Exhibit 10.4
DIVIDEND PAYMENT AGREEMENT, DATED JUNE 2, 2000, BY AND BETWEEN RHYTHMS
NETCONNECTIONSINC. AND AMERICAN SECURITIES TRANSFER & TRUST, INC.
DIVIDEND PAYMENT AGREEMENT
THIS DIVIDEND PAYMENT AGREEMENT (the "Agreement") is made and entered into
as of the 2nd day of June, 2000, by and among RHYTHMS NETCONNECTIONS INC., a
Delaware corporation (the "Company"), and AMERICAN SECURITIES TRANSFER & TRUST,
INC., a Colorado corporation (the "Transfer Agent").
Whereas, on March 20, 1999, the Company and the Transfer Agent, entered
into a certain Agreement Appointing Transfer Agent and Registrar whereby the
Company appointed the Transfer Agent as the transfer agent and registrar of all
of the shares of the Company's capital stock;
Whereas, pursuant to the terms of the Company's 6 3/4% Series F Cumulative
Convertible Preferred Stock (the "Series F Preferred Stock"), the Company must
pay quarterly dividends of $5,062,500, or a pro rata portion thereof, to the
holders of Series F Preferred Stock (the "Quarterly Dividend"); and
Whereas, the Company desires to appoint the Transfer Agent, and the
Transfer Agent desires to accept such appointment, to receive certain shares of
the Company's capital stock in respect of the Quarterly Dividend , to sell such
shares for the benefit and use of the holders of the Series F Preferred Stock
and to pay from cash sale proceeds the Quarterly Dividend to the holders of the
Series F Preferred Stock.
In consideration of the foregoing, the parties hereto agree as follows:
1. The Transfer Agent.
(a) Appointment of Dividend Disbursing Agent. The Company hereby
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appoints the Transfer Agent as dividend disbursing agent for its Series F
Preferred Stock. The foregoing appointment shall be considered to be an
amendment to, and subject to, all of the provisions of the Agreement Appointing
Transfer Agent and Registrar previously entered into by and between the Company
and the Transfer Agent.
(b) Actions Transfer Agent Obligated to Perform. Within five days of
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each Quarterly Dividend becoming due to the holders of the Series F Preferred
Stock, the Transfer Agent agrees to receive from the Company a certain number of
shares of the Company's capital stock as determined by the Company (the
"Shares"). All the Shares shall be held in the Transfer Agent's name, as agent
and custodian for the benefit of the holders of the Series F Preferred Stock. As
soon as is practical after receipt, the Transfer Agent shall sell the Shares
either as a selling stockholder through an effective registration statement (the
"Registration Statement") on file with the Securities and Exchange Commission
("SEC") or through a private placement, as determined by the Company. All
proceeds from such sale shall be remitted on the Dividend Payment Date (as
defined in the Series F Certificate of Designation) to the holders of record of
the Series F Preferred Stock pro rata. If the net proceeds from such sale exceed
the amount due as Quarterly Dividends, any excess shall be held and retained by
the Transfer Agent for disbursement in connection with a subsequent Quarterly
Dividend.
(c) Actions Transfer Agent Not Obligated to Perform. Under this
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Agreement, the Transfer Agent shall not be responsible for: (i) determining the
holders of record of the Series F Preferred to whom Quarterly Dividend payments
must be made; (ii) determining whether to sell the Shares through a registration
statement or a private placement; (iii) finding buyers for the Shares if a
private placement is to be used; (iv) paying any deficiency to the holders of
Series F Preferred Stock in the event the proceeds from the sale of the Shares
are insufficient to satisfy the Quarterly Dividend payment; or (v) any duties or
obligations other than those specifically set forth in this Agreement or as may
be subsequently agreed to in writing between the Transfer Agent and the Company.
(d) Term. The Transfer Agent agrees to act in the capacity described
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above until (i) there are no longer Quarterly Dividend payments due under the
Series F Preferred Stock or (ii) it provides the Company with written notice of
its termination of this Agreement at least thirty (30) days prior to the next
occurrence of a Quarterly Dividend becoming due.
