EXHIBIT 4.6
THE TRANSFER OF THIS WARRANT IS SUBJECT TO
RESTRICTIONS CONTAINED HEREIN. THIS WARRANT
HAS BEEN ISSUED IN RELIANCE UPON THE
REPRESENTATION OF THE HOLDER THAT IT HAS BEEN
ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH
A VIEW TOWARD THE RESALE OR OTHER DISTRIBUTION
THEREOF. NEITHER THIS WARRANT NOR THE SHARES
ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS.
RHYTHMS NETCONNECTIONS INC.
Common Stock Purchase Warrant
To Subscribe for and Purchase March 3, 1999
600,000 Shares of Common Stock of
Rhythms NetConnections Inc.
THIS CERTIFIES that, for the purchase price of $8.04 per share, MCI
WorldCom Venture Fund, Inc. or its registered assigns (the "Holder") is entitled
to subscribe for and purchase from Rhythms NetConnections Inc., a Delaware
corporation (hereinafter called the "Company"), up to 600,000 shares (subject to
adjustment as hereinafter provided) of fully paid and non-assessable Common
Stock of the Company (the "Common Stock"), subject to the provisions and upon
the terms and conditions hereinafter set forth at the price of $8.04 per share
(such price as from time to time to be adjusted as provided herein is called the
"Warrant Price"), at or prior to 5:00 p.m. Pacific time on March 3, 2004 (the
"Exercise Period).
This Warrant and any Warrant subsequently issued upon exchange or
transfer hereof are hereinafter collectively called the "Warrant."
Section 1. EXERCISE OF WARRANT. The rights represented by this
Warrant may be exercised by the Holder, in whole or in part (but not as to
fractional shares) at any time or from time to time during the Exercise Period
by the completion of the purchase form attached hereto and by the surrender of
this Warrant (properly endorsed) at the office of the Company as it may
designate by notice in writing to the Holder hereof at the address of the Holder
appearing on the books of the Company, and by payment to the Company of the
Warrant Price in cash or by certified or official bank check, for each share
being purchased. (In addition, see Section 2 below for net issuance
provisions.) In the event of any exercise of the rights represented by this
Warrant, a certificate or certificates for the shares of Common Stock so
purchased, registered in the name of the Holder, or its nominee or other party
designated in the purchase form by the Holder hereof, shall be delivered to the
Holder within thirty (30) business days after the date on which the rights
represented by this Warrant shall have been so exercised; and, unless this
Warrant has expired or has been exercised in full, a new Warrant representing
the number of shares (except a remaining fractional share), if any, with
respect to which this Warrant shall not then have been exercised shall also
be issued to the Holder within such time. The person in whose name any
certificate for shares of Common Stock is issued upon exercise of this
Warrant shall for all purposes be deemed to have become the holder of record
of such shares on the date on which this Warrant was surrendered and payment
of the Warrant Price is made, except that, if the date of such surrender and
payment is a date on which the stock transfer books of the Company are
closed, such person shall be deemed to have become the holder of such shares
at the close of business on the next succeeding date on which the stock
transfer books are open. No fractional shares shall be issued upon exercise
of this Warrant and no payment or adjustment shal be made upon any exercise
on account of any cash dividends on the Common Stock issued upon such
exercise. If any fractional interest in a share of Common Stock would,
except for the provision of this Section 1, be delivered upon such exercise,
the Company, in lieu of delivery of a fractional share thereof, shall pay to
the Holder an amount in cash equal to the current market price of such
fractional share as determined in good faith by the Board of Directors of the
Company.
Section 2. NET ISSUANCE.
(a) RIGHT TO CONVERT. In addition to and without limiting the
rights of the Holder under the terms of this Warrant, if the fair market
value of a share of Common Stock is greater than the Warrant Price, in lieu
of exercising this Warrant for cash the Holder shall have the right to
convert this Warrant or any portion thereof (the "Conversion Right") into
shares of Common Stock equal to the value of this Warrant or the portion
thereof being canceled as provided in this Section 2 at any time or from time
to time during the Exercise Period. Upon exercise of the Conversion Right
with respect to a particular number of shares subject to the Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the Holder (without
payment by the Holder of any exercise price or any cash or other
consideration) that number of shares of fully paid and nonassessable Common
Stock computed using the following formula:
X = Y (A - B)
A
Where X = the number of shares of Common Stock to be delivered to the
holder
Y = the number of Converted Warrant Shares
A = the fair market value of one share of the Company's
Common Stock on the Conversion Date (as defined below)
B = the per share exercise price of the Warrant (as
adjusted to the Conversion Date)
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. 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
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market value of the resulting fractional share on the Conversion Date (as
defined below). Shares issued pursuant to the Conversion Right shall be
treated as if they were issued upon the exercise of the Warrant.
