILAR OFFERINGS. The Company has not, directly or
indirectly, solicited any offer to buy or offered to sell, and will not,
directly or indirectly, solicit any offer to buy or offer to sell, in
the United States or to any United States citizen or resident, any
security which is or would be integrated with the sale of the Securities
in a manner that would require the Securities to be registered under the
1933 Act.
(ii) OFFERING MEMORANDUM. The Offering Memorandum does not,
and at the Closing Time will not, include an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided that this representation,
warranty and agreement shall not apply to such statements in or
omissions from the Offering Memorandum made in reliance upon and in
conformity with information furnished to the Company in writing by any
Initial Purchaser through the Representative(s) expressly for use in the
Offering Memorandum. It is understood that the statements set forth in
the Offering Memorandum on page i with respect to stabilization, under
the heading "Plan
2
of Distribution" and the identity of counsel to the Initial Purchasers
under the heading "Legal Matters" constitute the only information
furnished in writing by or on behalf of the Initial Purchasers expressly
for use in the Offering Memorandum.
(iii) [INTENTIONALLY LEFT BLANK].
(iv) INDEPENDENT ACCOUNTANTS. The accountants who certified
the financial statements included in the Offering Memorandum are
independent certified public accountants with respect to the Company and
its subsidiaries within the meaning of Regulation S-X under the 1933
Act.
(v) FINANCIAL STATEMENTS. The financial statements,
together with the related schedules and notes, included in the Offering
Memorandum present fairly the consolidated financial position of the
Company and its subsidiaries at the dates indicated and the statement of
operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved. The selected financial data included in the
Offering Memorandum present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited
financial statements included in the Offering Memorandum. The pro forma
and pro forma as adjusted columns of the selected financial data
included in the Offering Memorandum and the related notes thereto
present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to
pro forma financial information and have been properly compiled on the
bases described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate
to give effect to the transactions and circumstances referred to
therein.
(vi) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective dates as of which information is given in the Offering
Memorandum, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise (a "Material Adverse
Effect"), whether or not arising in the ordinary course of business, (B)
there have been no transactions entered into by the Company or any of
its subsidiaries, other than those in the ordinary course of business,
which are material with respect to the Company and its subsidiaries
considered as one enterprise, and (C) there has been no dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock.
(vii) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Offering Memorandum and to enter into and
perform its obligations under this Agreement; and the Company is duly
qualified as a foreign corporation to transact business and is in good
standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
3
the conduct of business, except where the failure so to qualify or to be
in good standing would not result in a Material Adverse Effect.
(viii) GOOD STANDING OF DESIGNATED SUBSIDIARIES. Each of ACI
Corp. and ACI Corp. -- Virginia (collectively, the "Designated
Subsidiaries") has been duly organized and is validly existing as a
corporation (or, in the case of ACI Corp. -- Virginia, a Virginia public
benefit corporation) in good standing under the laws of the jurisdiction
of its incorporation, has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in
the Offering Memorandum and is duly qualified as a foreign corporation
to transact business and is in good standing, in each jurisdiction in
which such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect; except as otherwise disclosed in the Offering
Memorandum, all of the issued and outstanding capital stock of each
Designated Subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and is directly owned by the Company (or,
in the case of ACI Corp. -- Virginia, by ACI Corp.), free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of any
Designated Subsidiary was issued in violation of any preemptive or
similar rights arising by operation of law, or under the charter or
by-laws of such Designated Subsidiary or under any agreement to which
the Company or such Designated Subsidiary is a party. The Company has no
subsidiaries other than the Designated Subsidiaries.
(ix) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Offering Memorandum
in the column entitled "Actual" under the caption "Capitalization"
(except for subsequent issuances, if any, pursuant to this Agreement or
the Warrant Agreement, pursuant to employee benefit or stock option
plans referred to in the Offering Memorandum or pursuant to the exercise
of convertible securities or options referred to in the Offering
Memorandum).
(x) AUTHORIZATION OF AGREEMENT. This Agreement has been
duly authorized, executed and delivered by the Company.
(xi) AUTHORIZATION OF THE INDENTURE AND THE WARRANT
AGREEMENT. The Indenture and the Warrant Agreement have
been duly authorized by the Company and, at the Closing Time, will have
been duly executed and delivered by the Company and will constitute the
valid and binding agreements of the Company, enforceable against the
Company in accordance with their terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, or by general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law).
(xii) AUTHORIZATION OF THE SECURITIES. The Securities have
been duly authorized and, at the Closing Time, will have been duly
executed by the Company and, when authenticated in the manner provided
for in the Indenture and the Warrant Agreement and delivered against
payment of the purchase price therefor will constitute valid and binding
4
obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or
other similar laws relating, to or affecting enforcement of creditors'
rights generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding, in equity or at law),
and will be in the form contemplated by, and entitled to the benefits
of, the Indenture and the Warrant Agreement. All of the outstanding
shares of capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable, are not subject to any
preemptive or similar rights and have been issued in compliance with or
in reliance upon an exemption from all applicable state and federal
securities laws. The Warrants are exercisable into Common Stock in
accordance with the terms of the Warrant Agreement. The Company has duly
authorized and reserved for issuance the shares of Common Stock issuable
upon exercise of the Warrants, and, when issued and paid for upon
exercise of the Warrants in accordance with the terms thereof, the
shares of Common Stock will be validly issued, fully paid and
nonassessable, free of any preemptive or similar rights.
(xiii) DESCRIPTION OF THE SECURITIES, THE INDENTURE AND THE
WARRANT AGREEMENT. The Securities, the Indenture and
the Warrant Agreement will conform in all material respects to the
respective statements relating thereto contained in the Offering
Memorandum and will be in substantially the respective forms
previously delivered to the Initial Purchasers.
(xiv) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company
nor any of its subsidiaries is in violation of its charter or by-laws or
in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which any of them may be bound, or to which any of the
property or assets of the Company or any of its subsidiaries is subject
(collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect, and the execution,
delivery and performance of this Agreement, the Indenture, the Warrant
Agreement and the Securities and any other agreement or instrument
entered into or issued or to be entered into or issued by the Company in
connection with the transactions contemplated hereby or thereby or in
the Offering Memorandum and the consummation of' the transactions
contemplated herein and in the Offering Memorandum (including the
issuance and sale of the Securities and the use of the proceeds from the
sale of the Securities as described in the Offering Memorandum under the
caption "Use of Proceeds") and compliance by the Company with its
obligations hereunder have been duly authorized by all necessary
corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or constitute
a breach of, or default or a Repayment Event (as defined below) under,
or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, the Agreements and Instruments except for such
conflicts, breaches or defaults or liens, charges or encumbrances that,
singly or in the aggregate, would not result in a Material Adverse
Effect, nor will such action result in any violation of the provisions
of the charter or by-laws of the Company or any of its
5
subsidiaries or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any
of its subsidiaries or any of their assets or properties. As used
herein, a "Repayment Event" means any event or condition which gives the
holder of any note, debenture, other evidence of indebtedness or
preferred stock (or any person acting on such holder's behalf) the right
to require the repurchase, redemption or repayment of all or a portion
of such indebtedness or preferred stock by the Company or any of its
subsidiaries.
(xv) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of
its or any of its subsidiaries' principal suppliers, manufacturers,
customers or contractors, which, in either case, may reasonably be
expected to result in a Material Adverse Effect.
(xvi) ABSENCE OF PROCEEDINGS. Except as disclosed in the
Offering Memorandum, there is no action, suit, proceeding, inquiry or
investigation before or by any court or governmental agency or body,
domestic or foreign, now pending, or, to the knowledge of the Company,
threatened, against or affecting the Company or any subsidiary thereof
which might reasonably be expected to result in a Material Adverse
Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets of the Company or any of its
subsidiaries or the consummation of this Agreement or the performance by
the Company of its obligations hereunder. The aggregate of all pending
legal or governmental proceedings to which the Company or any subsidiary
thereof is a party or of which any of their respective property or
assets is the subject which are not described in the Offering
Memorandum, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material
Adverse Effect.
(xvii) POSSESSION OF INTELLECTUAL PROPERTY. Except as
disclosed in the Offering Memorandum, (A) the Company and its
subsidiaries own or possess, or can acquire on reasonable terms,
adequate 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, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, except that the Company
and its subsidiaries may fail to so own, possess or have the ability to
acquire on reasonable terms any Intellectual Property if such failure
would not result, singly or in the aggregate, in a Material Adverse
Effect, and (B) neither the Company nor any of its subsidiaries has
received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of
the Company or any of its subsidiaries therein, and which infringement
or conflict (if the subject of any unfavorable decision, ruling or
finding) or invalidity or inadequacy, singly or in the aggregate, would
result in a Material Adverse Effect.
6
(xviii) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except as may be required under the 1933
Act or state securities or "blue sky" laws in connection with the
Exchange Offer (as defined in the Offering Memorandum).
(xix) POSSESSION OF LICENSES AND PERMITS. Except as disclosed
in the Offering Memorandum, the Company and its subsidiaries possess
such permits, licenses, approvals, consents and other authorizations
issued by the appropriate federal, state, local or foreign regulatory
agencies or bodies necessary to conduct the business now operated by
them (collectively, "Governmental Licenses"); the Company and its
subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not,
singly or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except
where the invalidity of such Governmental Licenses or the failure of
such Governmental Licenses to be in full force and effect would not have
a Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect. The
Company has not been informed of any fact, event or circumstance that is
reasonably likely to impair the Company's (or its subsidiaries') ability
to obtain any Governmental Licenses necessary or advisable in order to
effectuate the Company's future plans and strategies described in the
Offering Memorandum. Without limiting the generality of this paragraph
(xix):
(A) The Company and each of its subsidiaries hold
all telecommunications regulatory licenses, permits,
authorizations, consents and approvals (the "Telecommunications
Licenses") required from the Federal Communications Commission
(the "FCC") for the Company and its subsidiaries to conduct
their business on and as of the date hereof in the manner
described in the Offering Memorandum, except as would not have,
individually or in the aggregate, a Material Adverse Effect; the
Telecommunications Licenses have been duly and validly issued
and are in full force and effect, except where the failure to be
in full force and effect would not have, individually or in the
aggregate, a Material Adverse Effect; no proceedings to revoke
or restrict the Telecommunications Licenses are pending or, to
the best of the Company's knowledge, threatened; neither the
Company nor its subsidiaries are in violation of any of the
terms and conditions of any of the Telecommunications Licenses,
are in violation of the Communications Act of 1934, as amended
(the "Communications Act"), or are in violation of any FCC rules
and regulations, except as would not have, individually or in
the aggregate, a Material Adverse Effect; and the Company and
its subsidiaries have in effect with the FCC all international
and domestic service tariffs necessary to conduct their business
on and as of the date hereof in the manner described in the
Offering Memorandum except as would not have, individually or in
the aggregate, a Material Adverse Effect;
7
(B) The Company and its subsidiaries have obtained
all state and municipal Telecommunications Licenses and filed
all tariffs required for the provision of telecommunications
services in any state to conduct their business on and as of the
date hereof in the manner described in the Offering Memorandum,
except where the failure to do so would not have, individually
or in the aggregate, a Material Adverse Effect;
(C) There is no outstanding adverse judgment,
injunction, decree or order that has been issued by the FCC or
any state utility commission or similar state agency ("PUC") or
municipality against the Company or its subsidiaries or any
action, proceeding or investigation pending before the FCC or
any state PUC or municipality, or, to the Company's knowledge,
threatened by the FCC or any state PUC or municipality against
the Company or its subsidiaries which, if the subject of any
unfavorable decision, ruling or finding, would have a Material
Adverse Effect on the Company or its subsidiaries;
(D) No license, permit, consent, approval, order or
authorization of, or filing with, the FCC or with any state PUC
or municipal authority on the part of the Company or its
subsidiaries is required in connection with the issuance or sale
of the Units; and
(E) Neither the issuance and sale of the Units nor
the performance by the Company or its subsidiaries of their
obligations under this Agreement, the Registration Rights
Agreements (as defined herein), the Warrant Agreement or the
Indenture (collectively, the "Purchase Documents") will result
in a violation in any material respect of: (1) the
Communications Act or the applicable rules or regulations, or
any order, writ, judgment, injunction, decree or award of the
FCC binding on the Company or its subsidiaries; (2) any state
telecommunications laws or any applicable state PUC rules or
regulations, or any order, writ, judgment, injunction, decree or
award of any state PUC binding on the Company or its
subsidiaries; or (3) any municipal rules or regulations
applicable to the Company or its subsidiaries; except that the
Company may be required to file applications and/or obtain
permits, authorizations, consents and approvals as a result of
the issuance of shares of common stock upon the exercise of the
Warrants if such issuance would be deemed to result in a change
in control of the Company, which requirement would not have a
Material Adverse Effect.
(xx) TITLE TO PROPERTY. The Company and its subsidiaries
have good and marketable title to all real property owned by the Company
and its subsidiaries and good title to all other properties owned by
them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Offering Memorandum or (b)
do not, singly or in the aggregate, 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 or any of its subsidiaries; and all of
the leases and subleases material to the business of the Company and its
subsidiaries, considered as one enterprise, and under which the Company
or any of its subsidiaries holds
8
properties described in the Offering Memorandum, are in full force and
effect, and neither the Company nor any of its subsidiaries has any
notice of any material claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any of its subsidiaries
under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company or any subsidiary thereof to the
continued possession of the leased or subleased premises under any such
lease or sublease.
(xxi) TAX RETURNS. The Company and its subsidiaries have filed
all federal, state, local and foreign tax returns that are required to
be filed or have duly requested extensions thereof and have paid all
taxes required to be paid by any of them and any related assessments,
fines or penalties, except for any such tax, assessment, fine or penalty
that is being contested in good faith and by appropriate proceedings,
and adequate charges, accruals and reserves have been provided for in
the financial statements referred to in Section l(a)(v) above in respect
of all federal, state, local and foreign taxes for all periods as to
which the tax liability of the Company or any of its subsidiaries has
not been finally determined or remains open to examination by applicable
taxing authorities, except for such failures to file, request
extensions, make payments and provide for adequate charges, accruals and
reserves as would not, singly or in the aggregate, result in a Material
Adverse Effect.
