RHYTHMS NETCONNECTIONS INC.
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
March 16, 1999
TABLE OF CONTENTS
Page
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1. Registration Rights.. . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 REQUEST FOR REGISTRATION.. . . . . . . . . . . . . . . . . . . .2
1.3 COMPANY REGISTRATION.. . . . . . . . . . . . . . . . . . . . . .6
1.4 OBLIGATIONS OF THE COMPANY.. . . . . . . . . . . . . . . . . . .6
1.5 FURNISH INFORMATION. . . . . . . . . . . . . . . . . . . . . . .7
1.6 EXPENSES OF DEMAND REGISTRATION. . . . . . . . . . . . . . . . .7
1.7 EXPENSES OF COMPANY REGISTRATION.. . . . . . . . . . . . . . . .8
1.8 UNDERWRITING REQUIREMENTS. . . . . . . . . . . . . . . . . . . .8
1.9 DELAY OF REGISTRATION. . . . . . . . . . . . . . . . . . . . . .9
1.10 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . .9
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. . . . . . . . . 11
1.12 FORM S-3 REGISTRATION. . . . . . . . . . . . . . . . . . . . . 11
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. . . . . . . . . . . . . . . 12
1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. . . . . . . . . 13
1.15 "MARKET STAND-OFF" AGREEMENT.. . . . . . . . . . . . . . . . . 14
1.16 TERMINATION OF REGISTRATION RIGHTS.. . . . . . . . . . . . . . 14
2. COVENANTS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . 14
2.1 DELIVERY OF FINANCIAL STATEMENTS.. . . . . . . . . . . . . . . 14
2.2 INSPECTION.. . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS. . . . . . 15
2.4 RIGHT OF FIRST OFFER.. . . . . . . . . . . . . . . . . . . . . 15
2.5 EMPLOYEE STOCK POOL. . . . . . . . . . . . . . . . . . . . . . 16
2.6 EXCLUDED INVESTMENTS.. . . . . . . . . . . . . . . . . . . . . 16
3. COVENANTS OF THE INVESTORS. . . . . . . . . . . . . . . . . . . . . 17
3.1 CERTAIN CORPORATE TRANSACTIONS.. . . . . . . . . . . . . . . . 17
3.2 STANDSTILL.. . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.3 ADDITIONAL PREFERRED INVESTORS.. . . . . . . . . . . . . . . . 17
4. CORPORATE OPPORTUNITY MATTERS.. . . . . . . . . . . . . . . . . . . 17
5. MISCELLANEOUS.. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1 SUCCESSORS AND ASSIGNS.. . . . . . . . . . . . . . . . . . . . 19
5.2 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . 19
5.3 COUNTERPARTS.. . . . . . . . . . . . . . . . . . . . . . . . . 19
5.4 TITLES AND SUBTITLES.. . . . . . . . . . . . . . . . . . . . . 19
5.5 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.6 EXPENSES.. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.7 AMENDMENTS AND WAIVERS.. . . . . . . . . . . . . . . . . . . . 20
5.8 SEVERABILITY.. . . . . . . . . . . . . . . . . . . . . . . . . 20
5.9 AGGREGATION OF STOCK.. . . . . . . . . . . . . . . . . . . . . 20
5.10 ENTIRE AGREEMENT; AMENDMENT; WAIVER. . . . . . . . . . . . . . 20
(i)
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT ("Agreement") is
made as of the ___ day of March, 1999, by and between Rhythms NetConnections
Inc., a Delaware corporation (the "Company"), and the investors listed on
SCHEDULE A hereto, each of which is herein referred to as an "Investor."
RECITALS
WHEREAS, the Company and one or more of the Investors are parties to
the Series C Preferred Stock and Warrant Purchase Agreement of even date
herewith (the "Preferred Stock Agreement");
WHEREAS, certain of the Investors are presently holders of the
Company's Series A Preferred Stock, Series B Preferred Stock and/or Series C
Preferred Stock and have entered into an Amended and Restated Investors' Rights
Agreement with the Company dated March 3, 1999 (the "Existing Rights
Agreement"); and
WHEREAS, in order to induce the Company to enter into the Preferred
Stock Agreement and to induce one or more Investors to invest funds in the
Company pursuant to the Preferred Stock Agreement, all the Investors and the
Company wish to amend and restate the Existing Rights Agreement so that this
Agreement will supersede and replace the Existing Rights Agreement in its
entirety and will govern the rights of all the Investors to cause the Company to
register shares of the Company's common stock ("Common Stock") issuable to any
Investors upon conversion of their respective shares of the Company's preferred
stock ("Preferred Stock"), and certain other matters as set forth in this
Agreement.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The terms "register", "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(c) The term "Registrable Securities" means (1) the Common
Stock issuable or issued upon conversion of the Series A Preferred Stock, Series
B Preferred Stock or Series C Preferred Stock (2) the 900,735 shares of Common
Stock held by Enterprise Partners as of the date of this Agreement, and (3) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Common Stock
held by Enterprise Partners, excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which his rights under this
Section 1 are not assigned;
(d) The number of shares of Registrable Securities then
outstanding and the Registrable Securities held by any person shall each be
determined by the number of shares of Common Stock outstanding which are, and
the number of shares of Common Stock issuable pursuant to then exercisable or
convertible securities which are, Registrable Securities;
(e) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof; and
(f) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after the
earlier of (i) March 11, 2002, or (ii) six (6) months after the effective
date of the first registration statement for a public offering of securities
of the Company (other than a registration statement relating either to the
sale of securities to employees of the Company pursuant to a stock option,
stock purchase or similar plan or a SEC Rule 145 transaction), a written
request from the Holders of 60% or more of the Registrable Securities (the
"Initiating Holders") then outstanding that the Company file a registration
statement under the Act covering the registration of at least twenty percent
(20%) of the Registrable Securities then outstanding (or a lesser percent if
the anticipated aggregate offering price, net of underwriting discounts and
commissions, would exceed $20,000,000), then the Company shall, within ten
(10) days of the receipt thereof, give written notice of such request to all
Holders and any other Holder may also request the registration of Registrable
Securities held by such Holder. The Company shall, subject to the limitations
of subsection 1.2(e), effect as soon as practicable, and in any event shall
use its best efforts to effect within 60 days of the receipt of such request,
the registration under the Act of all Registrable Securities which the
Holders request to be registered within twenty (20) days of the mailing of
such notice by the Company in accordance with paragraph 5.5.
