Exhibit 10.36
RHYTHMS NETCONNECTIONS INC.
(a Delaware corporation)
2,500,000 Shares
6 3/4% Cumulative Convertible Preferred Stock
PURCHASE AGREEMENT
Dated: February 28, 2000
2,500,000 Shares
RHYTHMS NETCONNECTIONS INC.
(a Delaware corporation)
6 3/4% Cumulative Convertible Preferred Stock
PURCHASE AGREEMENT
------------------
February 28, 2000
XXXXXXX XXXXX & CO.
Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx
Incorporated
Xxxxxxx Xxxxx Barney Inc.
Xxxxxxx Xxxxx & Co.
Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx
Incorporated
Xxxxx Xxxxx
Xxxxx Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Ladies and Gentlemen:
Rhythms NetConnections Inc., a Delaware corporation (the "Company"),
confirms its agreement with Xxxxxxx Xxxxx & Co., Xxxxxxx Lynch, Pierce, Xxxxxx &
Xxxxx Incorporated ("Xxxxxxx Xxxxx") and Xxxxxxx Xxxxx Xxxxxx Inc.
(collectively, the "Initial Purchasers", which term shall also include any
initial purchaser substituted as hereinafter provided in Section 11 hereof),
with respect to the issue and sale by the Company and the purchase by the
Initial Purchasers, acting severally and not jointly, of the respective number
of shares of 6 3/4% Cumulative Convertible Preferred Stock (liquidation
preference equal to $100.00 per share) of the Company (the "Preferred Stock")
set forth in said Schedule A, and with respect to the grant by the Company to
the Initial Purchasers, acting severally and not jointly, of the option
described in Section 2(b) hereof to purchase all or any part of 500,000
additional shares of Preferred Stock to cover over-allotments, if any. The
aforesaid 2,500,000 shares of Preferred Stock (the "Firm Shares") to be
purchased by the Initial Purchasers and all or any part of the 500,000 shares of
Preferred Stock subject to the option describe in Section 2(b) hereof (the
"Option Shares") are hereinafter called, collectively, the "Shares." The Shares
will be issued in book-entry form and will be issued to Cede & Co. as nominee of
The Depository Trust Company ("DTC") pursuant to the Letter of Representations,
to be dated as of the Closing Time (as defined herein) (the "DTC Agreement"),
among the Company and DTC.
The holders of the Shares (including the Initial Purchasers and Subsequent
Purchasers (as defined)) will be entitled to the benefits of a registration
rights agreement, to be dated as of
March 3, 2000 (the "Registration Rights Agreement"), between the Company and the
Initial Purchasers. Pursuant to the Registration Rights Agreement, the Company
will agree to file with the Securities and Exchange Commission under the
circumstances set forth therein a shelf registration statement pursuant to Rule
415 under the Securities Act of 1933, as amended (the "1933 Act") relating to
the resale of the Shares and, upon conversion of the Shares, the Common Stock,
and to use its commercially reasonable best efforts to cause such shelf
registration statement to be declared effective.
This Agreement, the Registration Rights Agreement and the Company's
Certificate of Designations, Preferences and Relative, Participating, Optional
and Other Special Rights of Preferred Stock are hereinafter referred to
collectively as the "Operative Documents."
The Company understands that the Initial Purchasers propose to make an
offering of the Shares on the terms and in the manner set forth herein and in
the Offering Memorandum (as defined) and agrees that the Initial Purchasers may
resell, subject to the conditions set forth herein, all or a portion of the
Shares to purchasers ("Subsequent Purchasers") at any time after the date of
this Agreement. The Shares are to be offered and sold through the Initial
Purchasers without being registered under the 1933 Act in reliance upon the
exemption afforded by Rule 144A ("Rule 144A") of the rules and regulations of
the Securities and Exchange Commission (the "Commission") under the 1933 Act
(the "1933 Act Regulations"). Pursuant to the terms of the Shares, investors
that acquire Shares may only resell or otherwise transfer such Shares if such
Shares are hereafter registered under the 1933 Act or if an exemption from the
registration requirements of the 1933 Act is available (including the exemption
afforded by Rule 144A).