(xxii) ENVIRONMENTAL LAWS. Except as described in the Offering
Memorandum and except such matters as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its subsidiaries is in violation of any federal, state, local
or foreign statute, law, rule, regulation, ordinance, code, policy or
rule of common law or any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent, decree
or judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling
of Hazardous Materials (collectively, "Environmental Laws"), (B) the
Company and its subsidiaries have all permits, authorizations and
approvals required under any applicable Environmental Laws and are each
in compliance with their requirements, (C) there are no pending or
threatened administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental
Law against the Company or any of its subsidiaries and (D) there are no
events or circumstances that might reasonably be expected to form the
basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against
or affecting the Company or any of its subsidiaries relating to
Hazardous Materials or Environmental Laws.
(xxiii) INVESTMENT COMPANY ACT. The Company is not, and upon
the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Offering
Memorandum will not be, an "investment company"
9
or an entity "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended (the "1940
Act").
(xxiv) RULE 144A ELIGIBILITY. The Securities are eligible for
resale pursuant to Rule 144A and will not be, at the Closing Time, of
the same class as securities listed on a national securities exchange
registered under Section 6 of the 1934 Act, or quoted in a U.S.
automated interdealer quotation system.
(xxv) NO GENERAL SOLICITATION. None of the Company, its
affiliates, as such term is defined in Rule 501 (b) under the 1933 Act
("Affiliates"), or any person acting on its or any of their behalf
(other than the Initial Purchasers, as to whom the Company makes no
representation) has engaged or will engage, in connection with the
offering of the Securities, in any form of general solicitation or
general advertising within the meaning of Rule 502(c) under the 1933
Act.
(xxvi) NO REGISTRATION REQUIRED. Subject to compliance by the
Initial Purchasers with the representations and warranties set forth in
Section 2 and the procedures set forth in Section 6 hereof, it is not
necessary in connection with the offer, sale and delivery of the
Securities to the Initial Purchasers and to each Subsequent Purchaser in
the manner contemplated by this Agreement and the Offering Memorandum to
register the Securities under the 1933 Act or to qualify the Indenture
under the Trust Indenture Act of 1939, as amended (the "1939 Act").
(xxvii) NO DIRECTED SELLING EFFORTS. With respect to those
Securities sold in reliance on Regulation S, (A) none of the Company,
its Affiliates or any person acting on its or their behalf (other than
the Initial Purchasers, as to whom the Company makes no representation)
has engaged or will engage in any directed selling efforts within the
meaning of Regulation S and (B) each of the Company and its Affiliates
and any person acting on its or their behalf (other than the Initial
Purchasers, as to whom the Company makes no representation) has complied
and will comply with the offering restrictions requirement of Regulation
S.
(xxviii) NO APPLICABLE ANTI-DILUTION PROVISIONS. Upon execution
of the waiver agreement in the form attached hereto as Annex B (the
"Waiver Agreement") by the parties thereto and compliance with the
transactions contemplated thereby, the issuance and sale of the
Securities pursuant to this Agreement and the transactions contemplated
hereby, and the issuance of shares of Common Stock upon exercise of the
Warrants, will not result in an adjustment to any conversion ratio,
conversion price, exercise price, redemption price or similar provision
applicable to any outstanding securities of the Company.
(xxix) INSURANCE. The Company and each of its subsidiaries
maintains insurance covering its properties, operations, personnel and
business. Such insurance insures against such losses and risks as are
adequate in accordance with customary industry practice to protect the
Company, each of its subsidiaries and their businesses. Neither the
Company or any of its subsidiaries has received notice from any insurer
or agent of such insurer that substantial capital improvement or other
expenditures will have to be made in order to
10
continue such insurance. All such insurance is outstanding and duly in
force on the date hereof.
(xxx) INTERNAL ACCOUNTING CONTROLS. The Company maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (a) transactions are executed in accordance with
management's general or specific authorization; (b) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (c) access to assets is permitted only in
accordance with management's general or specific authorization; and (d)
the recorded accountability for assets is compared with existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences.
(xxxi) STABILIZATION AND MANIPULATION. None of the Company or
any of its subsidiaries has (a) taken, directly or indirectly, any
action designed to, or that might reasonably be expected to, cause or
result in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Units, the Notes or
the Warrants or (b) since the date of the Preliminary Offering
Memorandum (I) sold, bid for, purchased or paid any person any
compensation for soliciting purchases of, the Units, the Notes or the
Warrants or (II) paid or agreed to pay to any person any compensation
for soliciting another to purchase any securities of the Company.
(xxxii) RELATED PARTY TRANSACTIONS. Except as disclosed in the
Offering Memorandum, there are no business relationships or related
party transactions required to be disclosed therein pursuant to Item 404
of Regulation S-K of the Commission (assuming for purposes of this
paragraph (xxxii) that Regulation S-K is applicable to the Offering
Memorandum).
(xxxiii) SOLVENCY. The Company is, and immediately after the
Closing Time will be, Solvent. As used herein, the term "Solvent" means,
with respect to the Company on a particular date, that on such date (A)
the fair market value of the assets of the Company is greater than the
total amount of liabilities (including contingent liabilities) of the
Company, (B) the present fair salable value of the assets of the Company
is greater than the amount that will be required to pay the probable
liabilities of the Company on its debts as they become absolute and
mature, (C) the Company is able to realize upon its assets and pay its
debts and other liabilities, including contingent obligations, as they
mature, and (D) the Company does not have unreasonably small capital.
(b OFFICER'S CERTIFICATES. Any certificate signed by any officer
of the Company or any of its subsidiaries delivered to the Representative(s) or
to counsel for the Initial Purchasers shall be deemed a representation and
warranty by the Company to each Initial Purchaser as to the matters covered
thereby.
SECTION 2. SALE AND DELIVERY TO INITIAL PURCHASERS; CLOSING.
(a) SECURITIES. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to each Initial
11
Purchaser, severally and not jointly, and each Initial Purchaser, severally and
not jointly, agrees to purchase from the Company, at the price set forth in
Schedule B, the quantity of Securities set forth in Schedule A opposite the name
of such Initial Purchaser, plus any additional principal amount of Securities
which such Initial Purchaser may become obligated to purchase pursuant to the
provisions of Section 11 hereof.
(b) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the office of Xxxxx &
XxXxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at such other place as
shall be agreed upon by the Representative(s) and the Company, at 10:00 A.M. on
the fifth business day after the date hereof (unless postponed in accordance
with the provisions of Section 11), or such other time not later than ten
business days after such date as shall be agreed upon by the Representative(s)
and the Company (such time and date of payment and delivery being herein called
the "Closing Time").
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representative(s) for the respective accounts of the Initial Purchasers of
certificates for the Securities to be purchased by them. It is understood that
each Initial Purchaser has authorized the Representative(s), for its account, to
accept delivery of, receipt for, and make payment of the purchase price for, the
Securities which it has agreed to purchase. Xxxxxxx Xxxxx, individually and not
as representative of the Initial Purchasers, may (but shall not be obligated to)
make payment of the purchase price for the Securities to be purchased by any
Initial Purchaser whose funds have not been received by the Closing Time, but
such payment shall not relieve such Initial Purchaser from its obligations
hereunder. The certificates representing the Securities shall be registered in
the name of Cede & Co. pursuant to the DTC Agreement and shall be made available
for examination and packaging by the Initial Purchasers in The City of New York
not later than 10:00 A.M. on the last business day prior to the Closing Time.
(c) QUALIFIED INSTITUTIONAL BUYER. Each Initial Purchaser severally
and not jointly represents and warrants to, and agrees with, the Company that,
as of the date hereof and as of the Closing Date, it is a "qualified
institutional buyer" within the meaning, of Rule 144A under the 1933 Act (a
"Qualified Institutional Buyer") and an "accredited investor" within the meaning
of Rule 501(a) under the 1933 Act (an "Accredited Investor").
(d) DENOMINATIONS; REGISTRATION. Certificates for the Securities
shall be in such denominations and registered in such names as the
Representative(s) may request in writing at least one full business day before
the Closing Time.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with
each Initial Purchaser as follows:
(a) OFFERING MEMORANDUM. The Company, as promptly as possible, will
furnish to each Initial Purchaser, without charge, such number of copies of the
Preliminary Offering Memorandum, the Final Offering Memorandum and any
amendments and supplements thereto and documents incorporated by reference
therein as such Initial Purchaser may reasonably request.
12
(b) NOTICE AND EFFECT OF MATERIAL EVENTS. The Company will
immediately notify each Initial Purchaser, and confirm such notice in writing,
of (x) any filing made by the Company of information relating to the offering of
the Securities with any securities exchange or any other regulatory body in the
United States or any other jurisdiction, and (y) prior to the completion of the
placement of the Securities by the Initial Purchasers as evidenced by a notice
in writing from the Initial Purchasers to the Company, any material changes in
or affecting the earnings, business affairs or business prospects of the Company
and its subsidiaries which (i) make any statement in the Offering Memorandum
false or misleading or (ii) are not disclosed in the Offering Memorandum. In
such event or if during such time any event shall occur as a result of which it
is necessary, in the reasonable opinion of the Company, its counsel, the Initial
Purchasers or counsel for the Initial Purchasers, to amend or supplement the
Final Offering Memorandum in order that the Final Offering Memorandum not
include any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light of
the circumstances then existing, the Company will forthwith amend or supplement
the Final Offering Memorandum by preparing and furnishing to each Initial
Purchaser an amendment or amendments of, or a supplement or supplements to, the
Final Offering Memorandum (in form and substance satisfactory in the reasonable
opinion of counsel for the Initial Purchasers) so that, as so amended or
supplemented, the Final Offering Memorandum will not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances existing at the time
it is delivered to a Subsequent Purchaser, not misleading.
(c) AMENDMENT TO OFFERING MEMORANDUM AND SUPPLEMENTS. The Company
will advise each initial Purchaser promptly of any proposal to amend or
supplement the Offering Memorandum and will not effect such amendment or
supplement without the consent of the Initial Purchasers. Neither the consent of
the Initial Purchasers, nor the Initial Purchasers' delivery of any such
amendment or supplement, shall constitute a waiver of any of the conditions set
forth in Section 5 hereof.
(d) QUALIFICATION OF SECURITIES FOR OFFER AND SALE. The Company
will use its best efforts, in cooperation with the Initial Purchasers, to
qualify the Securities for offering and sale by the Initial Purchasers to any
Subsequent Purchasers under the applicable securities laws of such jurisdictions
as the Representative(s) may reasonably designate and will maintain such
qualifications in effect as long as required for the sale of the Securities;
PROVIDED; HOWEVER, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise so subject.
(e) CERTIFICATE OF AMENDMENT. The Company will use its best efforts
to cause a Certificate of Amendment (the "Certificate of Amendment") to its
Certificate of Incorporation to be filed with the Secretary of State of the
State of Delaware prior to completion of the transactions contemplated hereby,
which (i) shall cause the number of authorized shares of common stock, par value
$0.001 per share, of the Company to be increased to a number sufficient to
provide for the exercise of the Warrants and (ii) shall effectuate such further
amendments as the Initial Purchasers may reasonably request in order to
effectuate the transactions contemplated hereby.
13
(f) DTC. The Company will cooperate with the Representative(s) and
use its best efforts to permit the Securities to be eligible for clearance and
settlement through the facilities of DTC.
(g) USE OF PROCEEDS. The Company will use the net proceeds received
by it from the sale of the Securities in the manner specified in the Offering
Memorandum under "Use of Proceeds".
(h) RESTRICTION ON SALE OF SECURITIES. During a period of 180 days
from the date of the Offering Memorandum, the Company will not, without the
prior written consent of Xxxxxxx Xxxxx, directly or indirectly, issue, sell,
offer or agree to sell, grant any option for the sale of, or otherwise dispose
of, any other debt securities of the Company or securities of the Company that
are convertible into, or exchangeable for, the Securities or such other debt
securities.
(i) PRESS RELEASES. From the date hereof to the Closing Time,
without the prior consent of the Initial Purchasers, the Company will not issue
directly or indirectly any press release or other public communication or hold
any press conference with respect to the Company or the business, financial
condition, assets, results of operations or prospects of the Company, unless in
the judgment of the Company and its counsel, and after notification to the
Initial Purchasers, such press release, communication or conference is required
by law.
SECTION 4 PAYMENT OF EXPENSES.
(a) EXPENSES. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and any filing of the Offering Memorandum (including
financial statements and any schedules or exhibits and any document incorporated
therein by reference) and of each amendment or supplement thereto, (ii) the
preparation, printing and delivery to the Initial Purchasers of this Agreement
and any Agreement among Initial Purchasers, the Indenture, the Warrant Agreement
and such other documents as may be required in connection with the offering,
purchase, sale and delivery of the Securities, (iii) the preparation, issuance
and delivery of the certificates for the Securities to the Initial Purchasers,
including any charges of DTC in connection therewith, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Initial Purchasers in connection therewith
and in connection with the preparation of the Blue Sky Survey, any supplement
thereto and any Legal Investment Survey, which amounts shall not exceed $2,500,
(vi) the fees and expenses of the Trustee, including the fees and disbursements
of counsel for the Trustee in connection with the Indenture and the Securities,
(vii) any fees payable in connection with the rating of the Securities, (viii)
any fees payable to the review by the National Association of Securities
Dealers, Inc. (the "NASD") in connection with the initial and continued
designation of the Securities as PORTAL securities under the PORTAL Market Rules
pursuant to NASD Rule 5322 and (ix) the fees and expenses of the Warrant Agent,
including the fees and disbursements of counsel for the Warrant Agent in
connection with the Warrant Agreement and the Securities.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Representative(s) in accordance with the provisions of Section 5 or Section
10(a)(i) hereof, the Company shall
14
reimburse the Initial Purchasers for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Initial
Purchasers.
SECTION 5. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The
obligations of the several Initial Purchasers hereunder are subject to the
accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company or any of its
subsidiaries delivered pursuant to the provisions hereof, to the performance by
the Company of its covenants and other obligations hereunder, and to the
following further conditions:
(a) OPINIONS OF COUNSEL FOR COMPANY. At the Closing Time, the
Representative(s) shall have received the opinions, dated as of the Closing
Time, together with signed or reproduced copies of such letters for each of the
other Initial Purchasers, (i) of Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP, counsel for
the Company, to the effect set forth in Exhibit A-1 hereto, (ii) of Xxxx and
Xxxx LLP, counsel for the Company, to the effect set forth in Exhibit A-2
hereto, (iii) of Xxxxxxxxxx & Xxxxx, counsel for the Company, to the effect set
forth in Exhibit A-3 hereto, (iv) of a firm to be designated by the Company and
reasonably satisfactory to the Initial Purchasers, in form and substance
satisfactory to counsel for the Initial Purchasers, to the effect set forth on
Exhibit A-4 hereto and (v) of Xxxxxxx Xxxxxxxxxx, General Counsel of the
Company, to the effect set forth on Exhibit A-5 hereto. In giving the opinion
described in clause (i) above such counsel may rely, as to all matters governed
by the laws of jurisdictions other than the law of the State of New York, the
federal law of the United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel satisfactory to the Representative(s).