(b) If the Company shall receive at any time after the
earlier of (i) March 11, 2002, or (ii) six (6) months after the effective date
of the first registration statement for a public offering of securities of the
Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction), a written request from
Enron Communications Group, Inc. or any assignee of the rights of Enron
Communications Group, Inc. pursuant to Section 1.13 ("Enron") that the Company
file a registration statement under the Act covering the registration of at
least twenty percent (20%) of the Registrable Securities then held by Enron (or
a lesser percent if the anticipated aggregate offering price, net of
underwriting discounts and commissions, would exceed $20,000,000), then the
Company shall, within ten (10) days of the receipt thereof, give written notice
of such request to all other Holders and any other
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Holder may also request the registration of Registrable Securities held by such
Holder. The Company shall, subject to the limitations of subsection 1.2(f),
effect as soon as practicable, and in any event shall use its best efforts to
effect within 60 days of the receipt of such request, the registration under the
Act of all Registrable Securities which Enron and the Holders request to be
registered within twenty (20) days of the mailing of such notice by the Company
in accordance with paragraph 5.5.
(c) If the Company shall receive at any time after the
earlier of (i) March 11, 2002, or (ii) six (6) months after the effective date
of the first registration statement for a public offering of securities of the
Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction), a written request from
MCI Worldcom Venture Fund, Inc. or any assignee of the rights of MCI Worldcom
Venture Fund, Inc. pursuant to Section 1.13 ("MCI WorldCom") that the Company
file a registration statement under the Act covering the registration of at
least twenty percent (20%) of the Registrable Securities then held by MCI
WorldCom (or a lesser percent if the anticipated aggregate offering price, net
of underwriting discounts and commissions, would exceed $20,000,000), then the
Company shall, within ten (10) days of the receipt thereof, give written notice
of such request to all other Holders and any other Holder may also request the
registration of Registrable Securities held by such Holder. The Company shall,
subject to the limitations of subsection 1.2(g), effect as soon as practicable,
and in any event shall use its best efforts to effect within 60 days of the
receipt of such request, the registration under the Act of all Registrable
Securities which MCI WorldCom and the Holders request to be registered within
twenty (20) days of the mailing of such notice by the Company in accordance with
paragraph 5.5.
(d) Subject to the limitations set forth in Section 2.6
hereof, in the event that, subsequent to expiration of the Exclusion Period (as
defined in Section 2.6), an Excluded Investor (as defined in Section 2.6)
acquires greater than five percent (5%) of the Common Stock of the Company (on a
fully diluted, as converted to Common Stock basis) (the "Excluded Investment"),
then if the Company shall receive a written request from MCI WorldCom that the
Company file a registration statement under the Act covering the registration of
all of the Registrable Securities then held by MCI WorldCom, then the Company
shall, within ten (10) days of the receipt thereof, give written notice of such
request to all other Holders and any other Holder may also request the
registration of Registrable Securities held by such Holder. The Company shall,
subject to the limitations of subsection 1.2(h), effect as soon as practicable,
and in any event shall use its best efforts to effect within the later to occur
of (i) sixty (60) days of the receipt of such request or (ii) one hundred eighty
(180) days of the closing of the Excluded Investment, the registration under the
Act of all Registrable Securities which MCI WorldCom and the Holders request to
be registered within twenty (20) days of the mailing of such notice by the
Company in accordance with paragraph 5.5.
(e) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the written
notice referred to in subsection 1.2(a). The underwriter will be selected by
Initiating Holders holding a majority of the Registrable Securities proposed to
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be included in the registration and shall be reasonably acceptable to the
Company. In such event, the right of any Holder to include his Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
1.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Initiating
Holders holding a majority of the Registrable Securities proposed to be included
in the registration. Notwithstanding any other provision of this Section 1.2,
if the underwriter advises the Initiating Holders in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the Initiating Holders shall so advise all Holders of Registrable Securities
which would otherwise be underwritten pursuant hereto, and the number of shares
of Registrable Securities that may be included in the underwriting shall be
allocated: (i) first, among all Holders thereof, including the Initiating
Holders, allocated among such Holders in proportion (as nearly as practicable)
to the amount of Registrable Securities of the Company proposed to be included
in the registration by each Holder; and (ii) second, to the extent of any
remaining shares that may be underwritten, to the holders of any other
securities.
