Exhibit 4.8
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE
SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT (I) EFFECTIVE REGISTRATION
STATEMENTS RELATED THERETO, (II) AN OPINION OF
COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY
TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT
REQUIRED, (III) RECEIPT OF NO-ACTION LETTERS FROM
THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (IV)
OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION
7 OF THIS WARRANT.
RHYTHMS NETCONNECTIONS INC.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
THIS CERTIFIES THAT, for value received and subject to the provisions
and upon the terms and conditions hereinafter set forth, GATX CAPITAL
CORPORATION and its assignees are entitled to subscribe for and purchase 19,905
shares of the fully paid and nonassessable Common Stock (as adjusted pursuant to
Section 4 hereof, the "Shares") of RHYTHMS NETCONNECTIONS INC., a Delaware
corporation (the "Company"), at a price per share of $10.55 (such prices and
such other prices as shall result, from time to time, from the adjustments
specified in Section 4 hereof is herein referred to as the "Exercise Price"). As
used herein, (a) the term "Date of Grant" shall mean March 31, 1999, and (b) the
term "Other Warrants" shall mean any other warrants issued by the Company in
connection with the transaction with respect to which this Warrant was issued,
and any warrant issued upon transfer or partial exercise of this Warrant. The
term "Warrant" as used herein shall be deemed to include Other Warrants unless
the context clearly requires otherwise.
1. TERM. The purchase right represented by this Warrant is exercisable,
in whole or in part, at any time and from time to time from the Date of Grant
through the later of (i) ten (10) years after the Date of Grant or (ii) five (5)
years after the closing of the Company's initial public offering of its Common
Stock effected pursuant to a Registration Statement on Form S-1 (or its
successor) filed under the Securities Act of 1933, as amended (the "Act").
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, at
the election of the holder hereof, by (a) the surrender of this Warrant (with
the notice of exercise substantially in the form attached hereto as Exhibit A
duly completed and executed) at the principal office of the Company and by the
payment to the Company, by certified or cashier's check, or by wire transfer to
an account designated by the Company (a "Wire Transfer") of an amount equal to
the then applicable Exercise Price multiplied by the number of Shares then being
purchased, or (b) if in connection with a registered public offering of the
Company's securities, the surrender of this Warrant (with the notice of exercise
form attached hereto as Exhibit A-1 duly completed and executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by certified or
cashier's check or by Wire Transfer from the proceeds of the sale of shares to
be sold by the holder in such public offering of an amount equal to the then
applicable Exercise Price per share multiplied by the number of Shares then
being purchased or (c) exercise of the right provided for in Section 10.3
hereof. The person or persons in whose name(s) any certificate(s) representing
the Shares shall be issuable upon exercise of this Warrant shall be deemed to
have become the holder(s) of record of, and shall be treated for all
purposes as the record holder(s) of, the shares represented thereby (and such
shares shall be deemed to have been issued) immediately prior to the close of
business on the date or dates upon which this Warrant is exercised. In the event
of any exercise of the rights represented by this Warrant, certificates for the
shares of stock so purchased shall be delivered to the holder hereof as soon as
possible and in any event within thirty (30) days after such exercise and,
unless this Warrant has been fully exercised or expired, a new Warrant
representing the portion of the Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the holder
hereof as soon as possible and in any event within such thirty-day period.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from adverse claims. During the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for the purpose of the issue upon exercise
of the purchase rights evidenced by this Warrant, a sufficient number of shares
of its Common Stock to provide for the exercise of the rights represented by
this Warrant.
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number and
kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) RECLASSIFICATION OR MERGER. In case of any reclassification or
change of securities of the class issuable upon exercise of this Warrant (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), or in case
of any merger of the Company with or into another corporation (other than a
merger with another corporation in which the Company is the acquiring and the
surviving corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, this
Warrant shall thereafter entitle the holder to receive upon exercise that number
of shares of capital stock or other property to which the holder would have been
entitled as a result of such reclassification, merger, change or sale had the
Warrant been exercised immediately prior thereto.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its outstanding shares of Common Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision or increased in the case
of a combination, effective at the close of business on the date the subdivision
or combination becomes effective.
(c) STOCK DIVIDENDS AND OTHER DISTRIBUTIONS. If the Company at
any time while this Warrant is outstanding and unexpired shall (i) pay a
dividend with respect to Common Stock payable in Common Stock, or (ii) make any
other distribution of Common Stock with respect to Common Stock (except any
distribution specifically provided for in Sections 4(a) and 4(b)), then the
Exercise Price shall be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Exercise Price in effect immediately prior to such
date of determination by a fraction (i) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution, and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such dividend or
distribution.