(b) OPINION OF COUNSEL FOR INITIAL PURCHASERS. At the Closing Time,
the Representative(s) shall have received the favorable opinion, dated as of the
Closing Time, of Xxxxx & XxXxxxxx, counsel for the Initial Purchasers, together
with signed or reproduced copies of such letter for each of the other Initial
Purchasers, substantially to the effect set forth in Exhibit A-6 hereto. In
giving such opinion such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New York, the federal
law of the United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel satisfactory to the Representative(s).
(c) OFFICERS' CERTIFICATE. At the Closing Time, there shall not
have been, since the date hereof or since the respective dates as of which
information is given in the Offering Memorandum, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Representative(s) shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, dated as of the Closing Time, to the effect that (i) there has
been no such material adverse change, (ii) the representations and warranties in
Section 1 hereof are true and correct with the same force and effect as though
expressly made at and as of the Closing Time, and (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Time.
(d) ACCOUNTANT'S COMFORT LETTER. At the time of the execution of
this Agreement, the Representative(s) shall have received from Price Waterhouse
LLP a letter dated such date, in form and substance satisfactory to the
Representative(s), together with signed or reproduced copies of
15
such letter for each of the other Initial Purchasers containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
Initial Purchasers with respect to the financial statements and certain
financial information contained in the Offering Memorandum.
(e) BRING-DOWN COMFORT LETTER. At the Closing Time, the
Representative(s) shall have received from Waterhouse LLP a letter, dated as of
the Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (d) of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to the Closing Time.
(f) CERTIFICATE OF AMENDMENT. Prior to the Closing Time, the
Company shall have caused the Certificate of Amendment to be filed with the
Secretary of State of the State of Delaware and shall have delivered a certified
copy of such amendment to the Representatives.
(g) PORTAL. At the Closing Time, the Securities shall have been
designated for trading on PORTAL.
(h) REGISTRATION RIGHTS AGREEMENTS. The Issuers and the Initial
Purchasers shall have entered into registration rights agreements (the
"Registration Rights Agreements"), dated as of the Closing Time, substantially
in form and substance as described in the Offering Memorandum under the headings
"Description of the Notes--Exchange Offer; Note Registration Rights" and
"Description of the Warrants--Certain Terms--Registration Requirements."
(i) ADDITIONAL DOCUMENTS. At the Closing Time, counsel for the
Initial Purchasers shall have been furnished with such other documents and
opinions as they may reasonably require for the purpose of enabling them to pass
upon the issuance and sale of the Securities as herein contemplated, or in order
to evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be satisfactory in form and substance to the
Representative(s) and counsel for the Initial Purchasers.
(j) TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Representative(s) by notice to the Company at
any time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 7 and 8 shall survive any such termination and remain in
full force and effect.
SECTION 6. SUBSEQUENT OFFERS AND RESALES OF THE SECURITIES.
(a) OFFER AND SALE PROCEDURES. Each of the Initial Purchasers and
the Company hereby acknowledge and agree to observe the following procedures in
connection with the offer and sale of the Securities:
(i) OFFERS AND SALES ONLY TO REGULATION S PURCHASERS OR
QUALIFIED INSTITUTIONAL BUYERS. Offers and sales of the Securities will
be made only by the Initial Purchasers or
16
Affiliates thereof qualified to do so in the jurisdictions in which such
offers or sales are made. Each such offer or sale shall only be made (A)
to persons whom the offeror or seller reasonably believes to be
qualified institutional buyers (as defined in Rule 144A under the
Securities Act) or (B) to non-U.S. persons outside the United States to
whom the offeror or seller reasonably believes offers and sales of the
Securities may be made in reliance upon Rules 903 and 904 of Regulation
S under the 1933 Act.
(ii) NO GENERAL SOLICITATION. The Securities will be offered
by approaching prospective Subsequent Purchasers on an individual basis.
No general solicitation or general advertising (within the meaning of
Rule 502(c) under the 1933 Act) will be used in the United States in
connection with the offering of the Securities.
(iii) PURCHASES BY NON-BANK FIDUCIARIES. In the case of a
non-bank Subsequent Purchaser of a Security acting as a fiduciary for
one or more third parties, in connection with an offer and sale to such
purchaser pursuant to clause (a) above, each third party shall, in the
judgment of the applicable Initial Purchaser, be an Institutional
Accredited Investor or a Qualified Institutional Buyer or a non-U.S.
person outside the United States.
(iv) SUBSEQUENT PURCHASER NOTIFICATION. Each Initial
Purchaser will take reasonable steps to inform, and cause each of its
U.S. Affiliates to take reasonable steps to inform, persons acquiring
Securities from such Initial Purchaser or Affiliate, as the case may be,
in the United States that the Securities (A) have not been and will not
be registered under the 1933 Act and have not been registered under any
state securities laws, (B) are being sold to them without registration
under the 1933 Act in reliance on Rule 144A or in accordance with
another exemption from registration under the 1933 Act, as the case may
be, and (C) may not be offered, sold or otherwise transferred except (1)
to the Company, (2) outside the United States in accordance with Rule
904 of Regulation S, or (3) inside the United States in accordance with
(x) Rule 144A to a person whom the seller reasonably believes is a
Qualified Institutional Buyer that is purchasing such Securities for its
own account or for the account of a Qualified Institutional Buyer to
whom notice is given that the offer, sale or transfer is being made in
reliance on Rule 144A or (y) the exemption from registration under the
1933 Act provided by Rule 144, if available.
(v) [INTENTIONALLY LEFT BLANK.]
(vi) RESTRICTIONS ON TRANSFER. The transfer restrictions and
the other provisions set forth in Section 3.17 of the Indenture and
Section 1.08 of the Warrant Agreement, including the legends required
thereby, shall apply to the Securities except as otherwise agreed by the
Company and the Initial Purchasers. The Company shall refuse to register
any transfer of securities not made in accordance with Regulation S
under the Securities Act, pursuant to registration under the Securities
Act, or pursuant to an available exemption from such registration.
Following the sale of the Securities by the Initial Purchasers to
Subsequent Purchasers pursuant to the terms hereof, the Initial
Purchasers shall not be liable or responsible to the Company for any
losses, damages or liabilities suffered or incurred by the Company,
including any losses, damages or liabilities under the 1933 Act, arising
from or relating to any resale or transfer by any Subsequent Purchaser
of any Security; provided, that
17
nothing contained in this sentence shall limit the Initial Purchasers'
rights and obligations under Section 7 hereof.
(vii) DELIVERY OF OFFERING MEMORANDUM. Each Initial
Purchaser will deliver to each purchaser of the Securities from such
Initial Purchaser, in connection with its original distribution of the
Securities, a copy of the Offering Memorandum, as amended and
supplemented at the date of such delivery.
(viii) HEDGING TRANSACTIONS. The Initial Purchasers will not
engage in hedging transactions with respect to the Securities prior to
the expiration of the applicable distribution compliance period
specified in Rule 903 of Regulation S under the Securities Act, unless
in compliance with the Securities Act.
(b) COVENANTS OF THE COMPANY. The Company covenants with each
Initial Purchaser as follows:
(i) DUE DILIGENCE. In connection with the original
distribution of the Securities, the Company agrees that, prior to any
offer or resale of the Securities by the Initial Purchasers, the Initial
Purchasers and counsel for the Initial Purchasers shall have the right
to make reasonable inquiries into the business of the Company and its
subsidiaries. The Company also agrees to provide answers to each
prospective Subsequent Purchaser of Securities who so requests
concerning the Company and its subsidiaries (to the extent that such
information is available or can be acquired and made available to
prospective Subsequent Purchasers without unreasonable effort or expense
and to the extent the provision thereof is not prohibited by applicable
law) and the terms and conditions of the offering of the Securities, as
provided in the Offering Memorandum.
(ii) INTEGRATION. The Company agrees that it will not and
will cause its Affiliates not to make any offer or sale of securities of
the Company of any class if, as a result of the doctrine of
"integration" referred to in Rule 502 under the 1933 Act, such offer or
sale would render invalid (for the purpose of (i) the sale of the
Securities by the Company to the Initial Purchasers, (ii) the resale of
the Securities by the Initial Purchasers to Subsequent Purchasers or
(iii) the resale of the Securities by such Subsequent Purchasers to
others, in each case in accordance with the terms and conditions herein
set forth) the exemption from the registration requirements of the 1933
Act provided by Section 4(2) thereof or by Rule 144A or by Regulation S
thereunder or otherwise.
(iii) RULE 144A INFORMATION. The Company agrees that, in
order to render the Securities eligible for resale pursuant to Rule 144A
under the 1933 Act, while any of the Securities remain outstanding, it
will make available, upon request, to any holder of Securities or
prospective purchasers of Securities the information specified in Rule
144A(d)(4), unless the Company furnishes information to the Commission
pursuant to Section 13 or 15(d) of the 1934 Act (such information,
whether made available to holders or prospective purchasers or furnished
to the Commission, is herein referred to as "Additional Information").
18
(iv) RESTRICTION ON REPURCHASES. Until the expiration of
three years after the original issuance of the Securities, the Company
will not, and will cause its Affiliates not to, purchase or agree to
purchase or otherwise acquire any Securities which are "restricted
securities" (as such term is defined under Rule 144(a)(3) under the 1933
Act), whether as beneficial owner or otherwise (except as agent acting
as a securities broker on behalf of and for the account of customers in
the ordinary course of business in unsolicited broker's transactions)
unless, immediately upon any such purchase, the Company or any Affiliate
shall submit such Securities to the Trustee for cancellation.
(c) RESALE PURSUANT TO RULE 903 OF REGULATION S OR RULE 144A. Each
Initial Purchaser represents and agrees, that, except as permitted by Section
6(a) above, it has offered and sold Securities and will offer and sell
Securities (i) as part of their distribution at any time and (ii) otherwise
until forty days (or, in the case of the Warrants, one year) after the later of
the date upon which the offering of the Securities commences and the Closing
Time, only in accordance with Rule 903 of Regulation S or Rule 144A under the
1933 Act. Accordingly, neither the Initial Purchasers, their affiliates nor any
persons acting on their behalf have engaged or will engage in any directed
selling efforts with respect to Securities, and the Initial Purchasers, their
affiliates and any person acting on their behalf have complied and will comply
with the offering restriction requirements of Regulation S. Each Initial
Purchaser agrees that, at or prior to confirmation of a sale of Securities
(other than a sale of Securities pursuant to Rule 144A), it will have sent to
each distributor, dealer or person receiving a selling concession, fee or other
remuneration that purchases Securities from it or through it during the
restricted period a confirmation or notice to substantially the following
effect:
"The Securities covered hereby have not been
registered under the United States Securities
Act of 1933 (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
(i) as part of their distribution at any time
and (ii) otherwise until forty days (or, in the
case of the Warrants, one year) after the later
of the date upon which the offering of the
Securities commenced and the date of closing,
except in either case in accordance with
Regulation S or Rule 144A under the Securities
Act. Terms used above have the meaning given to
them by Regulation S."
Terms used in the above paragraph have the meanings given to them by Regulation
S.
Each Initial Purchaser severally represents and agrees that it has not entered
and will not enter into any contractual arrangements with respect to the
distribution of the Securities, except with its affiliates or with the prior
written consent of the Company.
SECTION 7. INDEMNIFICATION.
(a) INDEMNIFICATION OF INITIAL PURCHASERS. 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 Section 15 of the 1933 Act
or Section 20 of the 1934 Act as follows:
19
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Offering Memorandum or the Final Offering Memorandum (or any amendment
or supplement thereto), or the omission or alleged omission therefrom of
a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission; provided that (subject to
Section 7(d) below) any such settlement is effected with the written
consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Xxxxxxx
Xxxxx), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Initial Purchaser through the Representative expressly for use in the Offering
Memorandum (or any amendment thereto), which information is described in Section
1(a)(ii) hereof; and PROVIDED further that the Company will not be liable to an
Initial Purchaser with respect to any Preliminary Offering Memorandum to the
extent that the Company shall sustain the burden of proof of proving that any
such loss, liability, claim, damage or expense resulted from the fact that such
Initial Purchaser, in contravention of a requirement of this Agreement or
applicable law, sold Securities to a person to whom such Initial Purchaser
failed to send or give, at or prior to the Closing Date, a copy of the Final
Offering Memorandum as then amended or supplemented if (i) the Company has
previously furnished copies thereof (sufficiently in advance of the Closing Date
to allow for the distribution by the Closing Date) to the Initial Purchasers and
the loss, liability, claim, damage or expense of such Initial Purchaser resulted
from an untrue statement or omission or alleged untrue statement or omission of
a material fact contained in or omitted from the Preliminary Offering Memorandum
which was corrected in the Final Offering Memorandum as, if applicable, amended
or supplemented prior to the Closing Date and (ii) giving or sending such Final
Offering Memorandum by the Closing Date to the party or parties asserting such
loss, liability, claim, damage or expense would have constituted a complete
defense to the claim asserted by such person.
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. Each
Initial Purchaser severally agrees to indemnify and hold harmless the Company,
its directors, each of its officers who would be required to sign the Offering
Memorandum if it were a registration statement on Form S-1, and each person, if
any, who controls the Company within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described
20
in the indemnity contained in subsection (a) of this Section, as incurred, but
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Offering Memorandum in reliance upon and in
conformity with written information furnished to the Company by such Initial
Purchaser through the Representative expressly for use in the Offering
Memorandum.
(c) ACTIONS AGAINST PARTIES, NOTIFICATION. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section 7(a)
above, counsel to the indemnified parties shall be selected by Xxxxxxx Xxxxx,
and, in the case of parties indemnified pursuant to Section 7(b) above, counsel
to the indemnified parties shall be selected by the Company. An indemnifying
party may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 7 or Section
8 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act by or on behalf of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 7(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
SECTION 8. CONTRIBUTION. If the indemnification provided for in
Section 7 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (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
21
the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and of the Initial Purchasers on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, 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 the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Initial
Purchasers, bear to the aggregate initial offering price of the Securities.
The relative fault of the Company on the one hand and the Initial
Purchasers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or 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.