(b) METHOD OF EXERCISE. The Conversion Right may be exercised by
the Holder by the surrender of the 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 total number of
shares under the Warrant that the Holder is exercising through the Conversion
Right. Such conversion shall be effective upon receipt by the Company of the
Warrant together with the aforesaid written statement, or on such later date
as is specified therein (the "Conversion Date"). 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 the
Warrant, shall be issued as of the Conversion Date and shall be delivered to
the Holder promptly following the Conversion Date.
(c) DETERMINATION OF FAIR MARKET VALUE. For purposes of this
Section 2, fair market value of a share of Common Stock on the Conversion
Date shall mean:
(i) If traded on a stock exchange, the fair market value of
the Common Stock shall be deemed to be the average of the closing selling
prices of the Common Stock on the stock exchange determined by the Board to
be the primary market for the Common Stock over the ten (10) trading day
period (or such shorter period immediately following the closing of an
initial public offering) ending on the date prior to the Conversion Date, as
such prices are officially quoted in the composite tape of transactions on
such exchange;
(ii) 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 (or,
if such information is available, the closing selling prices) of the Common
Stock over the ten (10) trading day period (or such shorter period
immediately following the closing of an initial public offering) ending on
the date prior to the Conversion Date, as such prices are reported by the
National Association of Securities Dealers through its NASDAQ system, any
successor system or any exchange on which it is listed, whichever is
applicable; or
(iii) If there is no public market for the Common Stock, then
the fair market value shall be determined by mutual agreement of the holder
of the Warrant and the Company, and if the holder and the Company are unable
to so agree, by an investment banker of national reputation selected by the
Company and reasonably acceptable to the holder of the Warrant.
Section 3. STOCK SPLITS, CONSOLIDATION, MERGER AND SALE. In the
event that before the issuance of the shares of Common Stock into which this
Warrant may be exercised the outstanding shares of Common Stock shall be
split, combined or consolidated, by dividend, reclassification or otherwise,
into a greater or lesser number of shares of Common Stock or any other class
or classes of stock, as appropriate, the Warrant Price in effect immediately
prior to such combination or consolidation and the number of shares
purchasable under this Warrant shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately adjusted. If there
shall be effected any consolidation or merger of the Company
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with another corporation, or a sale of all or substantially all of the
Company's assets to another corporation, and if the holders of Common Stock
shall be entitled pursuant to the terms of any such transaction to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a condition of such consolidation, merger or sale, lawful and
adequate provisions shall be made whereby the Holder of this Warrant shall
thereafter have the right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the exercise of such Warrant, such
shares of stock, securities or assets as may be issuable or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common Stock immediately
theretofore so receivable had such consolidation, merger or sale not taken
place, and in any such case appropriate provisions shall be made with respect
to the rights and interests of the Holder to the end that the provisions
hereof shall thereafter be applicable, as nearly as may be, in relation to
any shares of stock, securities or assets thereafter deliverable upon the
exercise of this Warrant.
(a) STOCK TO BE RESERVED. The Company will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose
of issue upon the exercise of this Warrant as herein provided, such number of
shares of Common Stock as shall then be issuable upon the exercise of this
Warrant.
(b) ISSUE TAX. The issuance of certificates for shares of Common
Stock upon exercise of this Warrant shall be made without charge to the
Holders of this Warrant for any issuance tax in respect thereof provided that
the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the Holder of this Warrant.
(c) CLOSING OF BOOKS. The Company will at no time close its
transfer books against the transfer of the shares of Common Stock issued or
issuable upon the exercise of this Warrant in any manner which interferes
with the timely exercise of this Warrant.
Section 4. NOTICES OF RECORD DATES. In the event of:
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution (other than cash
dividends out of earned surplus), or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other corporation, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will give notice to the Holder of
this Warrant specifying (i) the date on which any such record is to be taken
for the purpose of such dividend,
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distribution or right and stating the amount and character of such dividend,
distribution or right, and (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any
is to be fixed, as of which the holders of record of Common Stock will be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation
or winding-up. Such notice shall be given at least ten (10) days and not
more than ninety (90) days prior to the date therein specified, and such
notice shall state that the action in question or the record date is subject
to the effectiveness of a registration statement under the Securities Act of
1933, as amended (the "Securities Act") or to a favorable vote of
shareholders, if either is required.