The Company has prepared and delivered to each Initial Purchaser copies of
a preliminary offering memorandum dated February 25, 2000 (the "Preliminary
Offering Memorandum") and has prepared and will deliver to each Initial
Purchaser, on the date hereof or the next succeeding day, copies of a final
offering memorandum dated February 28, 2000 (the "Final Offering Memorandum"),
each for use by such Initial Purchaser in connection with its solicitation of
purchases of, or offering of, the Shares. "Offering Memorandum" means, with
respect to any date or time referred to in this Agreement, the most recent
offering memorandum (whether the Preliminary Offering Memorandum or the Final
Offering Memorandum, or any amendment or supplement to either such document),
which has been prepared and delivered by the Company to the Initial Purchasers
in connection with their solicitation of purchases of, or offering of, the
Shares.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company . The Company represents
and warrants to each Initial Purchaser as of the date hereof, and will represent
as of the Closing Time referred to in Section 2(c) hereof and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, by means of the
certificate described in Section 5(c) or 5(i)(i) hereof, and agrees with each
Initial Purchaser as follows:
(i) Similar Offerings. The Company has not, directly or indirectly,
solicited any offer to buy or offered to sell, and will not, directly or
indirectly, solicit any offer to buy or offer to sell, in the United States
or to any United States citizen or resident, any
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security which is or would be integrated with the sale of the Shares in a
manner that would require the Shares to be registered under the 1933 Act.
(ii) Offering Memorandum. The Offering Memorandum does not, and at the
Closing Time will not, include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided that this representation, warranty and agreement shall
not apply to such statements in or omissions from the Offering Memorandum
made in reliance upon and in conformity with information furnished to the
Company in writing by any Initial Purchaser expressly for use in the
Offering Memorandum. It is understood that the statements set forth in the
Offering Memorandum under the heading "Plan of Distribution" and the
identity of counsel to the Initial Purchasers under the heading "Legal
Matters" constitute the only information furnished in writing by or on
behalf of the Initial Purchasers expressly for use in the Offering
Memorandum.
(iii) Independent Accountants. The accountants who certified the
financial statements included in the Offering Memorandum are independent
certified public accountants with respect to the Company and its
subsidiaries within the meaning of Regulation S-X under the 1933 Act.
(iv) Financial Statements. The financial statements, together with the
related schedules and notes, included in the Offering Memorandum present
fairly the consolidated financial position of the Company and its
subsidiaries at the dates indicated and the statement of operations,
stockholders' equity and cash flows of the Company and its consolidated
subsidiaries for the periods specified; said financial statements have been
prepared in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved. The
selected financial data included in the Offering Memorandum present fairly
the information shown therein and have been compiled on a basis consistent
with that of the audited financial statements included in the Offering
Memorandum. The pro forma and pro forma as adjusted columns of the selected
financial data included in the Offering Memorandum and the related notes
thereto present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to pro
forma financial information and have been properly compiled on the bases
described therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein.
(v) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the Offering Memorandum, except as
otherwise stated therein, (A) there has been no material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its subsidiaries considered as one
enterprise (a "Material Adverse Effect"), whether or not arising in the
ordinary course of business, (B) there have been no transactions entered
into by the Company or any of its subsidiaries, other than those in the
ordinary course of business, which are material with respect to the Company
and its subsidiaries considered
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as one enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Offering Memorandum and to enter into and perform its
obligations under this Agreement; and the Company is duly qualified as a
foreign corporation to transact business and is in good standing in each
other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each of the Designated
Subsidiaries has been duly organized and is validly existing as a
corporation or a public benefit corporation, as the case may be, in good
standing under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Offering Memorandum and is duly
qualified as a foreign corporation to transact business and is in good
standing, in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good standing
would not result in a Material Adverse Effect; except as otherwise disclosed
in the Offering Memorandum, all of the issued and outstanding capital stock
of each Designated Subsidiary has been duly authorized and validly issued,
is fully paid and non-assessable and is directly or indirectly owned by the
Company, free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity; none of the outstanding shares of capital
stock of any Designated Subsidiary was issued in violation of any preemptive
or similar rights arising by operation of law, or under the charter or by-
laws of such Designated Subsidiary or under any agreement to which the
Company or such Designated Subsidiary is a party. The Company has no
subsidiaries other than Rhythms Links Inc., Rhythms Links Inc.--Virginia,
Rhythms Canada and Rhythms Europe (collectively, the "Designated
Subsidiaries").