(f) If Enron intends to distribute the Registrable
Securities covered by its request under subsection 1.2(b) by means of an
underwriting, it shall so advise the Company as a part of its request made
pursuant to this Section 1.2 and the Company shall include such information in
the written notice referred to in subsection 1.2(b). The underwriter will be
selected by Enron and shall be reasonably acceptable to the Company. In such
event, the right of any other Holder to include its Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by Enron and such Holder) to the
extent provided herein. Enron and all Holders proposing to distribute their
securities through such underwriting shall (together with the Company as
provided in subsection 1.4(e)) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by
Enron. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Company in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Company shall so
advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares of Registrable Securities
that may be included in the underwriting shall be allocated: (i) first, to
Enron or its assignee; (ii) second, to the extent of any remaining shares that
may be underwritten, among all other Holders thereof in proportion (as nearly as
practicable) to the amount of Registrable Securities of the Company proposed to
be included in the registration by each such Holder; and (iii) third, to the
extent of any remaining shares that may be underwritten, to the holders of any
other securities.
(g) If MCI WorldCom intends to distribute the Registrable
Securities covered by its request under subsection 1.2(c) by means of an
underwriting, it shall so advise the Company as a part of its request made
pursuant to this Section 1.2 and the Company shall include such information in
the written notice referred to in subsection 1.2(c). The underwriter will be
selected by MCI WorldCom and shall be reasonably acceptable to the Company. In
such
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event, the right of any other Holder to include its Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by MCI WorldCom and such Holder)
to the extent provided herein. MCI WorldCom and all Holders proposing to
distribute their securities through such underwriting shall (together with the
Company as provided in subsection 1.4(e)) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by MCI WorldCom. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Company in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated: (i) first, to MCI WorldCom or its assignee; (ii) second, to the
extent of any remaining shares that may be underwritten, among all other Holders
thereof in proportion (as nearly as practicable) to the amount of Registrable
Securities of the Company proposed to be included in the registration by each
such Holder; and (iii) third, to the extent of any remaining shares that may be
underwritten, to the holders of any other securities.
(h) If MCI WorldCom intends to distribute the Registrable
Securities covered by its request under subsection 1.2(d) by means of an
underwriting, it shall so advise the Company as a part of its request made
pursuant to this Section 1.2 and the Company shall include such information in
the written notice referred to in subsection 1.2(d). The underwriter will be
selected by MCI WorldCom and shall be reasonably acceptable to the Company. In
such event, the right of any other Holder to include its Registrable Securities
in such registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by MCI WorldCom and such
Holder) to the extent provided herein. MCI WorldCom and all Holders proposing
to distribute their securities through such underwriting shall (together with
the Company as provided in subsection 1.4(e)) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting by MCI WorldCom. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Company in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated: (i) first, to MCI WorldCom or its assignee; (ii) second, to the
extent of any remaining shares that may be underwritten, among all other Holders
thereof in proportion (as nearly as practicable) to the amount of Registrable
Securities of the Company proposed to be included in the registration by each
such Holder; and (iii) third, to the extent of any remaining shares that may be
underwritten, to the holders of any other securities.
(i) The Company is obligated to effect only (i) two (2) such
registrations pursuant to subsection 1.2(a), (ii) one (1) such registration
pursuant to subsection 1.2(b), (iii) one (1) such registration pursuant to
subsection 1.2(c) and (iv) one (1) such registration pursuant to subsection
1.2(d).
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(j) Notwithstanding the foregoing, if the Company shall
furnish to either Holders requesting a registration statement pursuant to this
Section 1.2, to Enron or to MCI WorldCom, a certificate signed by the President
of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company and its
shareholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company shall
have the right to defer taking action with respect to such filing for a period
of not more than one hundred twenty (120) days after receipt of the request of
the Initiating Holders, Enron or MCI WorldCom, as applicable; provided, however,
that the Company may not utilize this right more than twice in any twelve month
period.
1.3 COMPANY REGISTRATION. If (but without any obligation under
this Agreement to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than
pursuant to this Agreement) any of its stock or other securities under the Act
in connection with the public offering of such securities solely for cash (other
than a registration relating solely to the sale of securities to participants in
a Company stock plan, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of any Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with Section 5.5,
the Company shall, subject to (i) the provisions of Section 1.8 and (ii) any
senior "piggy-back" registration rights granted by the Company pursuant to that
certain Warrant Registration Rights Agreement dated as of May 5, 1998 between
the Company and Xxxxxxx Xxxxx & Co., Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx
Incorporated and Xxxxxxxxx Lufkin & Xxxxxxxx Securities Corporation or pursuant
to that certain Warrant to Purchase Shares of Common Stock granted to Sun
Financial Group, Inc., dated as of May 19, 1998, cause to be registered under
the Act all of the Registrable Securities that such Holder has requested to be
registered.
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred twenty (120) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such
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other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
1.5 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsections 1.5(a) or 1.8, the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsections 1.2(a), 1.2(b), 1.2(c)
or 1.2(d) or subsection 1.12(b)(2), whichever is applicable. Any registration
that is withdrawn without becoming effective pursuant to this Section 1.5 shall
not be counted as a registration for purposes of Section 1.2(i).