(d) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the
Exercise Price, the number of Shares purchasable hereunder shall be adjusted, to
the nearest whole share, to the product obtained
2
by multiplying the number of Shares purchasable immediately prior to such
adjustment in the Exercise Price by a fraction, the numerator of which shall be
the Exercise Price immediately prior to such adjustment and the denominator of
which shall be the Exercise Price immediately thereafter.
(e) ANTIDILUTION RIGHTS. The Exercise Price shall also be subject
to adjustment from time to time as set forth in Appendix I hereto upon the
occurrence of certain events described therein. The provisions of Appendix I are
incorporated by reference herein with the same effect as if set forth in full
herein.
5. NOTICE OF ADJUSTMENTS. Whenever the Exercise Price or the number of
Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the
Company shall make a certificate signed by its chief financial officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Exercise Price and the number of Shares purchasable hereunder after giving
effect to such adjustment, and shall cause copies of such certificate to be
mailed (without regard to Section 13 hereof, by first class mail, postage
prepaid) to the holder of this Warrant at such holder's last known address.
6. FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the fair market
value of the Common Stock on the date of exercise as reasonably determined in
good faith by the Company's Board of Directors.
7. COMPLIANCE WITH ACT; DISPOSITION OF WARRANT OR SHARES OF COMMON
STOCK.
(a) COMPLIANCE WITH ACT. The holder of this Warrant, by acceptance
hereof, agrees that this Warrant, and the Shares to be issued upon exercise
hereof are being acquired for investment and that such holder will not offer,
sell or otherwise dispose of this Warrant, or any Shares except under
circumstances which will not result in a violation of the Act or any applicable
state securities laws. Upon exercise of this Warrant, unless the Shares being
acquired are registered under the Act and any applicable state securities laws
or an exemption from such registration is available, the holder hereof shall
confirm in writing that the Shares so purchased are being acquired for
investment and not with a view toward distribution or resale in violation of the
Act and shall confirm such other matters related thereto as may be reasonably
requested by the Company. This Warrant and all Shares issued upon exercise of
this Warrant (unless registered under the Act and any applicable state
securities laws) shall be stamped or imprinted with a legend in substantially
the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION
MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO,
(ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION
LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE
SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."
Said legend shall be removed by the Company, upon the request of a
holder, at such time as the restrictions on the transfer of the applicable
security shall have terminated. In addition, in connection with the issuance of
this Warrant, the holder specifically represents to the Company by acceptance of
this Warrant as follows:
3
(1) The holder is aware of the Company's business affairs and financial
condition, and has acquired information about the Company sufficient to reach an
informed and knowledgeable decision to acquire this Warrant. The holder is
acquiring this Warrant for its own account for investment purposes only and not
with a view to, or for the resale in connection with, any "distribution" thereof
in violation of the Act.
(2) The holder understands that this Warrant has not been registered
under the Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of the holder's
investment intent as expressed herein.
(3) The holder further understands that this Warrant must be held
indefinitely unless subsequently registered under the Act and qualified under
any applicable state securities laws, or unless exemptions from registration and
qualification are otherwise available. The holder is aware of the provisions of
Rule 144, promulgated under the Act.
(b) DISPOSITION OF WARRANT OR SHARES. With respect to any offer,
sale or other disposition of this Warrant or any Shares acquired pursuant to the
exercise of this Warrant prior to registration of such Warrant or Shares, the
holder hereof agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of such
holder's counsel, or other evidence, if reasonably requested by the Company, to
the effect that such offer, sale or other disposition may be effected without
registration or qualification (under the Act as then in effect or any federal or
state securities law then in effect) of this Warrant or the Shares and
indicating whether or not under the Act certificates for this Warrant or the
Shares to be sold or otherwise disposed of require any restrictive legend as to
applicable restrictions on transferability in order to ensure compliance with
such law. Promptly upon receiving such written notice and reasonably
satisfactory opinion or other evidence, if so requested, the Company, as
promptly as practicable but no later than fifteen (15) days after receipt of the
written notice, shall notify such holder that such holder may sell or otherwise
dispose of this Warrant or such Shares, all in accordance with the terms of the
notice delivered to the Company. If a determination has been made pursuant to
this Section 7(b) that the opinion of counsel for the holder or other evidence
is not reasonably satisfactory to the Company, the Company shall so notify the
holder promptly with details thereof after such determination has been made.