The Company and the Initial Purchasers agree that it would not be just
and equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation (even if the Initial Purchasers were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 8 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed pursuant
to this Agreement were offered to the Subsequent Purchasers exceeds the amount
of any damages which 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 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls an Initial
Purchaser within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as such Initial Purchaser,
and each director of the Company, each officer of the Company who would be
required to sign the Offering Memorandum if it were a registration statement on
Form S-l, and each person, if any, who controls the Company within the meaning
of
22
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company. The Initial Purchasers' respective
obligations to contribute pursuant to this Section 8 are several in proportion
to the principal amount of Securities set forth opposite their respective names
in Schedule A hereto and not joint.
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Initial Purchaser or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the Initial Purchasers.
SECTION 10 TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Representative(s) may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Offering
Memorandum, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the Representative(s), impracticable to market the Securities or to
enforce contracts for the sale of the Securities, or (iii) if trading in any
securities of the Company has been suspended or limited by the Commission, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or limited, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal or New York authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 7 and 8 shall survive such termination and remain in full force and effect.
SECTION 11 DEFAULT BY ONE OR MORE OF THE INITIAL PURCHASERS. If
one or more of the Initial Purchasers shall fail at the Closing Time to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representative(s) shall have the right, but
not the obligation, within 24 hours thereafter, to make arrangements, for one or
more of the non-defaulting Initial Purchasers, or any other Initial Purchasers,
to purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if, however,
the Representative(s) shall not have completed such arrangements within such
23
24-hour period, then this Agreement shall terminate without liability on the
part of any non-defaulting Initial Purchaser.
No action pursuant to this Section shall relieve any defaulting Initial
Purchaser from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement, either the Representative(s) or the Company shall have the
right to postpone the Closing Time for a period not exceeding seven days in
order to effect any required changes in the Offering Memorandum or in any other
documents or arrangement.
SECTION 12 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to the
Initial Purchasers shall be directed to the Representative(s) at North Tower,
World Financial Center, New York, New York 10281-11201, attention of Xxxxxx
Xxxxxx, with a courtesy copy to Xxxxxxx X. Xxxx, Xxxxx & XxXxxxxx, 000 Xxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000; notices to the Company shall be directed to it
at 0000 Xxxxx Xxxxxx Xxxxxxx, Xxxxxxxxx, Xxxxxxxx 00000-0000, attention of
Xxxxxx X'Xxxxxx, with a courtesy copy to Xxxx Xxxxxxxxx, Xxxxxxx Xxxxxxx &
Xxxxxxxx LLP, 000 Xxxx "X" Xxxxxx, Xxxxx 0000, Xxx Xxxxx, Xxxxxxxxxx 00000.
SECTION 13 PARTIES. This Agreement shall inure to the benefit of
and be binding upon the Initial Purchasers and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Initial Purchasers and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 7 and 8
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Initial Purchasers and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities
from any Initial Purchaser shall be deemed to be a successor by reason merely of
such purchase.
SECTION 14 GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15 EFFECT OF HEADINGS. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
[signature page follows]
24
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Initial Purchasers and the Company in accordance with its terms.
Very truly yours,
RHYTHMS NETCONNECTIONS, INC.
By /s/ Xxxxxxxxx X. Xxxxx
-------------------------------------------
Xxxxxxxxx Xxxxx
Chief Executive Officer & President
CONFIRMED AND ACCEPTED,
as of the date first above written:
XXXXXXX XXXXX & CO.
XXXXXXX LYNCH, XXXXXX, XXXXXX & XXXXX
INCORPORATED
XXXXXXXXX, XXXXXX & XXXXXXXX SECURITIES
CORPORATION
By: XXXXXXX XXXXX, XXXXXX, XXXXXX & XXXXX
INCORPORATED
By /s/ Xxxxx Xxxxxx
----------------------------------------
Authorized Signatory
For themselves and as Representatives of the other Initial Purchasers named in
Schedule A hereto.
25
SCHEDULE A
Quantity of
Name of Initial Purchaser Securities
------------------------- -----------
Xxxxxxx Xxxxx, Xxxxxx, Xxxxxx & Xxxxx Incorporated .......... 188,500
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corporation ......... 101,500
----------
Total ....................................................... 290,000
----------
----------
Sch A - 1
SCHEDULE B
RHYTHMS NETCONNECTIONS, INC.
290,000 Units consisting of 13 1/2% Senior Discount Notes due 2008 and Warrants
1. The initial public offering price of the Securities shall be
51.85% of the principal amount at maturity ($290,000,000) of the Notes included
therein.
2. The purchase price to be paid by the Initial Purchasers for the
Securities shall be 50.03525% of the principal amount at maturity of the Notes
included therein.
3. The interest rate on the Notes shall be 13 1/2% per annum
commencing May 15, 2003.
4. Each Unit shall contain $1,000 in principal amount at maturity
of Notes and four Warrants to purchase 1.7 shares of the Company's common stock
at $0.01 per share.
5. The further terms and conditions of the Securities are as set
forth in the Offering Memorandum.
Sch B - 1
Exhibit A-1
FORM OF OPINION OF COMPANY'S LEGAL COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(i)
[Form of Xxxxxxx Xxxxxxx opinion follows]
A - 1 - 1
May , 1998
Xxxxxxx Xxxxx & Co.
Xxxxxxx Xxxxx, Xxxxxx, Xxxxxx & Xxxxx Incorporated
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corporation
as Representative(s) of the Several Initial Purchasers
c/x Xxxxxxx Xxxxx & Co.
Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
We have acted as counsel to Rhythms NetConnections Inc., a
Delaware corporation (the "Company") in connection with the issuance and sale by
the Company of Units (the "Offering") consisting of _____% Senior Discount Notes
due 2008 (the "Notes") and Warrants to purchase up to __________ shares of the
Company's Common Stock (the "Warrants") with gross proceeds in the amount of
$125,000,000 (collectively, the "Units"), pursuant to that certain Purchase
Agreement dated April __, 1998 (the "Purchase Agreement"), among the Company and
you , as the Representatives of the Initial Purchasers. This opinion is being
rendered to you pursuant to Section 5(a)(i) of the Purchase Agreement.
Capitalized terms used herein and not otherwise defined have the respective
meanings set forth in the Purchase Agreement.
In our capacity as counsel to the Company in connection with the
transaction contemplated by the Purchase Agreement, we have examined, among
other things, originals, or copies identified to our satisfaction as being true
copies, of the following:
(i) The Preliminary Offering Memorandum dated April
9, 1998 (the "Preliminary Offering Memorandum");
(ii) The final Offering Memorandum dated __________,
1998 (the "Offering Memorandum");
Xxxxxxx Xxxxx & Co. May __, 1998
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Xxxx 2
Securities Corporation
(iii) The Certificates of Incorporation of the Company and ACI
Corp., a Delaware corporation ("ACI Corp. -- Delaware") and ACI Corp. --
Virginia, a Virginia corporation ("ACI Corp. -- Virginia") (each of ACI Corp. --
Delaware and ACI Corp. -- Virginia, a "Designated Subsidiary"), including all
amendments thereto, as in effect at the date hereof;
(iv) The Bylaws of the Company and each Designated
Subsidiary, including all amendments thereto, as in effect at the date hereof;
(v) Resolutions of the Board of Directors of the Company
adopted at a telephonic meeting of the Board held on March 27, 1998,
authorizing the issuance and sale of the Units, the preparation of the
Preliminary Offering Memorandum and Offering Memorandum and other related
actions with regard thereto;
(vi) Resolutions of the Pricing Committee of the Board of
Directors of the Company adopted at a telephonic meeting held on __________,
1998, authorizing the pricing of the Notes and other final terms of the issuance
and sale of the Units;
(vii) The Purchase Agreement;
(viii) The forms of the certificates representing the Notes and
Warrants;
(ix) The certificate dated the date hereof of the President
and Chief Financial Officer of the Company, delivered to you pursuant to Section
5(c) of the Purchase Agreement;
(x) The Indenture (the "Indenture"), dated the date
hereof, by and between the Company and State Street Bank and Trust Company of
California, N.A. (the "Trustee");
(xi) The Warrant Agreement (the "Warrant Agreement"),
dated as of the date hereof, by and between the Company and State Street Bank
and Trust Company of California (the "Warrant Agent").
(xii) The Officers' Certificate attached hereto as EXHIBIT A
(the "Officers' Certificate"); and
(xiii) The opinion of _________________ dated as of the date
hereof (the "_________________ Opinion").
Xxxxxxx Xxxxx & Co. May __, 1998
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Xxxx 3
Securities Corporation
In addition, we have obtained from public officials and from officers
and other representatives of the Company such other certificates and assurances
as we consider necessary for purposes of this opinion. In our examination of
documents, we have assumed, without independent verification, the legal capacity
of all natural persons, that the signatures on all documents examined by us are
genuine, the authenticity of all documents submitted to us as originals, and the
conformity to original documents of all documents submitted to us as copies.
Regarding documents executed by parties other than the Company, we have assumed
(i) that each such other party (A) properly signed such documents (and that such
signatures are genuine) and (B) had the power to enter into and perform all of
its obligations thereunder, and (ii) that such documents constitute the legal,
valid, binding and enforceable obligations of such party, which assumptions we
have not independently verified. Specifically and without limiting the
generality of the foregoing, we have assumed that the certificates representing
the Notes and the Warrants have been executed for delivery by authorized
officers of the Trustee and Warrant Agent, respectively.
As used in this opinion, the expression "to our knowledge" and "known to
us" with reference to matters of fact means that after considering the actual
knowledge of those attorneys in our firm who have given substantive attention to
this matter for the Company, but not including any constructive or imputed
notice of any information, we find no reason to believe that the opinions
expressed herein are factually incorrect. Beyond that, we have made
no independent factual investigation for the purpose of rendering an opinion
with respect to such matters except as otherwise expressly specified in this
opinion.
Except as provided in the following sentence, this opinion relates
solely to the laws of the State of California, the laws of the State of New
York, the Delaware General Corporation Law, the Federal securities laws of the
United States, and the Trust Indenture Act of 1939 (the "TIA"), and we express
no opinion with respect to the effect or applicability of any laws in other
areas or of other jurisdictions. To the extent that the matters addressed in
numbered paragraphs 2, 5, 11 and 16 below involve the laws of the State of
Virginia, we have relied with your and their consent, solely on the
_____________ Opinion, without independently investigating or considering any of
the matters covered thereby.
For purposes of the matters addressed in numbered paragraph 1 below
relating to the valid existence and good standing of the Company under the
Delaware General Corporate Law, we have relied, with your consent, solely upon
the Certificate of Good Standing dated _____________ , 1998, received from the
Secretary of State of the State of Delaware, without further investigation.
For purposes of the matters addressed in numbered paragraph 2 below
relating to the valid existence and good standing of ACI Corp. -- Delaware under
the Delaware General
Xxxxxxx Xxxxx & Co. May __, 1998
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Xxxx 4
Securities Corporation
Corporate Law, we have relied, with your consent, solely upon the Certificate of
Good Standing dated _____________, 1998, received from the Secretary of State of
the State of Delaware, without further investigation.
For purposes of the matters addressed in numbered paragraph 3 below
relating to the qualification of each of the Company and ACI Corp. -- Delaware
to transact business as a foreign corporation in certain jurisdictions and their
good standing therein, we have relied, with your consent, solely upon (i) the
representations of the Company set forth in the Officers' Certificate that the
only jurisdictions in which the real and personal property or assets or
business conducted by the Company and ACI Corp. -- Delaware are located include:
California and Colorado, and (ii) the Certificates of Qualification and Good
Standing of the Secretaries of State of the States of California (dated
_____________, 1998) and Colorado (dated _____________, 1998) without further
investigation.
For purposes of the matters addressed in paragraph 12 below, we have
assumed that the Initial Purchasers are qualified institutional buyers (as
defined in the Purchase Agreement), and we have relied, with your consent, upon
the representations, warranties, covenants and agreements of the Company in the
Purchase Agreement, the covenants and agreements of the Initial Purchasers in
the Purchase Agreement and on the accuracy of the disclosure in the Offering
Memorandum under the caption "Plan of Distribution" and "Notice to Investors,"
in each case without independent verification. In addition, we express no
opinion herein as to any sale of the Units, Notes and/or Warrants subsequent to
the initial resales thereof by the Initial Purchasers to the Subsequent
Purchasers.
Based upon and subject to the foregoing and the other qualifications and
conditions set forth herein, we are of the opinion that:
1. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware. The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the Offering
Memorandum and to enter into and perform its obligations under the Purchase
Agreement.
2. Each Designated Subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Offering Memorandum.
3. The Company is duly qualified and is in good standing as
a foreign corporation in California and Colorado. ACI Corp. -- Delaware is duly
qualified and is in good standing as a foreign corporation in California and
Colorado.
Xxxxxxx Xxxxx & Co. May __, 1998
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Xxxx 5
Securities Corporation
4. To our knowledge, the Designated Subsidiaries are the
Company's only subsidiaries.
5. The Company has ______________ shares of Common Stock
authorized and _____ shares of Preferred Stock authorized. To our knowledge,
the company has ______ of Common Stock issued and outstanding and _______ shares
of Preferred Stock issued and outstanding. All of the issued and outstanding
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and, to our knowledge, were not
issued in violation of any preemptive or similar right. All of the issued and
outstanding shares of capital stock of each Designated Subsidiary have been duly
authorized and validly issued and are fully paid and non-assessable, and, to our
knowledge, are owned by the Company. To our knowledge and based solely on our
review of : (i) the representations of the Company set forth in the Officers'
Certificate, (ii) UCC searches in the States of California, Colorado, Delaware
and Virginia, and (iii) original stock certificate No. __________ representing
_____ shares of Common Stock of ACI Corp. -- Delaware, and original stock
certificate No. __________ representing _____ shares of Common Stock of ACI
Corp. -- Virginia, both of which are in the Company's possession, and the stock
ledgers of the Designated Subsidiaries, the issued and outstanding shares of
capital stock of each Designated Subsidiary owned by the Company are free and
clear of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity.
6. The shares of Common Stock issuable upon exercise of the
Warrants have been duly authorized, and, when issued and delivered against
payment therefor in accordance with the terms of the Warrants and Warrant
Agreement, will be validly issued, fully paid and nonassessable.
7. The Purchase Agreement has been duly authorized,
executed and delivered by the Company.