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses (other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2), including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders
(selected by Holders of a majority of Registrable Securities to be included in
the registration if under subsection (a), by Enron if under subsection 1.2(b) or
by MCI WorldCom if under subsections 1.2(c) or 1.2(d)) ("Holders' Counsel")
shall be borne by the Company; provided, however, that the Company
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shall not be required to pay for any expenses of any registration proceeding
begun pursuant to Section 1.2 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered if under subsection 1.2(a), of Enron if under
subsection 1.2(b), or of MCI WorldCom if under subsections 1.2(c) or 1.2(d) (in
which case all participating Holders shall bear such expenses allocated among
them in proportion to the amount of Registrable Securities originally proposed
to be registered), unless the Holders of a majority of the Registrable
Securities if under subsection 1.2(a), of Enron if under subsection 1.2(b), or
of MCI WorldCom if under subsections 1.2(c) or 1.2(d) agree to forfeit their or
its right to one demand registration pursuant to Section 1.2; provided further,
however, that if at the time of such withdrawal, the Holders, Enron or MCI
WorldCom, as applicable, have learned of a material adverse change in the
condition, business, or prospects of the Company from that known to the Holders,
Enron or MCI WorldCom, as applicable, at the time of their or its request and
have withdrawn the request with reasonable promptness following disclosure by
the Company of such material adverse change, then the Company shall pay such
expenses and the Holders, Enron or MCI WorldCom, as applicable, shall not be
required to pay any of such expenses and shall retain their or its rights
pursuant to Section 1.2.
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto, but excluding underwriting discounts and commissions relating to
Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling Shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall (i) the amount of securities
of the selling Holders included in the offering be reduced below thirty percent
(30%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities in which
case the selling shareholders may be excluded if the underwriters make the
determination described immediately above or (ii) notwithstanding (i) above, any
shares being sold by a shareholder exercising a demand registration right
similar to that granted in Section 1.2 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder
8
which is a holder of Registrable Securities and which is a partnership or
corporation, the partners, retired partners and shareholders of such holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling shareholder", and any pro-rata reduction with respect to such
"selling shareholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling shareholder", as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners or officers, directors and
shareholders of each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, or the 1934 Act,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, or any rule or
regulation promulgated under the Act, or the 1934 Act; and the Company will pay
to each such Holder, underwriter or controlling person any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by a Holder requesting indemnification
hereunder or any such underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under
9
the Act, or the 1934 Act insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 1.10(b), in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 1.10(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld;
provided, that, in no event shall any indemnity under this subsection 1.10(b)
exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires and has acknowledged its obligation to
indemnify the indemnified party with respect to such action, jointly with any
other indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to retain one
separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to
the indemnified party under this Section 1.10 except to the extent that the
indemnifying party is prejudiced thereby in its ability to defend such action,
but the omission so to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
10
(e) Notwithstanding the foregoing, to the extent that any
customary and reasonable provisions on indemnification and contribution
contained in the underwriting agreement entered into in connection with the
underwritten public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 FORM S-3 REGISTRATION. In case the Company shall receive from
the Holders of forty percent (40%) or more of the Registrable Securities a
written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within
11
15 days after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this section 1.12: (1) if
Form S-3 is not available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $5,000,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 120 days after receipt of
the request of the Holder or Holders under this Section 1.12; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; or (4) if the Company has, within the twelve (12) month period preceding
the date of such request, already effected two registrations on Form S-3 for the
Holders pursuant to this Section 1.12.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 1.12, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of Holders' Counsel and counsel for the
Company, shall be borne pro rata by the Holder or Holders participating in the
Form S-3 Registration. Registrations effected pursuant to this Section 1.12
shall not be counted as demands for registration or registrations effected
pursuant to Section 1.2.
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to subsection 1.2(a) may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least 2,000,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act. The rights to cause the Company to register
Registrable Securities pursuant to subsection 1.2(b) may be assigned (but only
with all related obligations) by Enron to a transferee or assignee of such
securities who, after such assignment or transfer, holds at least 1,500,000
shares of Registrable Securities (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other recapitalizations), provided the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned; and provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act. The rights to cause the Company to
register Registrable Securities pursuant to subsections 1.2(c) or 1.2(d)
12
may be assigned (but only with all related obligations) by MCI WorldCom to a
transferee or assignee of such securities who, after such assignment or
transfer, holds at least 1,250,000 shares of Registrable Securities (subject to
appropriate adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act. For the purposes of determining the number of shares
of Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired partners
of such partnership (including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Registrable Securities by gift,
will or intestate succession) shall be aggregated together and with the
partnership; provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices or
taking any action under this Section 1.
1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of 60% or more of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section 1.2 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or adversely affect the market for
the Registrable Securities that are included or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of any of the dates set forth in subsections
1.2(a), 1.2(b) or 1.2(c) or within one hundred twenty (120) days of the
effective date of any registration effected pursuant to Section 1.2.
1.15 "MARKET STAND-OFF" AGREEMENT. Each Investor hereby agrees
that, during the period of duration (such period not to exceed 180 days)
specified by the Company and an underwriter of common stock or other securities
of the Company, following the effective date of a registration statement of the
Company filed under the Act, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees or
commonly-controlled affiliates of the transferor who agree to be similarly
bound) any securities of the Company held by it at any time during such period
except common stock included in such registration; provided, however, that:
(a) such agreement shall be applicable only to the first two
such registration statements of the Company which cover common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
13
(b) all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.16 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be
entitled to exercise any right provided for in this Section 1 after five (5)
years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
initial firm commitment underwritten offering of its securities to the general
public.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver
to each Investor holding at least 1,000,000 shares of Registrable Securities:
(a) as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statement of
shareholder's equity as of the end of such year, and a schedule as to the
sources and applications of funds for such year, such year-end financial reports
to be in reasonable detail, prepared in accordance with generally accepted
accounting principles ("GAAP"), and audited and certified by independent public
accountants of nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement, schedule
as to the sources and application of funds for such fiscal quarter and an
unaudited balance sheet as of the end of such fiscal quarter.