(viii) Capitalization. The authorized, issued and outstanding capital
stock of the Company is as set forth in the Offering Memorandum in the
column entitled "Pro Forma" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
employee benefit or stock option plans referred to in the Offering
Memorandum or pursuant to the exercise of convertible securities or options
referred to in the Offering Memorandum).
(ix) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.
(x) Authorization and Description of Shares. The Shares to be
purchased by the Initial Purchasers from the Company have been duly and
validly authorized for issuance and sale to the Initial Purchasers pursuant
to this Agreement, and, when issued and delivered by the Company pursuant to
this Agreement, against payment of the consideration set forth herein, will
be validly issued, fully paid and non-assessable; the
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shares of Common Stock issuable upon conversion of the Shares have been duly
and validly authorized and reserved for issuance and, when issued and
delivered in accordance with the provisions of the Shares, will be duly and
validly issued, fully paid and non-assessable; the Shares and Common Stock
conform in all material respects to all statements relating thereto
contained in the Offering Memorandum and such descriptions conform to the
rights set forth in the instruments defining the same; no holder of the
Shares will be subject to personal liability by reason of being such a
holder; and the issuances of the Shares and the Common Stock issuable upon
conversion of the Shares are not subject to the preemptive or other similar
rights of any securityholder of the Company.
(xi) Authorization of the Registration Rights Agreement. The
Registration Rights Agreement has been duly authorized by the Company and,
at the Closing Time, will have been duly executed and delivered by the
Company and will constitute the valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law). The Registration Rights Agreement will conform in all
material respects to the statements relating thereto contained in the
Offering Memorandum and will be in substantially the respective form
previously delivered to the Initial Purchasers.
(xii) Absence of Defaults and Conflicts. Neither the Company nor any
of its subsidiaries is in violation of its charter or by-laws or in default
in the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which any of
them may be bound, or to which any of the property or assets of the Company
or any of its subsidiaries is subject (collectively, "Agreements and
Instruments"), except for such defaults that would not result in a Material
Adverse Effect, and the execution, delivery and performance of this
Agreement, the Registration Rights Agreement and any other agreement or
instrument entered into or issued or to be entered into or issued by the
Company in connection with the transactions contemplated hereby or thereby
or in the Offering Memorandum and the consummation of the transactions
contemplated herein and in the Offering Memorandum (including the issuance
and sale of the Shares and the use of the proceeds from the sale of the
Shares as described in the Offering Memorandum under the caption "Use of
Proceeds") and compliance by the Company with its obligations hereunder have
been duly authorized by all necessary corporate action and do not and will
not, whether with or without the giving of notice or passage of time or
both, conflict with or constitute a breach of, default or a Repayment Event
(as defined below) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries pursuant to, the Agreements and Instruments, except
for such conflicts, breaches or defaults or liens, charges or encumbrances
that, singly or in the aggregate, would not result in a Material Adverse
Effect, nor will such action result in any violation of the
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provisions of the charter or by-laws of the Company or any of its
subsidiaries or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any of
its subsidiaries or any of their assets or properties. As used herein, a
"Repayment Event" means any event or condition which gives the holder of any
note, debenture, other evidence of indebtedness or preferred stock (or any
person acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness or
preferred stock by the Company or any of its subsidiaries.
(xiii) Absence of Labor Dispute. No labor dispute with the employees of
the Company or any of its subsidiaries exists or, to the knowledge of the
Company, is imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any of its
subsidiaries' principal suppliers, manufacturers, customers or contractors,
which, in either case, may reasonably be expected to result in a Material
Adverse Effect.