2. The Company.
(a) Actions the Company Obligated to Perform. Based on a best-faith
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estimate, the Company shall deliver to Transfer Agent as described above a
sufficient number of Shares that, when sold, will provide net proceeds
sufficient to satisfy the Company's Quarterly Dividend payment obligations. The
Company shall ensure that the sale of the Shares by the Transfer Agent shall
either (i) be covered by the Registration Statement or (ii) be exempt from
registration under the Securities Act of 1933 (the "Securities Act") prior to
delivering the Shares to the Transfer Agent. At the same time as it delivers the
Shares, the Company also shall deliver to the Transfer Agent a list of the
record holders of Series F Preferred Stock entitled to a Quarterly Dividend.
(b) Dividend Notification. At least 10 days prior to a Dividend
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Payment Date (as defined in the Series F Certificate of Designation), the
Company shall provide the Transfer Agent with a written notification, signed by
an authorized officer of the Company, which contains the following information;
(I) declaration date, (ii) record date, (iii) Dividend Payment Date, (iv)
dividend calculation formula (if a stock dividend) and (v) such other
information as may be pertinent.
(c) Actions the Company Not Obligated to Perform. In no event shall
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be the Company itself be required to sell the Shares under this Agreement.
(d) Fees. The Company shall pay to the Transfer Agent such fees for
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its services as are set forth in the Fee Schedule attached hereto as Exhibit A
and incorporated herein, and shall reimburse the Transfer Agent for all
extraordinary out-of-pocket cost and expenses (including reasonable attorney
fees) incurred in the performance of its duties hereunder. Such Fee Schedule may
be amended by Transfer Agent from time to time upon thirty (30) days advance
written notice from the Transfer Agent to the Company.
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(e) Term. The Company may terminate this Agreement by providing the
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Transfer Agent fifteen (15) days prior written notice of such termination.
3. Securities Indemnification.
(a) Definitions. For the purpose of this Section 3:
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(i) the term "Selling Stockholder" shall include the Transfer
Agent and any officer, director, employees, agents, trustee or
affiliate of the Transfer Agent, and "affiliate" shall mean any person
who controls the Transfer Agent within the meaning of Section 15 of
the Securities Act; and
(iii) the term "untrue statement" shall include any untrue
statement or alleged untrue statement, or any omission or alleged
omission to state in the Registration Statement a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(b) Indemnification by the Company. The Company agrees to indemnify
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and hold harmless the Selling Stockholder from and against any losses, claims,
damages or liabilities to which the Selling Stockholder may become subject
(under the Securities Act or otherwise) insofar as such losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) arise out of, or
are based upon, (i) any untrue statement of a material fact contained in any
registration statement filed with the SEC, or (ii) any failure by the Company to
fulfill any undertaking included in the registration statement, and the Company
will reimburse the Selling Stockholder for any reasonable legal or other
expenses reasonably incurred in investigating, defending or preparing to defend
any such action, proceeding or claim, provided, however, that the Company shall
not be liable in any such case to the extent that such loss, claim, damage or
liability arises out of, or is based upon, an untrue statement made in any
registration statement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Selling Stockholder
specifically for use in preparation of the registration statement.
(c) Promptly after receipt by the Company of a notice of a claim or
the beginning of any action in respect of which indemnity is to be sought
against an indemnifying person pursuant to this Section 3, the Transfer Agent
shall notify the Company in writing of such claim or of the commencement of such
action, but the omission to so notify the Company will not relieve it from any
liability which it may have to any indemnified party under this Section 3
(except to the extent that such omission materially and adversely affects the
Company's ability to defend such action) or from any liability otherwise than
under this Section 3. Subject to the provisions hereinafter stated, in case any
such action shall be brought against the Transfer Agent, the Company shall be
entitled to participate therein, and, to the extent that it shall elect by
written notice delivered to the Transfer Agent promptly after receiving the
aforesaid notice from the Transfer Agent, shall be entitled to assume the
defense thereof, with counsel reasonably satisfactory to the Transfer Agent.