Notwithstanding the foregoing, this Warrant or such Shares may, as to such
federal laws, be offered, sold or otherwise disposed of in accordance with Rule
144 or 144A under the Act, provided that the Company shall have been furnished
with such information as the Company may reasonably request to provide a
reasonable assurance that the provisions of Rule 144 or 144A have been
satisfied. Each certificate representing this Warrant or the Shares thus
transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend
as to the applicable restrictions on transferability in order to ensure
compliance with such laws, unless in the aforesaid opinion of counsel for the
holder, such legend is not required in order to ensure compliance with such
laws. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
(c) APPLICABILITY OF RESTRICTIONS. Neither any restrictions of any
legend described in this Warrant nor the requirements of Section 7(b) above
shall apply to any transfer or grant of a security interest in this Warrant (or
the Common Stock obtainable upon exercise thereof) or any part hereof (i) to a
partner of the holder if the holder is a partnership, (ii) to a partnership of
which the holder is a partner, or (iii) to any affiliate of the holder if the
holder is a corporation; PROVIDED, HOWEVER, in any such transfer, if applicable,
the transferee shall on the Company's request agree in writing to be bound by
the terms of this Warrant as if an original signatory hereto.
4
8. RIGHTS AS SHAREHOLDERS; INFORMATION. No holder of this Warrant, as
such, shall be entitled to vote or receive dividends or other distributions or
be deemed the holder of Shares, nor shall anything contained herein be construed
to confer upon the holder of this Warrant, as such, any of the rights of a
shareholder of the Company or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to receive
notice of meetings, or to receive dividends or subscription rights or otherwise
until this Warrant shall have been exercised and the Shares purchasable upon the
exercise hereof shall have become deliverable, as provided herein. The holders
of Warrants will not be entitled to share in the assets of the Company in the
event of a liquidation, dissolution or the winding up of the Company.
Notwithstanding the foregoing, the Company will transmit to the holder of this
Warrant such information, documents and reports as are generally distributed to
the holders of common stock of the Company concurrently with the distribution
thereof to the shareholders.
9. REGISTRATION RIGHTS. The Company grants registration rights to
the holder of this Warrant for the Common Stock issuable upon exercise hereof,
comparable to the registration rights granted to holders under the Warrant
Registration Rights Agreement, dated as of May 5, 1998 (the "Warrant
Registration Rights Agreement") among the Company and the Initial Purchasers (as
defined therein), with the following exceptions:
(1) the holder will have no shelf registration rights; and
(2) the holder's "piggy-back" registration rights shall be
junior in priority to the "piggy-back" registration rights granted to the
holders under the Warrant Registration Rights Agreement.
10. ADDITIONAL RIGHTS.
10.1 SECONDARY SALES. The Company agrees that it will not interfere
with the holder of this Warrant in obtaining liquidity if opportunities to make
secondary sales of the Company's securities become available. To this end, the
Company will promptly provide the holder of this Warrant with notice of any
offer (of which it has knowledge) to acquire from the Company's security holders
more than fifteen percent (15%) of the total voting power of the Company and
will not interfere with any attempt by the holder in arranging the sale of this
Warrant to the person or persons making such offer.
10.2 MERGERS. The Company shall provide the holder of this Warrant with
at least thirty (30) days' notice of the terms and conditions of any of the
following potential transactions: (i) the sale, lease, exchange, conveyance or
other disposition of all or substantially all of the Company's property or
business, or (ii) its merger into or consolidation with any other corporation
(other than a wholly-owned subsidiary of the Company), or any transaction
(including a merger or other reorganization) or series of related transactions,
in which more than 50% of the voting power of the Company is disposed of. The
Company will reasonably cooperate with the holder in arranging the sale of this
Warrant in connection with any such transaction.
10.3 RIGHT TO CONVERT WARRANT INTO STOCK: NET ISSUANCE.
(a) RIGHT TO CONVERT. In addition to and without limiting the
rights of the holder under the terms of this Warrant, the holder shall have the
right to convert this Warrant or any portion thereof (the "Conversion Right")
into shares of Common Stock as provided in this Section 10.3 at any time or from
time to time during the term of this Warrant. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the
5
holder (without payment by the holder of any exercise price or any cash or other
consideration) (X) that number of shares of fully paid and nonassessable Common
Stock equal to the quotient obtained by dividing the value of this Warrant (or
the specified portion hereof) on the Conversion Date (as defined in subsection
(b) hereof), which value shall be determined by subtracting (A) the aggregate
Exercise Price of the Converted Warrant Shares immediately prior to the exercise
of the Conversion Right from (B) the aggregate fair market value of the
Converted Warrant Shares issuable upon exercise of this Warrant (or the
specified portion hereof) on the Conversion Date (as herein defined) by (Y) the
fair market value of one share of Common Stock on the Conversion Date (as herein
defined).