Section 5. NO SHAREHOLDER RIGHTS OR LIABILITIES. This Warrant
shall not entitle the Holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision hereof, in the absence of
affirmative action by the Holder hereof to purchase shares of Common Stock,
and no mere enumeration hereon of the rights or privileges of the Holder
hereof, shall give rise to any liability of such Holder for the Warrant Price
or as a shareholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
Section 6. REPRESENTATIONS OF HOLDER. The Holder hereby represents
and acknowledges to the Company that:
(a) this Warrant, the Common Stock issuable upon exercise of this
Warrant and any securities issued with respect to any of them by way of a
stock dividend or stock split or in connection with a recapitalization,
merger, consolidation or other reorganization will be "restricted securities"
as such term is used in the rules and regulations under the Securities Act
and that such securities have not been and may not be registered under the
Securities Act or any state securities law, and that such securities must be
held indefinitely unless registration is effected or transfer can be made
pursuant to appropriate exemptions;
(b) the Holder has read, and fully understands, the terms of this
Warrant set forth on its face and the attachments hereto, including the
restrictions on transfer contained herein;
(c) the Holder is purchasing for investment for its own account
and not with a view to or for sale in connection with any distribution of
this Warrant or the Common Stock of the Company issuable upon exercise of
this Warrant and it has no intention of selling such securities in a public
distribution in violation of the federal securities laws or any applicable
state securities laws; provided that nothing contained herein will prevent
Holder from transferring such securities in compliance with the terms of this
Warrant and the applicable federal and state securities laws;
(d) the Holder is an "accredited investor" within the meaning of
paragraph (a) of Rule 501 of Regulation D promulgated by the Securities and
Exchange Commission and an "excluded purchaser" within the meaning of Section
25102(f) of the California Corporate Securities Law of 1968; and
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(e) the Company may affix the following legend (in addition to any
other legend(s), if any, required by applicable state corporate and/or
securities laws) to certificates for shares of Common Stock (or other
securities) issued upon exercise of this Warrant ("Warrant Shares"):
"These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold,
offered for sale, pledged or hypothecated in the absence of
a registration statement in effect with respect to the
securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not
required or unless sold pursuant to Rule 144 of such Act."
Section 7. LIMITATIONS ON DISPOSITION.
(a) The Holder of this Warrant, by acceptance hereof, agrees to
comply in all respects with the provisions of this Section 7. Without in any
way limiting the representations set forth above, the Holder of this Warrant
agrees not to make any disposition of this Warrant or any Warrant Shares,
unless and until the transferee has agreed in writing for the benefit of the
Company to be bound by this Section 7 and the other provisions of this
Warrant as if such transferee were the original Holder hereof, provided and
to the extent such provisions are then applicable, and:
(i) There is then in effect a Registration Statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such Registration Statement; or
(ii) (A) the Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and the
Company has given its prior written consent, and (B) if reasonably requested
by the Company, the Holder shall have furnished the Company with an opinion
of counsel, reasonably satisfactory to the Company, that such disposition
will not require registration of the Warrant and/or the Warrant Shares under
the Act. It is agreed that the Company will not require opinions of counsel
for transactions made pursuant to Rule 144 except in unusual circumstances.
(b) Notwithstanding the provisions of paragraph (a) above, (i) no
such Registration Statement, prior consent or opinion of counsel shall be
necessary for a transfer (A) by a Holder which is a partnership to a partner
of such partnership or a retired partner of such partnership who retires
after the date hereof, or to the estate of any such partner or retired
partner or to the transfer by gift, will or intestate succession of any
partner to his spouse or to the siblings, lineal descendants or ancestors of
such partner or his spouse, or (B) to an "affiliate" of the Holder as that
term is defined in Rule 405 promulgated by the Securities and Exchange
Commission under the Securities Act, if the transferee agrees in writing to
be subject to the terms hereof to the same extent as if he were an original
Holder hereunder, and (ii) no transferee shall be required, as a condition to
any transfer of the Warrant or the Warrant Shares by the Holder, to agree to
be bound by this Section 7, if the transferee is acquiring the Warrant and/or
Warrant Shares pursuant to a Registration Statement under the Securities Act
or in a transaction made
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pursuant to Rule 144. Each new certificate evidencing the Warrant and/or
Warrant Shares so transferred shall bear the appropriate restrictive legends
set forth in Section 6(f) above, except that such certificate shall not bear
such restrictive legend if, in the opinion of counsel for the Company, such
legend is not required in order to establish or assist in compliance with any
provisions of the Securities Act or any applicable state securities laws.
Section 8. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this
Warrant is lost, stolen, mutilated or destroyed, the Company may, on such
terms as to indemnity or otherwise as it may in its discretion reasonably
impose (which shall, in the case of a mutilated Warrant, include the
surrender thereof), issue a new Warrant of like denomination and tenor as the
Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall
constitute an original contractual obligation of the Company, whether or not
the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any
time enforceable by anyone.