(xiv) Absence of Proceedings. Except as disclosed in the Offering
Memorandum, there is no action, suit, proceeding, inquiry or investigation
before or by any court or governmental agency or body, domestic or foreign,
now pending, or, to the knowledge of the Company, threatened, against or
affecting the Company or any subsidiary thereof which might reasonably be
expected to result in a Material Adverse Effect, or which might reasonably
be expected to materially and adversely affect the properties or assets of
the Company or any of its subsidiaries or the consummation of this Agreement
or the performance by the Company of its obligations hereunder. The
aggregate of all pending legal or governmental proceedings to which the
Company or any subsidiary thereof is a party or of which any of their
respective property or assets is the subject which are not described in the
Offering Memorandum, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material Adverse
Effect.
(xv) Possession of Intellectual Property. Except as disclosed in the
Offering Memorandum, (A) the Company and its subsidiaries own or possess, or
can acquire on reasonable terms, adequate patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary to
carry on the business now operated by them, except that the Company and its
subsidiaries may fail to so own, possess or have the ability to acquire on
reasonable terms any Intellectual Property if such failure would not result,
singly or in the aggregate, in a Material Adverse Effect, and (B) neither
the Company nor any of its subsidiaries has received any notice or is
otherwise aware of any infringement of or conflict with asserted rights of
others with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its subsidiaries
therein, and which infringement or conflict (if the subject of any
unfavorable decision, ruling or finding) or invalidity or inadequacy, singly
or in the aggregate, would result in a Material Adverse Effect.
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(xvi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency is
necessary or required for the performance by the Company of its obligations
hereunder, in connection with the offering, issuance or sale of the Shares
hereunder or the consummation of the transactions contemplated by this
Agreement, except as may be required under the 1933 Act or state securities
or "blue sky" laws in connection with the registration statement to be filed
in accordance with the terms of the Registration Rights Agreement.
(xvii) Possession of Licenses and Permits. Except as disclosed in the
Offering Memorandum, the Company and its subsidiaries possess such permits,
licenses, approvals, consents and other authorizations issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them (collectively,
"Governmental Licenses"); the Company and its subsidiaries are in compliance
with the terms and conditions of all such Governmental Licenses, except
where the failure so to comply would not, singly or in the aggregate, have a
Material Adverse Effect; all of the Governmental Licenses are valid and in
full force and effect, except where the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full force
and effect would not have a Material Adverse Effect; and neither the Company
nor any of its subsidiaries has received any notice of proceedings relating
to the revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect. The Company
has not been informed of any fact, event or circumstance that is reasonably
likely to impair the Company's (or its subsidiaries') ability to obtain any
Governmental Licenses necessary or advisable in order to effectuate the
Company's future plans and strategies described in the Offering Memorandum
and no event exists that permits, or after notice or lapse of time or both,
would permit, revocation or termination of any Governmental License or
result in any impairment of rights of the Company or any of its subsidiaries
under any such Governmental Licenses. Without limiting the generality of
this paragraph (xvii):
(A) the Company and each of its subsidiaries hold all
telecommunications regulatory licenses, permits, authorizations,
consents and approvals (the "Telecommunications Licenses") required
from the Federal Communications Commission (the "FCC") for the Company
and its subsidiaries to conduct their business on and as of the date
hereof in the manner described in the Offering Memorandum, except as
would not have, individually or in the aggregate, a Material Adverse
Effect; the Telecommunications Licenses have been duly and validly
issued and are in full force and effect, except where the failure to be
in full force and effect would not have, individually or in the
aggregate, a Material Adverse Effect; no proceedings to revoke or
restrict the Telecommunications Licenses are pending or, to the best of
the Company's knowledge, threatened; neither the Company nor its
subsidiaries are in violation of any of the terms and conditions of any
of the Telecommunications Licenses, are in violation of the
Communications Act of 1934, as amended (the "Communications Act"), or
are in violation of any FCC rules and regulations, or state regulatory
laws, rules or regulations, except as would not have, individually
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or in the aggregate, a Material Adverse Effect; and the Company and its
subsidiaries have in effect with the FCC all international and domestic
service tariffs necessary to conduct their business on and as of the