8. The certificate representing the Notes delivered to the
Trustee is in the form contemplated by the Indenture and the certificate
representing the Warrants delivered to the Warrant Agent is the form
contemplated by the Warrant Agreement. The Notes and the Warrants have been
duly authorized by the Company and, when the Notes and Warrants are executed and
authenticated in accordance with the provisions of the Indenture and
Warrant Agreement, respectively, and delivered to and paid for by the Initial
Purchasers in accordance with the terms of the Purchase Agreement will
Xxxxxxx Xxxxx & Co. May __, 1998
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Xxxx 6
Securities Corporation
be valid and binding obligations of the Company, enforceable against the Company
in accordance with their respective terms.
9. The Indenture and the Warrant Agreement have been duly
authorized, executed and delivered by the Company and constitute the valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.
10. To our knowledge, except as set forth in the Offering
Memorandum, there are no legal or governmental proceedings, actions, suits,
inquiries, or investigations pending or threatened against the Company or the
Designated Subsidiaries, or to which the property of the Company or any
Designated Subsidiary is subject, before or brought by any court or governmental
agency or body, which might reasonably be expected to result in a Material
Adverse Effect on the consummation of the transactions contemplated in the
Purchase Agreement or the performance by the Company of its obligations
thereunder or the issuance and sale of the Units contemplated by the Offering
Memorandum.
11. No authorization, approval, consent or order of, or
qualification with, any governmental authority or agency having jurisdiction
over the Company (other than such as may be required under the applicable
securities or "blue sky" laws of the various jurisdictions in which the Units
will be offered or sold, and, with respect to the Exchange Notes (as defined in
the Notes Registration Rights Agreement dated as of the date hereof between the
Company and you), the Securities Act of 1933, as amended (the "Securities Act"),
and the TIA as to which we need express no opinion) is required in connection
with the due authorization, execution and delivery of the Purchase Agreement or
the due execution, delivery or performance of the Indenture and the Warrant
Agreement by the Company or the compliance by the Company with all of the
provisions thereof and the consummation of the transactions contemplated
thereby. The execution, delivery and performance of the Purchase Agreement, the
DTC Agreement, the Indenture, the Warrant Agreement and the Units and the
consummation of the transactions contemplated in the Purchase Agreement, the
description of the "Use of Proceeds" set forth in the Offering Memorandum, and
compliance by the Company with its obligations under the Purchase Agreement, the
Indenture, the Warrant Agreement and the Units will not, whether with or without
the giving of notice or lapse of time or both, conflict with or constitute a
breach of, or default or Repayment Event under or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any Designated Subsidiary pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or any other
agreement or instrument material to the Company and the Designated
Subsidiaries, taken as a whole, (as identified by the Company in Schedule A to
the Officers' Certificate), nor will such action conflict with or constitute a
breach of any of the terms or
Xxxxxxx Xxxxx & Co. May __, 1998
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Page 7
Securities Corporation
provisions of, or a default under, the Certificates of incorporation and Bylaws
of the Company and the Designated Subsidiaries, or any applicable law, statute,
rule, regulation, judgment, order, writ or decree, known to us, of any
government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Designated Subsidiary or any of their
respective properties, assets or operations. With respect to the opinion set
forth above in this numbered paragraph 11 regarding the description of the "Use
of Proceeds," without limiting the generality of the other qualifications and
conditions set forth herein, this firm is not opining on or providing any
guarantee regarding how or if the Company will actually use any of the net
proceeds from the Offering.
12. It is not necessary in connection with the offer, sale and
delivery of the Securities to the Initial Purchasers in the manner contemplated
by the Purchase Agreement or in connection with sales from the Initial
Purchasers to the Subsequent Purchasers in the manner contemplated by the
Purchase Agreement and the Offering Memorandum to register the Securities under
the Securities Act or to qualify the Indenture under the TIA.
13. The statements in the Offering Memorandum under the captions
"Description of the Units," "Description of the Notes," "Description of the
Warrants," and "Description of Capital Stock" insofar as such statements
constitute summaries of the legal matters and documents referred to therein,
fairly present, in all material respects, such legal matters and documents.
14. The statements in the Offering Memorandum under the caption
"Certain Federal Income Tax Considerations" insofar as such statements
constitute a summary of certain federal income tax laws referred to therein,
fairly present, in all material respects, such federal income tax laws.
15. To our knowledge, assuming the Offering Memorandum was a
prospectus included in a Registration Statement on Form S-1, there are no
contracts, indentures, mortgages, loan agreements, notes, leases, or other
instruments that are required to be described in the Offering Memorandum that
are not so described, and the descriptions thereof are accurate in all material
respects.
16. Each of the past corporate actions listed on Exhibit B hereto
(which includes all material corporate transactions disclosed in the Officers'
Certificate or otherwise known to us) have been duly authorized by the Company
and the appropriate Designated Subsidiary, as the case may be. To our knowledge
and based solely on our review of the Officers' Certificate and other
certificates attached hereto as Exhibit C received from Chief Executive Officer
and President of the Designated Subsidiaries , no default by the Company or any
Designated Subsidiary that would have a Material Adverse Effect exists
Xxxxxxx Xxxxx & Co. May __, 1998
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Xxxx 8
Securities Corporation
in the due performance or observance of any material obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument material to the Company
and the Designated Subsidiaries, taken as a whole, as identified as items 1
through 11 on Schedule A to the Officers' Certificate. Notwithstanding anything
else set forth in this opinion and without limiting the generality of the other
qualifications and conditions set forth herein, the scope of the opinions set
forth in this numbered paragraph 16 do include any actions or inactions by the
Company or any Designated Subsidiary after the Closing Time.
In addition, we participated in conferences with certain officers and
other representatives of the Company, its regulatory counsel, its independent
public accountants, and with you and your counsel at which the contents of the
Offering Memorandum and related matters were discussed. We are not, however,
passing upon, and do not assume any responsibility for, and we have not
independently checked or verified the accuracy, completeness or fairness of the
information contained in the Offering Memorandum. In addition we are not
experts on issues related to patents, the FCC, state regulations applicable to
intrastate and interstate communications, the Investment Company Act of 1940,
the Telecommunications Act of 1996, the Public Utility Holding Company Act of
1935, and the other matters being opined on by Xxxxxxxxxxx & Xxxxx and Xxxx and
Xxxx as required by Section 5(a)(ii) and (iii) of the Purchase Agreement, and,
without limiting the generality of the other qualifications and conditions set
forth herein, we are not passing upon, and do not assume any responsibility for,
and we have not independently checked or verified, the accuracy, completeness or
fairness of the information contained in the Offering Memorandum with respect to
such issues.
We may state, however, that, based upon our participation as described
in the preceding paragraph, we confirm that we have no reason to believe that
(other than the financial statements, including the notes and schedules thereto,
and the other financial and statistical data included therein, as to which we
express no belief), the Offering Memorandum contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
Our opinions in numbered paragraph 11 above with respect to laws
referred to therein are limited to laws normally applicable to transactions of
the type contemplated in the Purchase Agreement, Indenture and Warrant Agreement
and do not extend to licenses, permits and approvals necessary for the conduct
of the Company's business. In addition and without limiting the generality of
the previous sentence, we express no opinion herein with respect to the effect
of any environmental law, any state or federal antitrust law or any local law.
Xxxxxxx Xxxxx & Co. May __, 1998
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Xxxx 9
Securities Corporation
The opinions set forth above are also subject to the following
qualifications, assumptions, limitations and exceptions:
(a) The enforceability of the obligations of the Company under the
Indenture, Warrant Agreement, Notes and Warrants (the "Operative Documents") may
be subject to or limited by (i) bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent transfer and other similar laws affecting
the rights of creditors generally; and (ii) general equitable principles
(whether relief is sought in a proceeding at law or in equity), including,
without limitation, concepts of materiality, reasonableness, good faith, and
fair dealing.
(b) We express no opinion as to provisions, if any, of the Operative
Documents, purporting to establish an evidentiary standard or to authorize
conclusive determinations by any party thereto or any other person or allowing
any party thereto or any other person to make determinations in its sole
discretion.
(c) We also express no opinion as to:
(i) the enforceability of provisions, if any, of the
Operative Documents, pursuant to which the Company agrees to make payments
without set-off, defense or counterclaim;
(ii) remedial provisions, if any, of the Operative Documents,
including, without limitation, certain of the waivers therein, which purport to
permit the Initial Purchasers or any other person to exercise remedies with
respect to the Company other than in compliance with applicable laws;
(iii) the enforceability of provisions relating to
indemnification, contribution or exculpation, to the extent any such provision
is contrary to public policy or prohibited by law (including, without
limitation, federal and state securities laws);
(iv) provisions, if any, providing for the exclusive
jurisdiction of a particular court or purporting to waive rights to trial by
jury, service of process or objections to the laying of venue or to forum on the
basis of forum non conveniens, in connection with any litigation arising out of
or pertaining to the Operative Documents;
(v) provisions, if any, contained in the Operative Documents
purporting to waive either illegality as a defense to the performance of
contract obligations or any other defense to such performance which cannot, as a
matter of law, be effectively waived;
Xxxxxxx Xxxxx & Co. May __, 1998
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Xxxx 10
Securities Corporation
(vi) provisions, if any, of the Operative Documents,
permitting modification thereof only by means of an agreement in writing signed
by the parties thereto;
(vii) provisions, if any, of the Operative Documents,
requiring payment of attorneys' fees, except to the extent a court determines
such fees to be reasonable;
(viii) the effect of the law of any jurisdiction other than the
State of New York which limits the rates of interest legally chargeable or
collectible; and
(ix) provisions of the Operative Documents, if any, to the
extent that they purport to exclude conflict of law principles under New York
law.
This opinion is furnished by us as counsel to the Company, to you, the
Representatives of the Initial Purchasers, in connection with the transactions
contemplated by the Purchase Agreement, and is solely for the benefit of the
Initial Purchasers and may not be delivered to, quoted or relied upon by any
other person, or for any other purpose, without our express prior written
consent. This opinion is effective as of the date hereof, and we undertake no
obligation to update or otherwise supplement this opinion in the future for any
reason. Our opinion is expressly limited to the matters set forth above and we
render no opinion, whether by implication or otherwise, as to any other matters
relating to the Company.
Very truly yours,
XXXXXXX, XXXXXXX & XXXXXXXX LLP
EXHIBIT A
Rhythms NetConnections Inc.
ACI Corp.
ACI Corp.--Virginia
OFFICERS' CERTIFICATE
To: Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP
The undersigned, Xxxxxx X. X'Xxxxxx, Chief Financial Officer of Rhythms
NetConnections Inc., a Delaware corporation (the "Company") and Xxxxxxxxx X.
Xxxxx, Chief Executive Officer and President of ACI Corp., a Delaware
corporation ("ACI Corp. -- Delaware") and ACI Corp. -- Virginia, a Virginia
corporation (collectively, the "Designated Subsidiaries"), hereby certify as
officers of and on behalf of the Company and each Designated Subsidiary,
respectively, that:
1. The representations and warranties of the Company
contained in the Purchase Agreement dated as of April ______, 1998, among the
Company and Xxxxxxx Xxxxx & Co., Merrill, Lynch, Xxxxxx, Xxxxxx & Xxxxx
Incorporated and Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corporation, are true
and correct on and as of the date hereof.
2. All tax returns and payments due and owing with respect
to the Company and each Designated Subsidiary have been filed with or paid to
the proper authorities in the States of California, Colorado, Delaware and
Virginia.
3. To my knowledge, no authorization, approval, consent or
order of, or qualification with, any governmental authority or agency having
jurisdiction over the Company (other than such as may be required under the
applicable securities or "blue sky" laws of the various jurisdictions in which
the Units will be offered or sold, and, with respect to the New Senior Notes,
the Securities Act of 1933, as amended, and the TIA) is required in connection
with the due authorization, execution and delivery of the Purchase Agreement or
the due execution, delivery or performance of the Indenture and the Warrant
Agreement by the Company or the compliance by the Company with all of the
provisions thereof and the consummation of the transactions contemplated
thereby. To my knowledge, the execution, delivery and performance of the
Purchase Agreement, the Indenture, the Warrant Agreement and the Units, and the
consummation of the transactions contemplated in the Purchase Agreement, the
description of the "Use of Proceeds" set forth in the Offering Memorandum,
and compliance by the Company with its obligations under the Purchase Agreement,
the Indenture, the Warrant Agreement and the Units will not, whether with or
without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment Event under or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any Designated Subsidiary pursuant to any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note,
1.
lease or any other agreement or instrument material to the Company and the
Designated Subsidiaries, taken as a whole, as identified on Schedule A hereto,
nor will such action conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the Certificates of Incorporations and Bylaws
of the Company and the Designated Subsidiaries, or any applicable law, statute,
rule, regulation, judgment, order, writ or decree, known to us, of any
government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Designated Subsidiary or any of their
respective properties, assets or operations. The Company and each Designated
Subsidiary have made available to Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP copies of all
agreements listed in Schedule A hereto, and none of the foregoing has been
amended or modified from the form so provided.
4. Except as set forth in the Offering Memorandum, there
are no legal or governmental proceedings, actions, suits, inquiries, or
investigations pending or threatened against the Company or the Designated
Subsidiaries, or to which the property of the Company or any Designated
Subsidiary is subject, before or brought by any court or governmental agency or
body, which might reasonably be expected to result in a Material Adverse Effect
on the consummation of the transactions contemplated in the Purchase Agreement
or the performance by the Company of its obligations thereunder or the
transactions contemplated by the Offering Memorandum.
5. The only jurisdictions in which any material real and
personal property or material assets or business conducted by the Company or ACI
Corp. -- Delaware are located are California and Colorado.
6. The Designated Subsidiaries are the Company's only
subsidiaries.
7. The authorized, issued and outstanding capital stock of
the Company as of December 31, 1997, is as set forth under the heading "Actual"
under the caption "Capitalization" in the Offering Memorandum. All of the
issued and outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, and were not
issued in violation of any preemptive or similar right. All of the issued and
outstanding shares of capital stock of each Designated Subsidiary have been duly
authorized and validly issued and are fully paid and non-assessable, and, are
owned by the Company. The issued and outstanding shares of capital stock of
each Designated Subsidiary are free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity.
8. All material agreements of the Company have been
described in the Offering Memorandum.
9. No default by the Company or any Designated Subsidiary
that would have a Material Adverse Effect exists in the due performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument material to the
2.
Company and the Designated Subsidiaries, taken as a whole, identified as items 1
through 11 on Schedule A hereto.
This Certificate is made and delivered by the undersigned to permit you
to deliver your legal opinion as required pursuant to Section 5(a)(i) of the
Purchase Agreement. Capitalized terms not otherwise defined herein shall have
the meanings given to such terms in the Purchase Agreement.