After notice from the Company to the Transfer Agent of its election to assume
the defense thereof, such the Company shall not be liable to the Transfer Agent
for any legal expenses subsequently incurred by the Transfer Agent in connection
with the
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defense thereof, provided, however, that if there exists or shall exist a
conflict of interest that would make it inappropriate, in the reasonable opinion
of counsel to the Transfer Agent, for the same counsel to represent both the
Transfer Agent and the Company or any affiliate or associate thereof, the
Transfer Agent shall be entitled to retain its own counsel at the expense of the
Company; provided, however, that the Company shall be responsible for the fees
and expenses of more than one separate counsel (together with appropriate local
counsel) for the Transfer Agent. In no event shall the Company be liable in
respect of any amounts paid in settlement of any action unless the Company shall
have approved the terms of such settlement; provided that such consent shall not
be unreasonably withheld or delayed. The Company shall not, without the prior
written consent of the indemnified person, effect any settlement of any pending
or threatened proceeding in respect of which the Transfer Agent is or could have
been a party and indemnification could have been sought hereunder by the
Transfer Agent, unless such settlement includes an unconditional release of the
Transfer Agent from all liability on claims that are the subject matter of such
proceeding.
(d) If the indemnification provided for in this Section 3 is
unavailable to or insufficient to hold harmless the Transfer Agent under the
terms above in respect of any losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) referred to therein, then the Company shall
contribute to the amount paid or payable by the Transfer Agent as a result of
such losses, claims, damages or liabilities (or actions in respect thereof) in
such proportion as is appropriate to reflect the relative fault of the Company
on the one hand and the Transfer Agent on the other in connection with the
statements or omissions or other matters which resulted in such losses, claims,
damages or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, in the case of an untrue statement, whether
the untrue statement relates to information supplied by the Company on the one
hand or the Transfer Agent on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement. The Company and the Transfer Agent agree that it would not be
just and equitable if contribution pursuant to this subsection (d) were
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to above in
this subsection (d). The amount paid or payable by the Transfer Agent as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by the Transfer Agent in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), the Transfer Agent shall not be required to
contribute any amount in excess of the amount by which the gross amount received
by the Transfer Agent from the sale of the Shares to which such loss relates
exceeds the amount of any damages which the Transfer Agent has otherwise been
required to pay by reason of such untrue statement. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
4. Limitation of Transfer Agent's Liability.
(a) The Transfer Agent shall incur no liability with respect to any
action taken or suffered by it in reliance upon any notice, direction,
instruction, consent, statement or other documents believed by it to be genuine
and duly authorized, nor for any action or inaction except
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its own willful misconduct or gross negligence. The Transfer Agent shall not be
responsible for the validity or sufficiency of this Agreement. In all questions
arising under this Agreement, the Transfer Agent may rely on the advice of
counsel, and the Transfer Agent shall not be liable to anyone for anything done,
omitted or suffered in good faith by the Transfer Agent based on such advise.
The Transfer Agent shall not be required to take any action hereunder involving
any expense unless the payment of such expense is made or provided for in a
manner reasonably satisfactory to it. In no event shall the Transfer Agent be
liable for indirect, punitive, special or consequential damages.
(b) The Company hereby indemnifies the Transfer Agent for, and holds
it harmless against, any loss, liability or expense, including reasonable
attorney fees, incurred without gross negligence or willful misconduct on the
part of the Transfer Agent, arising out of or in connection with its carrying
out its duties hereunder.
5. Interpleader. In the event of any disputes between the parties hereto
and/or holders of Series F Preferred Stock as to the validity of instructions
concerning the Shares and the duties related to such Shares under the terms of
this Agreement or any other matter arising out of this Agreement, the Transfer
Agent may, in its sole and absolute discretion, may interplead the parties and
deposit any property in dispute with the Clerk of the District Court for the
City and County of Denver, State of Colorado, and upon such deposit and filing
the complaint in interpleader be relieved of all liability hereunder as to the
property so deposited and shall be entitled to recover in such interpleader
action, from the other parties therein, its costs and expenses (including
reasonable attorney's fees) incurred in commencing such action. The parties
hereto hereby consent and agree to submit to the jurisdiction of the District
Court for the City and County of Denver, State of Colorado.
6. Changes. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and the Transfer
Agent.
7. Headings. The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be
part of this Agreement.
8. Severability. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
9. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Colorado, without giving
effect to the principles of conflicts of law.
10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
written above.
RHYTHMS NETCONNECTIONS INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
AMERICAN SECURITIES TRANSFER
& TRUST, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
By: _______________________________
Name: _____________________________
Title: ____________________________
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