Expressed as a formula, such conversion shall be computed as follows:
X = B - A
------
Y
Where: X = the number of shares of Common Stock that may
be issued to holder
Y = the fair market value (FMV) of one share of
Common Stock
A = the aggregate Exercise Price (i.e., Converted
Warrant Shares x Exercise Price)
B = the aggregate FMV (i.e., FMV x Converted
Warrant Shares)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined). For purposes
of Section 9 of this Warrant, shares issued pursuant to the Conversion Right
shall be treated as if they were issued upon the exercise of this Warrant.
(b) METHOD OF EXERCISE. The Conversion Right may be exercised by
the holder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant which are being surrendered (referred to in Section
10.3(a) hereof as the Converted Warrant Shares) in exercise of the Conversion
Right. Such conversion shall be effective upon receipt by the Company of this
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"), and, at the election of the holder
hereof, may be made contingent upon the closing of the sale of the Company's
Common Stock to the public in a public offering pursuant to a Registration
Statement under the Act (a "Public Offering"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to this Warrant, shall be
issued as of the Conversion Date and shall be delivered to the holder within
thirty (30) days following the Conversion Date.
(c) DETERMINATION OF FAIR MARKET VALUE. For purposes of this
Section 10.3, "fair market value" of a share of Common Stock as of a particular
date (the "Determination Date") shall mean:
6
(i) If the Conversion Right is exercised in connection with
and contingent upon a Public Offering, and if the Company's Registration
Statement relating to such Public Offering ("Registration Statement") has been
declared effective by the SEC, then the initial "Price to Public" specified in
the final prospectus with respect to such offering.
(ii) If the Conversion Right is not exercised in connection
with and contingent upon a Public Offering, then as follows:
(A) If traded on a securities exchange, the fair market value of
the Common Stock shall be deemed to be the average of the closing prices
of the Common Stock on such exchange over the 30-day period ending five
business days prior to the Determination Date;
(B) If traded over-the-counter, the fair market value of the
Common Stock shall be deemed to be the average of the closing bid prices
of the Common Stock over the 30-day period ending five business days
prior to the Determination Date; and
(C) If there is no public market for the Common Stock, then fair
market value shall be determined by mutual agreement of the holder of
this Warrant and the Company.
10.4 EXERCISE PRIOR TO EXPIRATION. To the extent this Warrant is
not previously exercised as to all of the Shares subject hereto, and if the fair
market value of one share of the Common Stock is greater than the Exercise Price
then in effect, this Warrant shall be deemed automatically exercised pursuant to
Section 10.3 above (even if not surrendered) immediately before its expiration.
For purposes of such automatic exercise, the fair market value of one share of
the Series Preferred upon such expiration shall be determined pursuant to
Section 10.3(c). To the extent this Warrant or any portion thereof is deemed
automatically exercised pursuant to this Section 10.4, the Company agrees to
promptly notify the holder hereof of the number of Shares, if any, the holder
hereof is to receive by reason of such automatic exercise.
11. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and other
equitable remedies;
(b) The Shares have been duly authorized and reserved for issuance
by the Company and, when issued in accordance with the terms hereof will be
validly issued, fully paid and non-assessable;
(c) The rights, preferences, privileges and restrictions granted to
or imposed upon the classes and series of the Company's capital stock and the
holders thereof are as set forth in the Charter;
(d) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Charter or by-laws, do
not and will not contravene any material law, governmental rule or regulation,
judgment or order applicable to the Company, and do not and will not conflict
with or contravene any provision of, or constitute a default under, any material
indenture, mortgage, contract or other instrument of which the
7
Company is a party or by which it is bound or require the consent or approval
of, the giving of notice to, the registration or filing with or the taking of
any action in respect of or by, any Federal, state or local government authority
or agency or other person, except for the filing of notices pursuant to federal
and state securities laws, which filings will be effected by the time required
thereby; and
(e) There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against the
Company in any court or before any governmental commission, board or authority
which, if adversely determined, will have a material adverse effect on the
ability of the Company to perform its obligations under this Warrant.
12. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
13. NOTICES. Any notice, request, communication or other document
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered, or shall be sent by certified or registered mail,
postage prepaid, to each such holder at its address as shown on the books of the
Company or to the Company at the address indicated therefor on the signature
page of this Warrant.
14. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Shares issuable upon the exercise or conversion
of this Warrant shall survive the exercise, conversion and termination of this
Warrant and all of the covenants and agreements of the Company shall inure to
the benefit of the successors and assigns of the holder hereof.
15. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to the
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
16. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
Warrant.
17. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
18. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.
19. REMEDIES. In case any one or more of the covenants and agreements
contained in this Warrant shall have been breached, the holders hereof (in the
case of a breach by the Company), or the Company (in the case of a breach by a
holder), may proceed to protect and enforce their or its rights either by suit
in equity
8
and/or by action at law, including, but not limited to, an action for damages as
a result of any such breach and/or an action for specific performance of any
such covenant or agreement contained in this Warrant.
20. NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against impairment.
21. SEVERABILITY. The invalidity or unenforceability of any provision
of this Warrant in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction, or affect any other
provision of this Warrant, which shall remain in full force and effect.
22. RECOVERY OF LITIGATION COSTS. If any legal action or other
proceeding is brought for the enforcement of this Warrant, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Warrant, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE FOLLOWS]
9
23. ENTIRE AGREEMENT; MODIFICATION. This Warrant constitutes the entire
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations, and
undertakings of the parties, whether oral or written, with respect to such
subject matter.
RHYTHMS NETCONNECTIONS INC.
By /s/ Xxxxx X. Xxxxxxxx
--------------------------------------
Title Chief Financial Officer
----------------------------------
Address: 0000 Xxxxx Xxxxxx Xxxxxxx
Xxxxx 000
Xxxxxxxxx, XX 00000
10
APPENDIX I
CERTAIN ADJUSTMENT PROVISIONS
1. CAPITALIZED TERMS. Capitalized terms used in this Appendix I that
are not otherwise defined herein shall have the respective meanings assigned to
them in the Warrant, to which this Appendix I is attached, if therein defined.
2. ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF ADDITIONAL STOCK. The
Exercise Price shall be subject to adjustment from time to time as follows:
(a) Upon each issuance by the Company of any Additional Stock,
without consideration or for a consideration per share less than the Exercise
Price in effect immediately prior to the issuance of such Additional Stock, the
Exercise Price in effect immediately prior to each such issuance shall forthwith
(except as otherwise provided in this Section 2) be adjusted to a price
determined by multiplying the Exercise Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding (including,
without limitation, the number of shares of Common Stock issuable upon the
conversion of all outstanding Preferred Stock and all other convertible
securities and the exercise of all outstanding Preferred Stock and all other
convertible securities and the exercise of all outstanding options, warrants or
other rights to purchase Common Stock or other securities convertible into
Common Stock) immediately prior to such issuance plus the number of shares of
Additional Stock which could be purchased were the then Exercise Price used
instead (calculated by dividing the total consideration to be received by the
Company in such issuance by the then Exercise Price) and the denominator of
which shall be the number of shares of Common Stock outstanding (including,
without limitation, the number of shares of Common Stock issuable upon the
conversion of all outstanding Preferred Stock and all other convertible
securities and the exercise of all outstanding Preferred Stock and all other
convertible securities and the exercise of all outstanding options, warrants or
other rights to purchase Common Stock or other securities convertible into
Common Stock) immediately prior to such issuance plus the number of shares of
such Additional Stock issued in such issuance. For purposes of this Section 2,
the number of shares of Common Stock outstanding (including, without limitation,
the number of shares of Common Stock issuable upon the conversion of all
outstanding Preferred Stock and all other convertible securities and the
exercise of all outstanding Preferred Stock and all other convertible securities
and the exercise of all outstanding options, warrants or other rights to
purchase Common Stock or other securities convertible into Common Stock) shall
include the aggregate number of shares of Common Stock actually outstanding and
the number of shares deemed to be outstanding as determined below.
(b) No adjustment of the Exercise Price shall be made in an amount
less than one cent per share, provided that any adjustments which are not
required to be made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment made prior to
one (1) year from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of one (1) year from the date of
the event giving rise to the adjustment being carried forward. Except to the
limited extent provided for in subsections 2(d)(iii) and 2(d)(iv) below, no
adjustment of the Exercise Price pursuant to subsection 2(a) of this Appendix I
shall have the effect of increasing the Exercise Price above the Exercise Price
in effect immediately prior to such adjustment.