(c) within thirty (30) days of the end of each month, an
unaudited income statement and schedule as to the sources and application of
funds and balance sheet for and as of the end of such month, in reasonable
detail; and
(d) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a budget for the next fiscal year,
prepared on a monthly basis, including balance sheets and sources and
applications of funds statements for such months and, as soon as prepared, any
other budgets or revised budgets prepared by the Company.
2.2 INSPECTION. The Company shall permit each Investor, at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Investor; provided, however, that the Company
14
shall not be obligated pursuant to this Section 2.2 to provide access to any
information which it reasonably considers to be a trade secret or similar
confidential information.
2.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The
covenants set forth in subsections 2.1(c) and (d) and Section 2.2 shall
terminate as to Investors and be of no further force or effect when the sale of
securities pursuant to a registration statement filed by the Company under the
Act in connection with the firm commitment underwritten offering of its
securities raising at least $20,000,000 to the general public is consummated or
when the Company first becomes subject to the periodic reporting requirements of
Sections 12(g) or 15(d) of the 1934 Act, whichever event shall first occur.
2.4 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this paragraph 2.4, the Company hereby grants to each Major
Investor (as hereinafter defined) a right of first offer with respect to future
sales by the Company of its Shares (as hereinafter defined). For purposes of
this Section 2.4, a Major Investor shall mean (i) any Investor who holds at
least 50% of such Investor's originally acquired shares of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock issued pursuant to
(A) that certain Series A Preferred Stock Purchase Agreement dated July 3, 1997
(the "Series A Agreement"), (B) that certain Series B Preferred Stock Purchase
Agreement dated March 12, 1998 (the "Series B Agreement") or (C) the Preferred
Stock Agreement, as applicable, and (ii) any person who acquires at least (A)
10% of the Series A Preferred Stock (or the common stock issued upon conversion
thereof) issued pursuant to the Series A Agreement, (B) 10% of the Series B
Preferred Stock (or the common stock issued upon conversion thereof) issued
pursuant to the Series B Agreement or (C) 10% of the Series C Preferred Stock
(or the common stock issued upon conversion thereof) issued pursuant to the
Preferred Stock Agreement. For purposes of this Section 2.4, Investor includes
any general or limited partners and affiliates of an Investor. An Investor
shall be entitled to apportion the right of first offer hereby granted it among
itself and its partners and affiliates in such proportions as it deems
appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Major Investors stating (i) its bona fide intention to offer
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) Within 20 calendar days after receipt of the Notice, the
Major Investor may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Shares which equals the
proportion that the number of shares of common stock issued and held, or
issuable upon conversion of the Series A Preferred Stock, Series B Preferred
Stock and/or Series C Preferred Stock then held, by such Major Investor bears to
the total number of shares of common stock of the Company then outstanding
(assuming full conversion and exercise of all convertible or exercisable
securities) as of the date of the Notice.
15
The Company shall promptly, in writing, inform each Major Investor which
purchases all the shares available to it ("Fully-Exercising Investor") of any
other Major Investor's failure to do likewise. During the ten-day period
commencing after receipt of such information, each Fully-Exercising Investor
shall be entitled to obtain that portion of the Shares for which Major Investors
were entitled to subscribe but which were not subscribed for by the Major
Investors which is equal to the proportion that the number of shares of common
stock issued and held, or issuable upon conversion of Series A Preferred Stock,
Series B Preferred Stock and/or Series C Preferred Stock then held, by such
Fully-Exercising Investor bears to the total number of shares of common stock
issued and held, or issuable upon conversion of the Series A Preferred Stock,
Series B Preferred Stock and/or Series C Preferred Stock then held, by all
Fully-Exercising Investors who wish to purchase some of the unsubscribed shares.
(c) If all Shares referred to in the Notice are not elected
to be obtained as provided in subsection 2.4(b) hereof, the Company may, during
the 60-day period following the expiration of the period provided in subsection
2.4(b) hereof, offer the remaining unsubscribed portion of such Shares to any
person or persons at a price not less than, and upon terms no more favorable to
the offeree than those specified in the Notice. If the Company does not enter
into an agreement for the sale of the Shares within such period, or if such
agreement is not consummated within 60 days of the execution thereof, the right
provided hereunder shall be deemed to be revived and such Shares shall not be
offered unless first reoffered to the Major Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall not
be applicable (i) to the issuance or sale of common stock (or options therefor)
to employees, consultants or directors of the Company directly or pursuant to a
stock option plan or restricted stock plan approved by the Board of Directors of
the Company, (ii) to or after consummation of a bona fide, firmly underwritten
public offering of shares of common stock, registered under the Act pursuant to
a registration statement on Form S-1, at an offering price of at least
$20,000,000 in the aggregate, (iii) to the issuance of securities pursuant to
the conversion or exercise of convertible or exercisable securities, (iv) to the
issuance of securities in connection with a bona fide business acquisition of or
by the Company, whether by merger, consolidation, sale of assets, sale or
exchange of stock or otherwise or (v) to the issuance of stock, warrants or
other securities or rights to persons or entities with which the Company has
business relationships provided such issuances are for other than primarily
equity financing purposes approved by the Board of Directors.
2.5 EMPLOYEE STOCK POOL. Any increase in the authorized number of
shares allocated to the Company's employee stock pool under the Company's 1997
Stock Option/Stock Issuance Plan shall be approved by the Board of Directors.