date hereof in the manner described in the Offering Memorandum except
as would not have, individually or in the aggregate, a Material Adverse
Effect;
(B) the Company and its subsidiaries have obtained all state
and municipal Telecommunications Licenses and filed all tariffs
required for the provision of telecommunications services in any state
to conduct their business on and as of the date hereof in the manner
described in the Offering Memorandum, except where the failure to do so
would not have, individually or in the aggregate, a Material Adverse
Effect;
(C) there is no outstanding adverse judgment, injunction,
decree or order that has been issued by the FCC or any state utility
commission or similar state agency ("PUC") or municipality against the
Company or its subsidiaries or any action, proceeding or investigation
pending before the FCC or any state PUC or municipality, or, to the
Company's knowledge, threatened by the FCC or any state PUC or
municipality against the Company or its subsidiaries which, if the
subject of any unfavorable decision, ruling or finding, would have a
Material Adverse Effect on the Company or its subsidiaries;
(D) no license, permit, consent, approval, order or
authorization of, or filing with, the FCC or with any state PUC or
municipal authority on the part of the Company or its subsidiaries is
required in connection with the issuance or sale of the Shares;
(E) neither the issuance and sale of the Shares nor the
performance by the Company or its subsidiaries of their obligations
under this Agreement or the Registration Rights Agreements will result
in a violation in any material respect of: (1) the Communications Act
or the applicable rules or regulations, or any order, writ, judgment,
injunction, decree or award of the FCC binding on the Company or its
subsidiaries; (2) any state telecommunications laws or any applicable
state PUC rules or regulations, or any order, writ, judgment,
injunction, decree or award of any state PUC binding on the Company or
its subsidiaries; (3) any municipal rules or regulations applicable to
the Company or its subsidiaries; or (4) the Governmental Licenses; and
(F) the Governmental Licenses do not have an expiration date or
are renewable by their terms or in the ordinary course of business
without the need to comply with any qualification procedures not
generally applicable to the renewal of Governmental Licenses or to pay
any amounts other than routine filing fees.
(xviii) Title to Property. The Company and its subsidiaries have good
and marketable title to all real property owned by the Company and its
subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except
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such as (a) are described in the Offering Memorandum or (b) do not, singly
or in the aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company or any of its subsidiaries; and all of the leases and subleases
material to the business of the Company and its subsidiaries, considered as
one enterprise, and under which the Company or any of its subsidiaries holds
properties described in the Offering Memorandum, are in full force and
effect, and neither the Company nor any of its subsidiaries has any notice
of any material claim of any sort that has been asserted by anyone adverse
to the rights of the Company or any of its subsidiaries under any of the
leases or subleases mentioned above, or affecting or questioning the rights
of the Company or any subsidiary thereof to the continued possession of the
leased or subleased premises under any such lease or sublease.
(xix) Tax Returns. The Company and its subsidiaries have filed all
federal, state, local and foreign tax returns that are required to be filed
or have duly requested extensions thereof and have paid all taxes required
to be paid by any of them and any related assessments, fines or penalties,
except for any such tax, assessment, fine or penalty that is being contested
in good faith and by appropriate proceedings, and adequate charges, accruals
and reserves have been provided for in the financial statements referred to
in Section l(a)(iv) above in respect of all federal, state, local and
foreign taxes for all periods as to which the tax liability of the Company
or any of its subsidiaries has not been finally determined or remains open
to examination by applicable taxing authorities, except for such failures to
file, request extensions, make payments and provide for adequate charges,
accruals and reserves as would not, singly or in the aggregate, result in a
Material Adverse Effect.
(xx) Environmental Laws. Except as described in the Offering
Memorandum and except such matters as would not, singly or in the aggregate,
result in a Material Adverse Effect, (A) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law or any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements, (C)
there are no pending or threatened administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigation or proceedings relating to any
Environmental Law against the Company or any of its subsidiaries and (D)
there are no events or circumstances that might reasonably be expected to
form the basis of an order for clean-up or remediation, or an action, suit
or proceeding by any private party or governmental body or agency, against
or affecting the
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Company or any of its subsidiaries relating to Hazardous Materials or
Environmental Laws.