IN WITNESS WHEREOF, the undersigned officer has signed this Certificate
as of the ____ day of April, 1998.
--------------------------------------
Xxxxxxxxx X. Xxxxx,
Chief Executive Officer and President
ACI Corp.
ACI Corp. -- Virginia
--------------------------------------
Xxxxxx X. X'Xxxxxx,
Chief Financial Officer
Rhythms NetConnections Inc.
3.
SCHEDULE A
to Officer's Certificate
RHYTHMS NETCONNECTIONS INC.
LIST OF MATERIAL AGREEMENTS
1. QuickStart Loan and Security Agreement between Rhythms and Silicon Valley
Bank dated October 29, 1997 ($l,000,000 credit line).
2. Master Lease Agreement No. 1642 and Addendum thereto between Rhythms and
Sun Financial Group, Inc. dated November 19, 1997. ($2,000,000 data
communication equipment).
3. [Equipment lease financing with GATX Capital ($32.5 million lease facility
currently being negotiated) -- will not be covered in opinion if not
finalized.]
4. Preferred stock investment documents:
a. Series A Preferred Stock Purchase Agreement;
b. Series B Preferred Stock Purchase Agreement;
c. Amended and Restated Investors' Rights Agreement (pages 52, 98). bph
d. Voting Agreement; and
e. Voting Trust Agreement (page 98).
8. Employment agreement with Xxxxxxxxx Xxxxx.
9. Employment agreement with Xxxxx Xxxxxxxxx.
10. Employment agreement with Xxxx Xxxxxxx.
11. Employment agreement with Xxxxxxx Xxxxxxxxxx.
12. Interconnection Agreement between Accelerated Connections, Inc. and Pacific
Bell dated July 1997.
A-1
RHYTHM NETCONNECTIONS INC.
List of Material Events
1. Chronology of Charter:
a. Incorporation in State of Delaware on February 27, 1997 as
"Accelerated Connections, Inc."
b. Certificate of Amendment of Certificate of Incorporation filed May 21,
1997, increasing number of authorized shares of Common Stock. (See
Items 4 and 5 below)
c. Restated Certificate of Incorporation filed July 3, 1997 authorizing
Series A Preferred Stock, and setting forth rights, preferences and
privileges of same. (See Items 7 and 8 below)
d. Certificate of Correction of Restated Certificate of Incorporation
filed July 24, 1997.
e. Certificate of Amendment of Restated Certificate of Incorporation
filed September 12, 1997, changing the corporate name from Accelerated
Connections Inc. to Rhythms NetConnections Inc. (See Items 9 and 10
below)
f. Restated Certificate of Incorporation filed March 6, 1998, authorizing
Series B Preferred Stock and setting forth rights, preferences and
privileges of same. See Items 15 and 16 below)
2. Action by Written Consent of Incorporator dated February 27, 1997, electing
as directors of the corporation Xxxx Xxxxxxxx and Xxxxxx Xxxxxx.
3. Minutes of Action of Board of Directors dated February 27, 1997:
a. Establishes principal place of business.
b. Establishes registered office in state of Delaware.
c. Establishes registered agent.
d. Adopts bylaws of the corporation.
e. Elects Xxxx Xxxxxxxx President and CEO, Xxxxxx Xxxxxx as Vice
President Operations, and Xxxxxx Xxxxx as Treasurer and Secretary.
f. Authorizes filing of qualification to do business in California.
g. Authorizes filing of SS-4 form with the IRS.
h. Authorizes sale of shares of common stock as follows:
Enterprise Partners III, L.P. 920,000 shares
Enterprise Partners III Associates, L.P. 80,000 shares
4. Unanimous Written Consent of the Board of Directors dated May 14, 1997:
a. Authorizing Certificate of Amendment of Certificate of Incorporation,
increasing the number of shares of common stock.
b. Electing Xxxxx Xxxxxxx as Secretary to replace Xxxxxx Xxxxx.
5. Written Consent of the Stockholders dated May 14, 1997, authorizing
Certificate of Amendment of Certificate of Incorporation increasing the
number of shares of capital stock.
6. Unanimous Written Consent of the Board of Directors dated May 22, 1997,
authorizing sale of shares of common stock as follows:
Enterprise Partners IV L.P. 500,000
7. Unanimous Written Consent of the Board of Directors dated July l, 1997:
a. Xxxxxxxx Xxxxxxxxx Xxxxx as President and Chief Executive Officer to
replace Xxxx Xxxxxxxx, effective as of June 9, 1997.
b. Authorizing Restatement of Certificate of Incorporation to (i) effect
a stock split, (ii) increase number of shares of authorized common
stock, (iii) authorize shares of Series A Preferred Stock, (iv) set
forth the rights, preferences and privileges of the Series A Preferred
Stock.
c. Authorizing issuance of Series A Preferred Stock pursuant to Series A
Preferred Stock Purchase Agreement and collateral documents.
2
d. Bylaws Amendment inserting a right of first refusal on all outstanding
shares of the corporation's capital stock and amending provision
relating to the determination of the size of the board of directors.
e. Authorizing adoption of 1997 Stock Option Stock Issuance Plan.
f. Authorizing grant of options of 1,441,177 shares of common stock to
Xxxxxxxxx Xxxxx.
g. Accepting resignation of Xxxxxx Xxxxxx as a director and designating
the size of the board at 6.
8. Written Consent of the Stockholders dated July 1, 1997:
a. Authorizing Restatement of Certificate of Incorporation to (i) effect
a stock split, (ii) increase number of shares of authorized common
stock, (iii) authorize shares of Series A Preferred stock, (iv) set
forth the rights, preferences and privileges of the Series A Preferred
stock.
b. Authorizing Bylaws Amendment inserting a right of first refusal on all
outstanding shares of the corporation's capital stock and amending
provision relating to the determination of the size of the board of
directors.
c. Electing to the Board of Directors Xxxxxxxxx Xxxxx, Xxxxx Xxxxxxx,
Xxxxx Xxxxxxx and Xxxx Xxxxxxx.
d. Adopting 1997 Stock Option Stock Issuance Plan.
9. Written Consent of the Stockholders dated August 15, 1997, authorizing
Certificate of Amendment of Restated Certificate of Incorporation changing
the corporate name from Accelerated Connections, Inc. to Rhythms
NetConnections Inc.
10. Minutes of the Meeting of the Board of Directors dated August 15, 1997:
a. Board adopted resolution amending Restated Articles of Incorporation
to change the corporate name.
b. Board adopted resolution to enter into banking relationship at Bank of
America, Silicon Valley Bank, Sanwa Bank and Xxxxx Xxxxxx.
c. Board appointed Xxxx Xxxx as acting Secretary.
d. Board adopted the Company's form of proprietary information agreement.
3
e. Board adopted the 1997 Stock Issuance Plan and approved the
reservation of 4,863,971 shares of common stock for purchase under the
Plan.
f. Board approved the granting of stock options to certain employees in
the aggregate amount of 2,259,931 shares of common stock.
g. Board approved the issuance of shares of approved Series A Preferred
stock to "friends and family" pursuant to Series A Preferred Stock
Purchase Agreement.
11. Minutes of the Meeting of the Board of Directors dated October 30, 1997:
a. Board authorized granting of stock options to certain employees in the
aggregate amount of 157,450 shares of common stock.
12. Minutes of the Meeting of the Board of Directors dated December 12, 1997:
a. Board ratified Price Waterhouse LLP as the company's independent
auditors for 1998.
b. Board approved revised "friends and family" allocation schedule.
13. Minutes of the Meeting of the Board of Directors dated January 28, 1998:
14. Minutes of the Meeting of the Board of Directors dated February 27, 1998:
a. Board ratified general release and waiver of all claims between the
company and Xxxxxxx Xxxx, a former employee.
b. Board approved loans made by the Company to Xxxxxxxxx Xxxxx and Xxxxxx
Xxxxxxx, two of the Company's employees.
c. Board approved grant of stock options to certain employees, in the
aggregate amount of 106,700 shares of common stock.
d. Board appointed Xxxx Xxxxxxxxx Secretary of the Company to replace
Xxxxx Xxxxxxx.
e. Board ratified formation of ACI Corp., a wholly-owned Delaware
subsidiary of the Company.
f. Board approved certain bonus payments to certain employees in
connection with services rendered during 1997.
4
g. Board approved sale of 365,094 Series A Preferred stock to Xxxxxxxxx
Xxxxx pursuant to the terms of her Employment Agreement at a purchase
price per share of $.80
h. Board authorized establishing a compensation committee with Xxxx
Xxxxxxx and Xxxxx Xxxxxxx as members.
i. Board established an audit committee with Xxxxx Xxxxxxx and Xxxx
Xxxxxxx as members.
15. Unanimous Written Consent of the Board of Directors dated March 6, 1998:
a. Authorizes Restated Certificate of Incorporation designating shares of
Series B Preferred Stock and providing for the rights, preferences and
privileges of same.
b. Authorizes issuance of Series B Preferred Stock pursuant to Series B
Preferred Stock Purchase Agreement and collateral documents.
c. Authorizes amendment to Bylaws to increase size of board.
16. Written Consent and Waiver of Stockholders dated March 6, 1998:
a. Approved Restated Certificate of Incorporation designating shares of
Series B Preferred Stock and providing for the rights, preferences and
privileges of same.
b. Approves Series B Preferred Stock financing documents.
c. Approves Amendment to Bylaws to increase size of Board of Directors.
d. Elects Xxx Xxxxxxxx to the Board of Directors.
e. Waiver and Consent:
(1) Series A holders waive rights to notice under Investors
Rights Agreement.
(2) Series A holders consent to amending the prior
Investors Rights Agreement.
(3) Series A holders consent to the registration rights provided
by the Series B Preferred Stock financing.
5
17. Minutes of Special Telephonic Meeting of the Board of Directors dated
March 27, 1998:
a. Board approved distributing financial projections in connection with
the proposed debt offering.
b. Board authorized participation in road show in connection with
proposed debt offering.
c. Board authorized amendment to Certificate of Incorporation to account
for warrants issued in connection with proposed debt offering.
d. Board authorized the proposed terms of equipment lease financing with
GATX Capital Corporation.
18. Unanimous Written Consent of the Board of Directors dated April __, 1998:
a. Authorizes private placement of units consisting of notes and warrants
in an amount not to exceed $125 million:
(1) Authorizes Offering Memorandum.
(2) Authorizes Purchase Agreement in connection with debt offering.
(3) Authorizes Registration Rights Agreement in connection with debt
offering.
(4) Authorizes Warrant Agreement and Warrant registration rights in
connection with debt offering.
(5) Authorizes Registration Statement in connection with exchange of
the notes.
(6) Authorizes Exchange of Notes for a new issue of debt securities.
(7) Authorizes use of proceeds.
(8) Authorizes State Street Bank as Trustee and as warrant agent in
connection with debt offering.
(9) Authorizes Indenture in connection with debt offering.
6
b. Approves listing of units on PORTAL market and to be eligible for
trading via Cedel and Euroclear.
c. Approves form of note and authorizes DTC to act as depository.
d. Authorizes blue sky resolutions in connection with debt offering.
e. Authorizes formation of pricing committee in connection with pricing
of debt offering.
f. Appoints Xxxx Xxxxxxxxxx as agent for service of process in connection
with debt offering.
g. Authorizes company to pay expenses in connection with debt offering.
h. Authorizes formation of ACI Corp. -- Virginia, a Virginia Public
Service Corporation, as a wholly-owned subsidiary of the Company.
i. Authorizes form of indemnification agreement to be entered into with
directors of the Company.
19. Written Consent and Waiver of Stockholders dated April 9, 1998 authorizing
Amendment to Restated Certificate of Incorporation to increase number of
shares as common stock to account for warrants to be issued in connection
with debt offering.
a. Waiver and Consent:
(1) Stockholders waive rights of notice under Investors Rights
Agreement relating to rights of first offer with respect to the
sale of warrants.
(2) Stockholders consent to registration rights be provided to the
purchasers of the units, notes and warrants in connection with
debt offering.
(3) Stockholders waive rights to antidilution protection in
connection with issuance of warrants issued pursuant to the debt
offering.
7
EXHIBIT C
OTHER OFFICERS' CERTIFICATES
Rhythms NetConnections Inc.
ACI Corp.
ACI Corp. -- Virginia
OFFICER'S CERTIFICATE
To: Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP
I, Xxxxxxx Xxxxxxxxxx, Vice President and General Counsel of Rhythms
NetConnections Inc., a Delaware corporation (the "Company"), hereby certify on
behalf of the Company that:
No default by the Company that would have a Material Adverse Effect exists
in the due performance or observance of any material obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument material to the Company
and the Designated Subsidiaries, taken as a whole, as identified on Schedule A
hereto.
This Certificate is made and delivered by the undersigned to permit you to
deliver your legal opinion as required pursuant to Section 5(a(i) of the
Purchase Agreement. Capitalized terms not otherwise defined herein shall have
the meanings given to such terms
in the Purchase Agreement.
IN WITNESS WHEREOF, the undersigned officer has signed this Certificate
as of the ____ day of April, 1998.
-----------------------------------
Xxxxxxx Xxxxxxxxxx,
Vice President and General Counsel
A-3
SCHEDULE A
to Officer's Certificate
1. QuickStart Loan and Security Agreement between Rhythms and Silicon Valley
Bank dated October 29, 1997 ($l,000,000 credit line).
2. Master Lease Agreement No. 1642 and Addendum thereto between Rhythms and
Sun Financial Group, Inc. dated November 19, 1997. ($2,000,000 data
communication equipment.)
3. [Equipment lease financing with GATX Capital ($32.5 million lease facility
currently being negotiated) -- will not be covered in opinion if not
finalized.]
4. Preferred stock investment documents:
a. Series A Preferred Stock Purchase Agreement;
b. Series B Preferred Stock Purchase Agreement;
c. Amended and Restated Investors' Rights Agreement (pages 52, 98). bph
d. Voting Agreement; and
e. Voting Trust Agreement (page 98).
8. Employment agreement with Xxxxxxxxx Xxxxx.
9. Employment agreement with Xxxxx Xxxxxxxxx.
10. Employment agreement with Xxxx Xxxxxxx.
11. Employment agreement with Xxxxxxx Xxxxxxxxxx.
A-4
Exhibit A-2
FORM OF OPINION OF COMPANY'S LEGAL COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(ii)
[form of Xxxx and Xxxx opinion follows]
A - 2 - 1
XXXX & XXXX LLP
Counsellors at Law
00 Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000
000-000-0000 - Fax 000-000-0000
May , 1998
Xxxxxxx Xxxxx & Co.
Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corporation
North Tower
World Financial Center
New York, NY 10281-1209
Gentlemen:
We have acted as Investment Company Act counsel to Rhythms NetConnections,
Inc., a Delaware corporation (the "Company"). We are delivering this opinion in
connection with the issue and sale by the Company and the purchase by the
Initial Purchasers of $125,000,000 aggregate principal amount of the Company's
Units consisting of __% Senior Discount Notes due 2008 and Warrants. The terms
of this issue, sale and purchase are governed by a Purchase Agreement dated
April _____, 1998 (the "Purchase Agreement") among Xxxxxxx Xxxxx & Co., Xxxxxxx
Lynch, Xxxxxx, Xxxxxx & Xxxxx Incorporated and Xxxxxxxxx, Xxxxxx & Xxxxxxxx
Securities Corporation (collectively, the "Representatives") and the Company.
Capitalized terms not otherwise defined in this opinion have the same meanings
as in the Purchase Agreement.
In connection with the opinion expressed below, we have examined (1) the
Purchase Agreement; (2) the Offering Memorandum dated _____, 1998 relating to
the offering of the Units by the Representatives; and (3) such other documents
and records as we deemed necessary to furnish this opinion. In our examination,
we have assumed the authenticity of original documents, the accuracy of all
copies (whether certified or not), the genuineness of all signatures and the
legal capacity of all natural persons executing all documents examined by us.
In rendering this opinion, we have relied, as to all questions of fact
material to this opinion, upon certificates of officers of the Company,
including the certificate (the "Certificate") attached to this opinion as
Exhibit A. We have not undertaken any independent investigation to determine
the existence or absence of such facts, and no inference as to our knowledge of
the existence or absence of such facts should be drawn from the fact of our
representation of the Company.
Washington, DC Boston, MA London, UK*
--------------------------------------------------------------------------------
XXXX AND XXXX LLP INCLUDES PROFESSIONAL CORPORATIONS
*XXXXXXX XXXX AND XXXX INTERNATIONAL (AN INDEPENDENT JOINT VENTURE LAW FIRM)
Xxxxxxx Xxxxx & Co. et als
May __, 1998
Page 2
We are opining herein only with respect to the laws of the United States of
America. Accordingly, to the extent that any law of any jurisdiction other than
the federal laws of the United States governs any of the matters as to which we
express an opinion below, we have assumed, without independent investigation,
that the law of such jurisdiction is the same as the federal laws of the United
States.
The opinion set forth below is based on the following factual assumptions.
1. Neither the Company nor any of its majority-owned subsidiaries owns or
proposes to acquire or, after ______, 1998, will own or acquire, investment
securities with a value exceeding 40% of the value of its total assets
(excluding Government securities and cash items, both as defined in the
Certificate) on an unconsolidated basis.
2. The primary business of the Company and its majority-owned
subsidiaries is providing telecommunications services. Each of the Company and
any majority-owned subsidiary is not, and does not hold itself out as being,
engaged primarily, and does not propose to engage primarily, in the business of
investing, reinvesting or trading in securities. Neither the Company nor any of
its majority-owned subsidiaries engages in the business of acquiring control of
other companies primarily for the purpose of profiting from the sale of stock of
such companies.
3. No person owns beneficially, either directly or through one or more
controlled companies, more than 25% of the outstanding voting securities of the
Company or has the contractual or voting power to elect or appoint more than 25%
of the board of directors of the Company.
Based on and subject to the foregoing, it is our opinion that the Company
is not an "investment company" or an entity "controlled" by an "investment
company," as each of these terms is defined in the Investment Company Act of
1940, as amended.
This opinion is based upon currently existing statutes, rules, regulations
and judicial decisions, and we disclaim any obligation to advise you of any
change in any of these sources of law or subsequent legal or factual
developments which might affect any matters or opinions set forth herein. We are
opining only as to the matters expressly set forth herein, and no opinion should
be inferred as to any other matters.
Xxxxxxx Xxxxx & Co. et als
May __, 1998
Page 3
This opinion is being delivered to you solely for the benefit of the
Representatives and Initial Purchasers, and may not be relied upon by any other
party without our prior written consent.
Very truly yours,
Xxxx and Xxxx LLP
EXHIBIT A
RHYTHMS NETCONNECTIONS, INC.
OFFICER'S CERTIFICATE RELATING
TO OPINION OF XXXX AND XXXX LLP
I, the undersigned treasurer/chief financial officer of Rhythms
NetConnections, Inc. (the "Company"), hereby certify on behalf of the Company,
in connection with the opinion of Xxxx and Xxxx LLP dated May _, 1998 and
addressed to Xxxxxxx Xxxxx & Co., Xxxxxxx Lynch, Xxxxxx, Xxxxxx & Xxxxx
Incorporated and Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corporation , as
follows:
1. Neither the Company nor any of its majority-owned subsidiaries owns,
proposes to acquire or, after ____________, 1998, will own or acquire,
investment securities with a value exceeding 40% of the value of its total
assets (excluding Government securities and cash items) on an unconsolidated
basis. Investment securities include all securities other than Government
securities and securities of majority-owned subsidiaries that are not themselves
investment companies. For this purpose, repurchase agreements, shares of money
market funds, certificates of deposit and cash equivalents are considered
investment securities and are not cash items. Demand deposits are considered
cash items, not investment securities, for this purpose. Government securities
include only those securities issued by the U.S. Treasury, the Government
National Mortgage Association, the Federal National Mortgage Association, the
Resolution Funding Corporation, the Federal Farm Credit Banks or the Student
Loan Marketing Association.
2. The primary business of the Company and its majority-owned
subsidiaries is providing telecommunications services. Each of the Company and
any majority-owned subsidiary is not, and does not hold itself out as being,
engaged primarily, and does not propose to engage primarily, in the business of
investing, reinvesting or trading in securities. Neither the Company nor any of
its majority-owned subsidiaries engages in the business of acquiring control of
other companies primarily for the purpose of profiting from the sale of stock of
such companies
3. No person owns beneficially, either directly or through one or more
controlled companies, more than 25% of the outstanding voting securities of the
Company or has the contractual or voting power to elect or appoint more than 25%
of the board of directors of the Company.
IN WITNESS WHEREOF, the undersigned has executed this certificate on the
_____th day of May 1998.
----------------------------------
Name:
----------------------------
Title: Treasurer/Chief Financial Officer
Exhibit A-3
FORM OF OPINION OF COMPANY'S LEGAL COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(iii)
[form of Xxxxxxxxxx & Xxxxx opinion follows]
A - 3 - 1
April 27, 1998
[Letterhead of Xxxxxxxxxx & Xxxxx]
[Closing Date], 1998
XXXXXXX XXXXX & CO.,
Xxxxxxx Lynch, Xxxxxx, Xxxxxx & Xxxxx
Incorporated
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities
Corporation
as Representatives of the Initial Purchasers
c/x Xxxxxxx Xxxxx & Co.
Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Purchase Agreement, dated April , 1998, by and
among Rhythms NetConnections Inc. and Xxxxxxx
Xxxxx & Co., Xxxxxxx Lynch, Xxxxxx, Xxxxxx & Xxxxx
Incorporated, and Xxxxxxxxx, Xxxxxx & Xxxxxxxx
Securities Corporation
--------------------------------------------------------
Ladies and Gentlemen:
We are acting as special regulatory counsel to Rhythms NetConnections Inc.,
a Delaware corporation (the "Company"), and its respective direct and indirect
wholly-owned subsidiaries, ACI Corp., a Delaware corporation ("ACI"), and ACI
Corp. - Virginia, a Virginia corporation ("ACI Corp.-Va")(ACI and ACI - Va being
collectively referred to herein as the "Subsidiaries"), in connection with the
Purchase Agreement, dated April , 1998 (the "Agreement"), by and among the
Company and each of you (the "Representatives") and each of the Initial
Purchasers named in Schedule A to the Agreement (collectively, the "Initial
Purchasers"), providing, among other things, for the issue and sale by the
Company and the purchase by the Initial Purchasers of the Company's Units
consisting of % Senior Discount Notes Due 2008 and Warrants. All terms used
herein which are defined in the Agreement shall have the same meanings specified
therein unless otherwise defined herein. This opinion is being delivered to the
Representatives pursuant to Section 5(a) of the Agreement.
We have examined the originals, or certified, conformed or reproduction
copies, of all such records, instruments and documents as we have deemed
relevant or necessary as the basis for the opinions hereinafter expressed. In
all such examinations, we have assumed the genuineness of all signatures on
original or certified copies and the conformity to original or certified copies
of all copies submitted to us as conformed or reproduction copies. As to various
questions of fact relevant to such opinions, we have relied upon certificates of
public officials or representatives of the Company and others.
Based upon the foregoing, we are of the opinion as follows:
1. We understand, based upon the information set forth in the Offering
Memorandum, that the Company and the Subsidiaries are presently offering
commercial services only in the State of California and, therefore, the
California Public Utilities Commission (the "Commission") is the only state
regulatory commission that can exercise jurisdiction over the present offering
of commercial services by the Company and its Subsidiaries. Appendix A to this
opinion accurately and completely lists all federal, state and municipal
Telecommunications Licenses held by the Company and the Subsidiaries on the date
hereof. The Company and the Subsidiaries have all Telecommunications Licenses
required by the Communications Act, the California Public Utilities Code and the
rules and regulations of the Commission for the provision of telecommunications
services provided by the Company or the Subsidiaries on the date hereof, except
for such Telecommunications Licenses as would not have a Material Adverse Effect
2. The Company and the Subsidiaries are not subject to any pending or, to
our knowledge, threatened complaint, investigation or proceeding before the FCC
or any State Commission or municipality, except for (a) proceedings involving
the licensing of the Subsidiaries to provide telecommunications services not
presently provided by the Subsidiaries on the date hereof in the jurisdiction or
jurisdictions where such licensing proceeding or proceedings are pending on the
date hereof, and (b) advocacy pleadings filed by the Company in opposition of
petitions pending before the FCC.
3. The license set forth in Appendix A hereto (the "License") is (a)
outstanding, and (b) in full force and effect, and is not subject to any
conditions not applicable generally to other licensees (i) holding licenses
comparable to the License and (ii) offering services comparable to those offered
by the Company pursuant to the License.
4. The Company has not, to our knowledge and based upon contacting
officials at the California Public Utilities Commission (the "Commission"),
failed to file with the Commission any reports, tariffs and other documents
required to be filed by the Company on or as of the date hereof under the
Commission's Regulations and the California Public Utilities Code, except for
those reports, tariffs or other documents where the failure to so file would not
result in a Material Adverse Effect.
5. The statements in the Offering Memorandum under the headings "RISK
FACTORS - GOVERNMENT REGULATION" and "BUSINESS - GOVERNMENT REGULATION", insofar
as such statements constitute a summary of the legal matters or proceedings of
the FCC and State Commissions with respect to telecommunications matters
referred to therein, are accurate in all material respects.
6. All tariffs applicable to the Company's local exchange and
interexchange data operations in California (the "Tariffs") are in
full force and effect in accordance with their terms. To our knowledge and
based upon our review with officers of the Company, there is no outstanding
notice of suspension, cancellation or termination or any threatened suspension,
cancellation or termination with respect to any of the Tariffs. The Company
is not subject to any restrictions or conditions applicable to the Tariffs
that limit the operations of the Company (other than restrictions and
conditions generally applicable to persons (i) holding tariffs comparable to
the Tariffs, and (ii) offering data services comparable to those offered by
the Company pursuant to the Tariffs); PROVIDED, HOWEVER, we express no
opinion with respect to the specific pricing and other commercial provisions
set forth in any such Tariffs. Neither the Company nor any of the
Subsidiaries are presently required to file a tariff with the FCC. Based upon
our understanding that the Company and its
2
Subsidiaries are presently offering commercial services only in the State of
California, no other tariffs are effective or required in states other than the
State of California on and as of the date hereof.
7. There are no consents and approvals of the FCC or the Commission
required for the sale and issuance of the Units to the Initial Purchasers on the
Closing Date.
8. Neither the execution of the Agreement by the Company nor the
performance by the Company of its obligations under the Agreement which are
required to be performed on the Closing Date will violate the Communications Act
or the California Public Utilities Code or the rules and regulations of the
Commission.
9. To our knowledge and based upon our review of available public files
at the FCC and the Commission and our review with officers of the Company, (a)
there is no unsatisfied adverse FCC or Commission order, decree or ruling
outstanding against the Company or the Subsidiaries or the License, (b) neither
the Company nor any Subsidiary is a party to any complaint, disciplinary action
or revocation proceeding at the FCC or the Commission (including complaints,
disciplinary actions or revocation proceedings against other licensees or
applicants); (c) Appendix B hereto lists all applications on behalf of the
Company or the Subsidiaries with respect to any certification, authorization or
franchise that are now pending before the FCC and/or the State Commissions
and/or municipalities, as the case may be, and (d) neither the Company nor any
Subsidiary has been the subject of any final order, decree or ruling of the FCC
or the Commission or any municipality which has (i) denied any application by
the Company or any Subsidiary to obtain a certification, authorization or
franchise, (ii) limited or prohibited any of the Company's or any Subsidiary's
operations as described in the Offering Memorandum and as offered by the Company
or any of the Subsidiaries, respectively, on the date hereof, and/or (iii)
resulted in any monetary fine or forfeiture by the Company or any Subsidiary
which would result in a Material Adverse Effect.
The opinions expressed above are subject to the following qualifications:
we express no opinion herein on (a) any matter other than telecommunications
laws and regulations and proceedings before any governmental entity
administering such laws and regulations, (b) the fairness of any of the
transactions contemplated in the Agreement or the Offering Memorandum, or
(c) except as set forth in Paragraph 5 of this opinion, the accuracy or
completeness of the Offering Memorandum.
We are members of the bars of the District of Columbia and the State of
California and do not hold ourselves out as being conversant with the laws of
any other jurisdiction other than those of the United States of America.
The opinions expressed herein are solely for the benefit of the
Representatives and the Initial Purchasers and may not be delivered to, quoted
or relied upon in any manner or for any purpose by any other person. This
opinion is effective as of the date hereof, and we undertake no obligation to
update or otherwise supplement this opinion in the future for any reason.