2.6 EXCLUDED INVESTMENTS. The Company agrees that, for a period
of one year from the date hereof (the "Exclusion Period"), it shall not issue
any of its equity securities in a private offering to any of the following
entities (each an "Excluded Investor"): AT&T Corporation, Sprint Corporation,
Qwest Communications International, Inc., Level 3 Communications, Inc., WilTel,
LLC, Frontier Corporation, British Telecommunications plc, GTE Corp. and the
Regional Xxxx Operating Companies. Notwithstanding anything else in this
16
Agreement, if within thirty (30) days (unless such period is extended by the
mutual agreement of the Company and MCI WorldCom, Inc.) of the effective date
of that certain Framework Agreement dated as of the date hereof between the
Company and MCI WorldCom, Inc. (the "Framework Agreement"), MCI WorldCom,
Inc. has not executed any of the Carrier Services Agreement or the Network
Services Agreement or the OSS Licensing Agreement (as contemplated in the
Framework Agreement), the Exclusion Period shall terminate and the Company
thereafter shall be able to issue its equity securities to any of the
Excluded Investors and MCI WorldCom shall forfeit its demand registration
right granted pursuant to subsection 1.2(d) hereof.
3. COVENANTS OF THE INVESTORS.
3.1 CERTAIN CORPORATE TRANSACTIONS. In the event that the Board
of Directors of the Company and holders of a majority of the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock of the Company vote in favor of a
Corporate Transaction (as defined below), each Investor hereby agrees not to
take any action inconsistent with the pooling-of-interests accounting treatment
to the extent applicable to such Corporate Transaction, as reasonably deemed
necessary by the Company's Board of Directors, including without limitation
exercising any dissenter's rights any such Investor may have or selling or
purchasing any Company securities where prohibited under the then applicable
pooling-of-interests accounting rules. For purposes of this Section 3.1,
Corporate Transaction shall mean the acquisition of the Company by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation) that results in
the transfer of fifty percent (50%) or more of the outstanding voting power of
the Company.
3.2 STANDSTILL. Except as set forth in the Preferred Stock
Agreement, so long as an Investor has registration rights under this Agreement,
such Investor agrees not to purchase any additional shares of, or securities
convertible into or exercisable or exchangeable for any shares of, any class of
capital stock of the Company unless approved in advance by the Board of
Directors of the Company.
3.3 ADDITIONAL PREFERRED INVESTORS. Each Investor agrees to
permit other new preferred stock investors in the Company which are approved by
the Board of Directors to participate on a pari passu basis in the rights of
first offer, registration rights, information and access rights and the
protective provision rights held by the Investors set forth herein and in the
Restated Certificate of Incorporation.
4. CORPORATE OPPORTUNITY MATTERS. Except as expressly provided in this
Section 4, the Investors other than Enron (the "Rhythms Stockholders" for
purposes of this Section 4.1) and the Company acknowledge and agree that neither
Enron nor any of its Affiliates shall be expressly or implicitly restricted or
proscribed pursuant to this Agreement, the relationship that exists between
Enron and the Rhythms Stockholders, the relationship between Enron and the
Company or otherwise, from engaging in any type of business activity or owning
an interest in any type of business entity, regardless of whether such business
activity is (or such business entity engages in businesses that are) in direct
or indirect competition with the businesses or
17
activities of the Company or of any of its Affiliates (as defined below) or any
other person or entity. Without limiting the foregoing and except as otherwise
expressly provided in this Section 4, the Rhythms Stockholders and the Company
acknowledge and agree that (i) neither the Rhythms Stockholders, the Company or
its Affiliates nor any other person or entity shall have any rights, by virtue
of this Agreement, the relationship that exists between Enron and the Rhythms
Stockholders, the relationship between Enron and the Company or otherwise, in
any business venture or business opportunity of Enron or any of its Affiliates,
and Enron and such Affiliates shall have no obligation to offer any interest in
any such business venture or business opportunity to the Rhythms Stockholders,
the Company, any Affiliate of the Company or any other person or entity, or
otherwise account to the Rhythms Stockholders, the Company, any Affiliate of the
Company or any other persons or entities in respect of any such business
ventures, (ii) the activities of Enron or any of its Affiliates that are in
direct or indirect competition with the activities of the Company or any of its
Affiliates are hereby approved by the Rhythms Stockholders and the Company, and
(iii) it shall be deemed not to be a breach of any fiduciary or other duties, if
any and whether express or implied, that may be owed by Enron or its Affiliates
to the Rhythms Stockholdersor the Company for Enron to permit itself or one of
its Affiliates to engage in a business opportunity in preference or to the
exclusion of the Rhythms Stockholders, the Company, its Affiliates or any other
person or entity.
4.1 Except as expressly provided in this Section 4, the
Investors other than MCI WorldCom (the "Rhythms Stockholders" for purposes of
this Section 4.2) and the Company acknowledge and agree that neither MCI
WorldCom nor any of its Affiliates shall be expressly or implicitly restricted
or proscribed pursuant to this Agreement, the relationship that exists between
MCI WorldCom and the Rhythms Stockholders, the relationship between MCI WorldCom
and the Company or otherwise, from engaging in any type of business activity or
owning an interest in any type of business entity, regardless of whether such
business activity is (or such business entity engages in businesses that are) in
direct or indirect competition with the businesses or activities of the Company
or of any of its Affiliates (as defined below) or any other person or entity.