Section 9. PRESENTMENT. Prior to due presentment of this Warrant
together with a completed assignment form attached hereto for registration of
transfer, the Company may deem and treat the Holder as the absolute owner of
the Warrant, notwithstanding any notation of ownership or other writing
thereon, for the purpose of any exercise thereof and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
Section 10. NOTICE. Notice or demand pursuant to this Warrant shall
be sufficiently given or made, if sent by first-class mail, postage prepaid,
addressed, if to the Holder of this Warrant, to the Holder at its last known
address as it shall appear in the records of the Company, and if to the
Company, at 0000 Xxxxx Xxxxxx Xxxxxxx, Xxxxxxxxx, Xxxxxxxx 00000, Attention:
Secretary. The Company may alter the address to which communications are to
be sent by giving notice of such change of address in conformity with the
provisions of this Section 10 for the giving of notice.
Section 11. GOVERNING LAW. The validity, interpretation and
performance of this Warrant shall be governed by the laws of the State of
Delaware without regard to principles of conflicts of laws.
Section 12. SUCCESSORS, ASSIGNS. Subject to the restrictions on
transfer by Holder set forth in Section 7 hereof, all the terms and
provisions of the Warrant shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto.
Section 13. AMENDMENT. This Warrant may be modified, amended or
terminated by a writing signed by the Company and the Holder.
Section 14. SEVERABILITY. Should any part but not the whole of this
Warrant for any reason be declared invalid, such decision shall not affect
the validity of any remaining portion, which remaining portion shall remain
in force and effect as if this Warrant had been executed with the invalid
portion thereof eliminated, and it is hereby declared the intention of the
parties hereto that they would have executed the remaining portion of this
Warrant without including therein any such part which may, for any reason, be
hereafter declared invalid.
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Section 15. "MARKET STAND-OFF" AGREEMENT. Holder 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 Securities Act of 1933, as amended,
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 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:
(i) 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
(ii) all officers and directors of the Company and all other
persons with registration rights enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Common Stock of the Holder
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
Section 16. NO IMPAIRMENT. The Company will not, by any voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Warrant 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.
Section 17. NO RIGHT TO REDEEM. Except as explicitly provided
herein, this Warrant may not be called by the Company.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered on and as of the day and year first above written by one
of its officers thereunto duly authorized.
RHYTHMS NETCONNECTIONS INC.,
a Delaware corporation
Dated: March 3, 1999 /s/ Xxxxxxxxx Xxxxx
-----------------------------------
Xxxxxxxxx Xxxxx, President and
Chief Executive Officer
The undersigned Holder agrees and accepts this Warrant and
acknowledges that it has read and confirms each of the representations contained
in Section 6.
MCI WORLDCOM VENTURE FUND, INC.
By: /s/ Xxxxx Xxxxx
---------------------------------
Its: President
--------------------------------
Address: 0000 Xxxxxxxxxxxx Xxxxxx, X.X.
-----------------------------------
Xxxxxxxxxx, XX 00000
-----------------------------------
[SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT]
PURCHASE FORM
(To be executed by the Warrant Holder if he desires to exercise the Warrant in
whole or in part)
To: RHYTHMS NETCONNECTIONS INC.
The undersigned, whose Social Security or other identifying number is
_______________, hereby irrevocably elects the right of purchase represented by
the within Warrant for, and to purchase thereunder, ___________________________
shares of Common Stock provided for therein and tenders payment herewith to the
order of
RHYTHMS NETCONNECTIONS INC.
in the amount of
$____________
The undersigned requests that certificates for such shares be issued as follows:
Name:___________________________________________________________________________
Address:________________________________________________________________________
Deliver to:_____________________________________________________________________
Address:________________________________________________________________________
and, if said number of shares shall not be all the shares purchasable hereunder,
that a new Warrant for the balance remaining of the shares purchasable under the
within Warrant be registered in the name of, and delivered to, the undersigned
at the address stated below:
Address:__________________________________________________________________
__________________________________________________________________
Dated: ____________, 199__ Signature:__________________________________
(Signature must conform in all
respects to the name of the Warrant
Holder as specified on the face of
the Warrant, without alteration,
enlargement or any change
whatsoever)
ASSIGNMENT
(To be executed by the Warrant Holder if he desires to effect a transfer of the
Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ________________________________, whose Social Security or
other identification number is ________________________ [residing/located] at
____________________________ the attached Warrant, and appoints
_______________ residing at ____________________________ the undersigned's
attorney-in-fact to transfer said Warrant on the books of the Company, with
full power of substitution in the premises.
Dated: ______________, 199__.
In the presence of:
_____________________________________ _______________________________________
(Signature must conform in all respects
to the name of the Warrant Holder as
specified on the face of the Warrant,
without alteration, enlargement or any
change whatsoever).