Very truly yours,
XXXXXXXXXX & XXXXX
3
APPENDIX A: LIST OF LICENSES
California PUC Certificate of Public Convenience &
Necessity No. U-5813-C, Decision D.00-00-000
(granted July 16, 1997) authorizing the resale of
local exchange and long distance services
California PUC Certificate of Public Convenience &
Necessity No. U-5813-C, Decision D.00-00-000
(granted September 24, 1997) authorizing the
provision of facilities-based local exchange
services
California PUC Certificate of Public Convenience &
Necessity No. U-5813-C, Decision D.00-00-000
(granted February 4, 1998) authorizing the
provision of facilities-based long distance
services
Schedule Cal. PUC No. 1-T (effective December 24,
1997) tariffing the provision of intrastate
IntraLATA and InterLATA high speed digital
connection service
The foregoing Certificate of Public Convenience and Necessity was issued to the
Company by, and the foregoing Tariff was filed by the Company with, the
Commission.
4
APPENDIX B: LICENSE APPLICATIONS
ACI Corp. has filed or caused to be filed on its behalf in each of the
State Commissions listed below an appropriate application to obtain
authority to operate as a local exchange and interexchange provider of both
(a) high-speed data services on a facilities and resale basis, and (b)
voice services on a resale basis. In most of these states, ACI Corp. is
seeking authority to offer such services under the name "Accelerated
Connections" or some similar variation thereof.
State Commissions:
-----------------
New York Public Service Commission
New Jersey Board of Public Utilities
Maryland Public Service Commission
Pennsylvania Public Utility Commission
Michigan Public Service Commission
Illinois Commerce Commission
Massachusetts Department of Telecommunications and Energy
California Public Utility Commission
ACI Corp. -- Virginia has filed or caused to be filed on its behalf
with the Virginia State Corporation Commission an appropriate application
to qualify as a public service corporation and to obtain authority to
operate as a local exchange and interexchange provider of both (a)
high-speed data services on a facilities and resale basis, and (b) voice
services on a resale basis.
5
Exhibit A-4
FORM OF OPINION OF COMPANY'S LEGAL COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(iv)
(i) The Company is not a "holding company" or a "subsidiary company" or an
"affiliate" of a holding company within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
In rendering such opinion, such counsel may rely, as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A - 4 - 1
Exhibit A-5
FORM OF OPINION OF THE COMPANY'S LEGAL COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(v)
[form of General Counsel opinion follows]
A - 5 - 1
April 27, 1998
[Letterhead of Rhythms NetConnections Inc.]
[Closing Date], 1998
XXXXXXX XXXXX & CO.,
Xxxxxxx Lynch, Xxxxxx, Xxxxxx & Xxxxx
Incorporated
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities
Corporation
as Representatives of the Initial Purchasers
c/x Xxxxxxx Xxxxx & Co.
Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Purchase Agreement, dated April , 1998, by and
among Rhythms NetConnections Inc. and Xxxxxxx
Xxxxx & Co., Xxxxxxx Lynch, Xxxxxx, Xxxxxx & Xxxxx
Incorporated, and Xxxxxxxxx, Xxxxxx & Xxxxxxxx
Securities Corporation
--------------------------------------------------
Ladies and Gentlemen:
As Vice President and General Counsel of Rhythms NetConnections Inc., a
Delaware corporation (the "Company"), I am familiar with the Purchase Agreement,
dated April , 1998 (the "Agreement"), by and among the Company and each of you
(the "Representatives") and each of the Initial Purchasers named in Schedule A
to the Agreement (collectively, the "Initial Purchasers"), providing, among
other things, for the issue and sale by the Company and the purchase by the
Initial Purchasers of the Company's Units consisting of % Senior Discount Notes
Due 2008 and Warrants. All terms used herein which are defined in the Agreement
shall have the same meanings specified therein unless otherwise defined herein.
This opinion is being delivered to the Representatives pursuant to Section 5(a)
of the Agreement.
I have examined the originals, or certified, conformed or reproduction
copies, of all such records, instruments and documents as I have deemed relevant
or necessary as the basis for the opinion hereinafter expressed. In all such
examinations, I have assumed the genuineness of all signatures on original or
certified copies and the conformity to original or certified copies of all
copies submitted to me as conformed or reproduction copies. As to various
questions of fact relevant to such opinion, I have relied upon certificates of
public officials or representatives of the Company and others.
Based upon the foregoing, I am of the opinion that, to my knowledge, no
default by the Company or any Designated Subsidiary that would have a Material
Adverse Effect
exists in the due performance or observance of any material obligation,
agreement, covenant or condition contained in the Interconnection Agreement,
dated July 1997, by and between the Company and Pacific Bell Corporation.
I am a member of the bar of the District of Columbia and do not hold myself
out as being conversant with the laws of any other jurisdiction other than those
of the United States of America.
The opinion expressed herein is solely for the benefit of the
Representatives and the Initial Purchasers and may not be delivered to, quoted
or relied upon in any manner or for any purpose by any other person. This
opinion is effective as of the date hereof, and I undertake no obligation to
update or otherwise supplement this opinion in the future for any reason.
Very truly yours,
Xxxxxxx Xxxxxxxxxx,
Vice President & General Counsel
2
Exhibit A-6
FORM OF OPINION OF INITIAL PURCHASERS' LEGAL COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
[form of Xxxxx & XxXxxxxx opinion follows]
A - 6 - 1
May____, 1998
XXXXXXX XXXXX & CO.
Xxxxxxx Lynch, Xxxxxx, Xxxxxx & Xxxxx Incorporated
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corporation
c/x Xxxxxxx Xxxxx & Co.
Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated
North Tower
World Financial Center
New York, NY 10281-1209
Re: RHYTHMS NETCONNECTIONS, INC.
Ladies and Gentlemen:
We have acted as your counsel in connection with the issuance and sale to
you (the "Initial Purchaser") on the date hereof by Rhythms NetConnections, Inc.
a Delaware corporation (the "Company"), of 290,000 units (the "Units")
consisting of $290,000,000 aggregate principal amount at maturity of 13 1/2%
Senior Discount Notes due 2008 (the "Notes") and warrants (the "Warrants") to
purchase 1,972,000 shares of common stock, par value $0.001 per share, of the
Company (the "Common Stock," and together with the Warrants and Notes, the
"Securities"), in accordance with an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
as described in the Company's offering memorandum, dated April 28, 1998 (the
"Offering Memorandum"). This opinion is being rendered to you pursuant to
Section 5(b) of the Purchase Agreement, dated April 28, 1998, by and among you
and the Company (the "Purchase Agreement"). Unless otherwise stated herein,
capitalized terms used herein shall have the respective meanings set forth in
the Purchase Agreement.
As such counsel, we have made such legal and factual examinations and
inquiries, including an examination of originals or copies certified or
otherwise identified to our satisfaction of such documents, corporate records
and other instruments, as we have deemed necessary or appropriate for purposes
of this opinion, except where a statement is qualified as to knowledge or
awareness, in which case we have made no or limited inquiry as specified below.
In our examination, we have assumed the genuineness of the signatures,
the authenticity of all documents submitted to us as originals, the conformity
to authentic original documents of all
Xxxxxxx Xxxxx & Co.
Xxxxxxx Lynch, Xxxxxx, Xxxxxx & Xxxxx Incorporated
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corporation
May __, 1998
Page 2
documents submitted to us as copies and the legal capacity of all individuals
executing those documents.
We have been furnished with, and with your consent have exclusively
relied upon, certificates of officers of the Company and each of the
Subsidiaries with respect to certain factual matters. In addition, we have
obtained and relied upon such certificates and assurances from public officials
as we have deemed necessary.
We are opining herein as to the effect on the subject transaction only of
federal laws of the United States of America (other than the Communications Act
of 1934, as amended, and the rules, regulations, orders or policies promulgated
or adopted by the FCC or any other statute, rule or regulation relating to the
regulation of telecommunications (the "Communications Laws")), the General
Corporation Law of the State of Delaware and the laws of the State of New York,
and we express no opinion with respect to the applicability thereto, or the
effect thereon, of the laws of any other jurisdiction or, in the case of
Delaware, any other laws, or as to the matters of municipal law or the laws of
any local agencies within any state.
Whenever a statement herein is qualified by "to the best of our
knowledge" or a similar phrase, it is intended to indicate that those attorneys
in this firm who have rendered legal services in connection with the above
transaction do not have current knowledge of the inaccuracy of such statement.
However, except as otherwise expressly indicated, we have not undertaken any
independent investigation to determine the accuracy of any such statement, and
no inference that we have any knowledge of any matters pertaining to such
statement should be drawn from our representation of you.
Based upon the foregoing, and subject to the assumptions and
qualifications herein contained, we are of the opinion that, as of the date
hereof:
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the Offering
Memorandum and to enter into and perform its obligations under the Purchase
Agreement.
(iii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Offering Memorandum under the caption
"Description of Capital Stock" (except for
Xxxxxxx Xxxxx & Co.
Xxxxxxx Lynch, Xxxxxx, Xxxxxx & Xxxxx Incorporated
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corporation
May __, 1998
Page 3
subsequent issuances, if any, pursuant to the Purchase Agreement or pursuant to
reservations, agreements, employee stock option or benefit plans or the exercise
of convertible securities or options referred to in the Offering Memorandum);
the shares of issued and outstanding capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable; to our
knowledge, none of the outstanding shares of capital stock of the Company was
issued in violation of the preemptive or other similar rights of any security
holder of the Company; and the shares of Common Stock issuable upon exercise of
the Warrants in accordance with the terms of the Warrant Agreement will be, when
issued and paid for as set forth in the Warrant Agreement, duly authorized,
validly issued, fully paid and nonassessable.
(iv) Each Designated Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation and has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Offering Memorandum, and ACI Corp. is duly qualified as a foreign corporation to
transact business and is in good standing in California and Colorado (officers
of the Company have submitted to us a certificate stating that these
jurisdictions are the only jurisdictions in which the real or personal property
or assets (owned, leased, licensed or used) or businesses conducted by the
Designated Subsidiaries are located); all of the issued and outstanding capital
stock of the Designated Subsidiaries has been duly authorized and validly
issued, is fully paid and nonassessable, and to our knowledge is owned by the
Company directly; and, to our knowledge, the Designated Subsidiaries are the
Company's only subsidiaries; and to our knowledge, all of the issued and
outstanding capital stock of the Designated Subsidiaries is owned by the Company
directly free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity.
(v) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(vi) The Indenture and the Warrant Agreement have been duly authorized,
executed and delivered by the Company and (assuming the due authorization,
execution and delivery of the Indenture by the Trustee and of the Warrant
Agreement by the Warrant Agent) constitute the valid and binding agreements of
the Company, enforceable against the Company in accordance with their respective
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general principles
of equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).
Xxxxxxx Xxxxx & Co.
Xxxxxxx Lynch, Xxxxxx, Xxxxxx & Xxxxx Incorporated
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corporation
May __, 1998
Page 4
(vii) The Notes are in the form contemplated by the Indenture and the
Warrants are in the form contemplated by the Warrant Agreement, and each have
been duly authorized by the Company and, when executed by the Company and
authenticated by the Trustee and the Warrant Agent in the manner provided in the
Indenture and the Warrant Agreement, as the case may be (assuming the due
authorization, execution and delivery of the Indenture by the Trustee and of the
Warrant Agreement by the Warrant Agent) and delivered against payment of the
purchase price therefor, will constitute valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium (including, without limitation, all laws
relating to fraudulent transfers), or other similar laws relating to or
affecting enforcement of creditor's rights generally, or by general principles
of equity (regardless of whether enforcement is considered in a proceeding in
equity or at law), and will be entitled to the benefits of the Indenture and the
Warrant Agreement, respectively.
(viii) The statements in the Offering Memorandum under the "Description
of the Units," "Description of the Notes" and "Description of the Warrants,"
insofar as such statements constitute a summary of the Securities or instruments
referred to therein, fairly present, in all material respects, such Securities
or instruments.
To the extent that the obligations of the Company and each of the
Designated Subsidiaries under the Indenture, the Warrant Agreement and the
Purchase Agreement (the "Agreements") may be dependent upon such matters, we
have assumed for purposes of this opinion that each of the Trustee, the Warrant
Agent and you (i) has been duly organized and is validly existing and in good
standing under the laws of its jurisdiction of organization, (ii) has been duly
qualified to engage in the activities contemplated by the Agreements to which it
is a party, (iii) has the requisite organizational and other power and authority
to execute and deliver, and to perform its obligations under, the Agreements to
which it is a party. We have further assumed that (i) each of such Agreements to
which the Trustee, the Warrant Agent or you are a party constitutes the
Trustee's, the Warrant Agent's or your legal, valid and binding obligation,
enforceable against the Trustee, the Warrant Agent or you, as applicable, in
accordance with its terms, (ii) the Trustee is in compliance, generally and with
respect to acting as trustee under the Indenture, with all applicable laws and
regulations and (iii) the Warrant Agent is in compliance, generally and with
respect to acting as warrant agent under the Warrant Agreement, with all
applicable laws and regulations.
In addition, we have participated in conferences with officers and other
representatives of and counsel for the Company, representatives of the
independent public accountants of the Company and representatives of the Initial
Purchasers at which the contents of the Offering Memorandum and related
Xxxxxxx Xxxxx & Co.
Xxxxxxx Lynch, Xxxxxx, Xxxxxx & Xxxxx Incorporated
Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corporation
May __, 1998
Page 5
matters were discussed and, although we have not undertaken to investigate or
verify independently, and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Offering Memorandum,
on the basis of the foregoing, nothing has come to our attention that would lead
us to believe that the Offering Memorandum or any amendment or supplement
thereto (except for financial statements and schedules and other financial data
included therein, as to which we express no belief), at the time the Offering
Memorandum was issued, at the time any such amended or supplemented Offering
Memorandum was issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Because the primary purpose of our professional engagement was not to
establish or confirm factual, financial or accounting matters and because of the
wholly or partially non-legal character of many of the statements contained in
the Offering Memorandum, we are not passing upon, and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Offering Memorandum except for those made under the captions
"Description of the Units," "Description of the Notes" and "Description of the
Warrants" in the Offering Memorandum, insofar as they relate to the provisions
of the Securities described therein. Other than as set forth in the preceding
sentence, we make no representation that we have independently verified the
accuracy, completeness or fairness of such statements. Without limiting the
foregoing, we assume no responsibility for, and have not independently verified,
the accuracy, completeness or fairness of the financial statements and schedules
and other financial data included in the Offering Memorandum, and we have not
examined the financial or accounting records from which such financial
statements, schedules and data are derived.
This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be relied
upon by you for any other purpose, or furnished to, quoted to, or relied upon by
any other person, firm or corporation for any purpose, without our prior written
consent.
Very truly yours,
DRAFT
[DRAFT dated April 28, 1998]