Without limiting the foregoing and except as otherwise expressly provided in
this Section 4, the Rhythms Stockholders and the Company acknowledge and agree
that (i) neither the Rhythms Stockholders, the Company or its Affiliates nor any
other person or entity shall have any rights, by virtue of this Agreement, the
relationship that exists between MCI WorldCom and the Rhythms Stockholders, the
relationship between MCI WorldCom and the Company or otherwise, in any business
venture or business opportunity of MCI WorldCom or any of its Affiliates, and
MCI WorldCom and such Affiliates shall have no obligation to offer any interest
in any such business venture or business opportunity to the Rhythms
Stockholders, the Company, any Affiliate of the Company or any other person or
entity, or otherwise account to the Rhythms Stockholders, the Company, any
Affiliate of the Company or any other persons or entities in respect of any such
business ventures, (ii) the activities of MCI WorldCom or any of its Affiliates
that are in direct or indirect competition with the activities of the Company or
any of its Affiliates are hereby approved by the Rhythms Stockholders and the
Company, and (iii) it shall be deemed not to be a breach of any fiduciary or
other duties, if any and whether express or implied, that may be owe by MCI
WorldCom or its Affiliates to the Rhythms Stockholders or the Company for MCI
WorldCom to permit itself or one of its Affiliates to engage in a business
opportunity in preference or to the exclusion of the Rhythms Stockholders, the
Company, its Affiliates or any other person or entity.
18
4.2 For purposes of this Section 4, the term "Affiliate" shall
mean (i) a person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with
another person or entity or (ii) a person or entity that owns beneficially at
least 50% of the equity of such other person or entity; provided, however, that
when used to refer to Affiliates of the Company (as opposed to Affiliates of any
other person or entity, such as Enron or MCI WorldCom), shall only mean persons
or entities controlled by the Company (rather than persons or entities under
common control with the Company), and when used to refer to Affiliates of Enron
or MCI WorldCom, shall exclude the Company and its Affiliates. The term
"control," including the correlative terms "controlling," "controlled by" and
"under common control with" shall mean possession, directly or indirectly of the
power to direct or cause the direction of management or policies (whether
through ownership of securities or any partnership or other ownership interest,
by contract or otherwise) of a person or entity.
5. MISCELLANEOUS.
5.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
5.2 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware without regard to choice of
law principles.
5.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.5 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon receipt addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties.
5.6 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
19
5.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
60% or more of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
5.8 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
5.9 AGGREGATION OF STOCK. All shares of Registrable Securities
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
5.10 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement
(including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
20
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
RHYTHMS NETCONNECTIONS INC.
By: /s/ Xxxxxxxxx Xxxxx
---------------------------
Xxxxxxxxx Xxxxx, President
Address: 0000 Xxxxx Xxxxxx Xxxxxxx
Xxxxxxxxx, XX 00000-0000
INVESTOR:
MICROSOFT CORPORATION
By: /s/ [Illegible]
----------------------------
Its:
---------------------------
Address: Xxx Xxxxxxxxx Xxx
Xxxxxxx, XX 00000-0000
MCI WORLDCOM VENTURE FUND, INC.
By: /s/ Xxxxx Xxxxx
----------------------------
Its:
---------------------------
Address:
-------------------------------
-------------------------------
ENRON COMMUNICATIONS GROUP, INC.
By: /s/ Xxx Xxxxxxxx
----------------------------
Its:
---------------------------
Address: 000 Xxxxxxxxx Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxx 00000
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
ENTERPRISE PARTNERS III, L.P.
By: /s/ Xxxxxxx Xxxxxxxx
----------------------------
Its:
---------------------------
Address: 0000 Xxxxxxx, Xxxxx 000
Xx Xxxxx, XX 00000
Attn: Xxxxxxx Xxxxxxxx
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: /s/ Xxxxxxx Xxxxxxxx
----------------------------
Its:
---------------------------
Address: 0000 Xxxxxxx, Xxxxx 000
Xx Xxxxx, XX 00000
Attn: Xxxxxxx Xxxxxxxx
ENTERPRISE PARTNERS IV, L.P.
By: /s/ Xxxxxxx Xxxxxxxx
----------------------------
Its:
---------------------------
Address: 0000 Xxxxxxx, Xxxxx 000
Xx Xxxxx, XX 00000
Attn: Xxxxxxx Xxxxxxxx
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
BRENTWOOD ASSOCIATES VII, L.P.
By: BRENTWOOD VII VENTURES, L.P.
Its General Partner
By: /s/ Xxxx Xxxxxxx
----------------------------
Its:
---------------------------
Address: 0000 Xxxx Xxxx Xxxx
Xxxx. 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attn: Xxxx Xxxxxxx
BRENTWOOD AFFILIATES FUND, L.P.
By: BRENTWOOD VII VENTURES, L.P.
Its General Partner
By: /s/ Xxxx Xxxxxxx
----------------------------
Its:
---------------------------
Address: 0000 Xxxx Xxxx Xxxx
Xxxx. 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attn: Xxxx Xxxxxxx
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
XXXXXXX XXXXXXX XXXXXXXX & XXXXX VIII
By: /s/ Xxxxx Xxxxxxx
----------------------------
Its:
---------------------------
Address: 0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxx
KPCB VIII FOUNDERS FUND
By: /s/ Xxxxx Xxxxxxx
----------------------------
Its:
---------------------------
Address: 0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxx
KPCB INFORMATION SCIENCES ZAIBATSU
FUND II
By: /s/ Xxxxx Xxxxxxx
----------------------------
Its:
---------------------------
Address: 0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxx
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
SPROUT CAPITAL VII, L.P.