11
(c) In the case of issuance by the Company of Additional Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined in good
faith by the Board of Directors of the Company irrespective of any accounting
treatment. In the case of the issuance of Additional Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by this corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(d) In the case of the issuance (whether before, on or after the
Grant Date) of options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all purposes of this
Section 2:
(i) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in a manner consistent with subsection
2(c) of this Appendix I), if any, received by the Company upon issuance of such
options or rights plus the minimum exercise price provided in such options or
rights (without taking into account potential antidilution adjustments) for the
Common Stock covered thereby.
(ii) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for (assuming satisfaction of any
conditions to conversion or exchange, including without limitation, the passage
of time, but without taking into account potential antidilution adjustments)
convertible or exchangeable securities or upon exercise of options to purchase
or rights to subscribe for such convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be deemed to have been issued at
the time such securities were issued or such options or rights were issued and
for a consideration equal to the consideration, if any, received by the Company
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the Company (without taking
into account potential antidilution adjustments) upon the conversion or exchange
of such securities or the exercise of any related options or rights (the
consideration in each case to be determined in a manner consistent with
subsection 2(c) of this Appendix I).
(iii) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to the Company upon
exercise of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including but not limited to, a change
resulting from antidilution provisions thereof, the Exercise Price, to the
extent in any way affected by or computed using such options, rights or
securities, shall be adjusted based upon the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(iv) Upon the expiration of any such options or rights, the
termination of any such options or rights to convert or exchange, or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Exercise Price, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related to such
securities, shall be recomputed to reflect the issuance of only the number of
shares of Common Stock (and convertible or exchangeable securities
12
which remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(v) The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to subsections 2(d)(i) and 2(d)(ii)
of this Appendix I shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection 2(d)(iii)
or 2(d)(iv) hereof.
(e) "Additional Stock" shall mean any shares of Common Stock issued
(or deemed to have been issued pursuant to subsection 2(d) of this Appendix I)
by this Company after the Grant Date other than:
(i) Shares of Common Stock issued pursuant to a transaction
described in Sections 4(a), 4(b) and 4(c) of the Warrant,
(ii) Shares of Common Stock issuable or issued to employees,
consultants or directors of the Company directly or pursuant to a compensatory
benefit plan (including a stock option plan or restricted stock plan) approved
by the Board of Directors of the Company,
(iii) Shares of Common Stock issued upon conversion of
Preferred Stock,
(iv) Shares of Common Stock issued or issuable (a) in a public
offering before or in connection with which all outstanding shares of Series A
Preferred Stock and Series B Preferred Stock will be converted to Common Stock
or (b) upon exercise of warrants or rights granted to under writers in
connection with such a public offering,
(v) Shares of Common Stock issued or issuable to persons or
entities with which the corporation has business relationships provided such
issuances are for other than primarily equity financing purposes and are
approved by the Board of Directors of the Company, or
(vi) up to 1, 972,000 shares of Common Stock (as adjusted for
subsequent stock splits, stock dividends and the like) issued or issuable upon
exercise of warrants (the "Warrants") granted to purchasers of units (the
"Units") consisting of 13-2% Senior Discount Notes due 2008 and such Warrants,
which Units were issued on or about May 5, 1998.
13
EXHIBIT A
NOTICE OF EXERCISE
To: RHYTHMS NETCONNECTIONS INC. (the "Company")
1. The undersigned hereby:
- elects to purchase shares of Common Stock of the
Company pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase
price of such shares in full, or
- elects to exercise its net issuance rights
pursuant to Section 10.3 of the attached Warrant
with respect to shares of Common Stock.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below:
------------
(Name)
------------
------------
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares,
all except as in compliance with applicable securities laws.
------------------------------
(Signature)
-------------
(Date)
14
EXHIBIT A-1
NOTICE OF EXERCISE
To: RHYTHMS NETCONNECTIONS INC. (the "Company")
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S , filed , 19 , the undersigned hereby:
- elects to purchase shares of Common Stock of the Company (or
such lesser number of shares as may be sold on behalf of the
undersigned at the Closing) pursuant to the terms of the
attached Warrant, or
- elects to exercise its net issuance rights pursuant to Section
10.3 of the attached Warrant with respect to __ Shares of
Common Stock.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such _______ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $ or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such
shares, the undersigned agrees to deliver the difference to the Company prior
to the Closing.
-----------------------
(Signature)
-------------
(Date)
EXHIBIT B
CHARTER
See Exhibit 3.1 to Registration Statement on Form S-1