By: DLJ Capital Corporation
Managing General Partner
By: /s/ Xxxxx Xxxxxxx
-------------------------------
Xxxxx Xxxxxxx, Attorney-in-Fact
Address: 0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxx
THE SPROUT CEO FUND, L.P.
By: DLJ Capital Corporation
Its General Partner
By: /s/ Xxxxx Xxxxxxx
---------------------------------
Xxxxx Xxxxxxx, Attorney-in-Fact
Address: 0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxx
DLJ CAPITAL CORPORATION
By: /s/ Xxxxx Xxxxxxx
---------------------------------
Xxxxx Xxxxxxx, Attorney-in-Fact
Address: 0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxx
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
DLJ FIRST ESC L.L.C.
By: DLJ LBO Plans Management
Corporation
Its: Manager
By: /s/ Xxxxx Xxxxxxx
-----------------------------
Xxxxx Xxxxxxx, Attorney-in-Fact
Address: 0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxx
XXXXX INVESTORS II, LLC
By:
----------------------------
Its:
---------------------------
Address:
-------------------------------
-------------------------------
-------------------------------
Xxxxxxxxx Xxxxx
Address: 0000 Xxxxx Xxxxxx Xxxxxxx
Xxxxxxxxx, XX 00000-0000
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
XXXXXXXXXX & XXXXX
By:
----------------------------
Its:
---------------------------
Address: 0000 X Xxxxxx, X.X., Xxxxx 000
Xxxxxxxxxx, X.X. 00000
-------------------------------
Xxxxxx Xxxxxxx
Address: 000 Xxxxxxxx Xxxxx, Xxx. 000
Xxxxxxxxx, XX 00000
-------------------------------
Xxxx Portugal
Address: 00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
-------------------------------
Xxxx X. Xxxx
Address: c/o Xxxxxxx Xxxxxx
0000 Xxxx Xxxx Xxxx
Xxxx. 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
-------------------------------
Xxxx X. Xxxxx
Address: c/o Xxxxxxx Xxxxxx
0000 Xxxx Xxxx Xxxx
Xxxx. 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
---------------------------------
Xxxxx X. Xxxxxx
Address: c/o Xxxxxxx Xxxxxx
0000 Xxxx Xxxx Xxxx
Xxxx. 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
----------------------------------
Xxxxxxx X. Xxxxxxx
Address: c/o Xxxxxxx Xxxxxx
0000 Xxxx Xxxx Xxxx
Xxxx. 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
----------------------------------
Xxxxx X. Xxxx
Address: c/o Xxxxxxx Xxxxxx
0000 Xxxx Xxxx Xxxx
Xxxx. 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
----------------------------------
Xxxx X. Xxxxxxx
Address: c/o Xxxxxxx Xxxxxx
0000 Xxxx Xxxx Xxxx
Xxxx. 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
----------------------------------
Xxxx Xxxxxxxxxx
Address: 0000 X Xxxxxx, X.X., Xxxxx 000
Xxxxxxxxxx, X.X. 00000
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
XXXXXXX, PHLEGER & XXXXXXXX LLP
By:
-------------------------------
Its:
-----------------------------
Address: Spear Xxxxxx Xxxxx
Xxx Xxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
-----------------------------------
Xxxxx X. Xxxxxxx
Address: Xxxxxxx, Phleger & Xxxxxxxx LLP
000 Xxxx "X" Xxxxxx, Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000
UMB AS TRUSTEE FOR XXXXXXX, PHLEGER &
XXXXXXXX RETIREMENT SAVINGS TRUST
FBO XXXX X. XXXXXXXXX
By:
----------------------------
Its:
---------------------------
Address: 0000 Xxxxx Xxxxxx
Xxxxxx Xxxx, XX 00000
--------------------------------
Xxxxxx X. Xxxxxxx
Address: Xxxxxxx, Phleger & Xxxxxxxx LLP
000 Xxxx "X" Xxxxxx, Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
SCHEDULE A
INVESTOR
Microsoft Corporation
MCI Worldcom Venture Fund, Inc.
Enron Communications Group, Inc.
Enterprise Partners III, L.P.
Enterprise Partners III Associates, L.P.
Enterprise Partners IV, L.P.
Brentwood Associates VII, L.P.
Brentwood Associates Fund, X.X.
Xxxxxxx Xxxxxxx Xxxxxxxx & Xxxxx VIII
KPCB VIII Founders Fund
KPCB Information Sciences Zaibatsu Fund II
Sprout Capital VII, L.P.
The Sprout CEO Fund, L.P.
DLJ Capital Corporation
DLJ First ESC L.L.C.
Xxxxx Investors II, LLC
Stanford University
Xxxxxxxxx X. Xxxxx
Xxxxxxxxxx & Xxxxx
Xxxxxx Xxxxxxx
Xxxx Portugal
Xxxx X. Xxxx
Xxxx X. Xxxxx
Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxxx
Xxxxx X. Xxxx
Xxxx X. Xxxxxxx
Xxxxxxx Xxxxxxxxxx
Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP
Xxxxx X. Xxxxxxx
UMB as Trustee for Xxxxxxx, Phleger & Xxxxxxxx Retirement
Savings Trust FBO Xxxx X. Xxxxxxxxx
Xxxxxx X. Xxxxxxx