(xxi) Investment Company Act. The Company is not, and upon the
issuance and sale of the Shares as herein contemplated and the application
of the net proceeds therefrom as described in the Offering Memorandum will
not be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
(xxii) Rule 144A Eligibility. The Shares are eligible for resale
pursuant to Rule 144A and will not be, at the Closing Time, of the same
class as securities listed on a national securities exchange registered
under Section 6 of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or quoted in a U.S. automated interdealer quotation system.
(xxiii) No General Solicitation. None of the Company, its affiliates,
as such term is defined in Rule 501(b) under the 1933 Act ("Affiliates"), or
any person acting on its or any of their behalf (other than the Initial
Purchasers, as to whom the Company makes no representation) has engaged or
will engage, in connection with the offering of the Shares, in any form of
general solicitation or general advertising within the meaning of Rule
502(c) under the 1933 Act.
(xxiv) No Registration Required. Subject to compliance by the Initial
Purchasers with the representations and warranties set forth in Section 2
and the procedures set forth in Section 6 hereof, it is not necessary in
connection with the offer, sale and delivery of the Shares to the Initial
Purchasers and to each Subsequent Purchaser in the manner contemplated by
this Agreement and the Offering Memorandum to register the Shares under the
1933 Act.
(xxv) Disqualified Stock. The Company's 8.25% Series E Convertible
Preferred Stock due 2015 ("Series E Preferred Stock") is not "Disqualified
Stock" within the meaning of the Indentures dated as of May 5, 1998 and
April 23, 1999 between the Company and State Street Bank and Trust Company
of California, N.A.
(xxvi) Insurance. The Company and each of its subsidiaries maintains
insurance covering its properties, operations, personnel and business. Such
insurance insures against such losses and risks as are adequate in
accordance with customary industry practice to protect the Company, each of
its subsidiaries and their businesses. Neither the Company or any of its
subsidiaries has received notice from any insurer or agent of such insurer
that substantial capital improvement or other expenditures will have to be
made in order to continue such insurance. All such insurance is outstanding
and duly in force on the date hereof.
(xxvii) Internal Accounting Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurances
that (a) transactions are executed in accordance with management's general
or specific authorization; (b) transactions are recorded as necessary to
permit preparation of financial
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statements in conformity with generally accepted accounting principles and
to maintain accountability for assets; (c) access to assets is permitted
only in accordance with management's general or specific authorization; and
(d) the recorded accountability for assets is compared with existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
(xxviii) Stabilization and Manipulation. None of the Company or any of
its subsidiaries has (a) taken, directly or indirectly, any action designed
to, or that might reasonably be expected to, cause or result in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares or (b) since the date of the
Offering Memorandum (I) sold, bid for, purchased or paid any person any
compensation for soliciting purchases of, the Shares or (II) paid or agreed
to pay to any person any compensation for soliciting another to purchase any
securities of the Company.
(xxix) Related Party Transactions. Except as disclosed in the
Offering Memorandum, there are no business relationships or related party
transactions required to be disclosed therein pursuant to Item 404 of
Regulation S-K of the Commission (assuming for purposes of this paragraph
(xxix) that Regulation S-K is applicable to the Offering Memorandum).
(b) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Initial Purchasers or to
counsel for the Initial Purchasers shall be deemed a representation and warranty
by the Company to each Initial Purchaser as to the matters covered thereby.
SECTION 2. Sale and Delivery to Initial Purchasers; Closing.
(a) Firm Shares. On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
agrees to sell to the Initial Purchasers, and the Initial Purchasers agree to
severally and not jointly purchase from the Company, an aggregate of 2,500,000
Shares at a price of $97.00 per Share. The parties agree that the initial
offering price of the Shares will be $100.00 per Share.
(b) Option Shares. In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the Initial Purchasers, severally
and not jointly, to purchase up to an additional 500,000 Shares, at the price
per Share set forth in Section 2(a) hereof, plus an amount per Share equal to
any accrued and unpaid dividends or distributions from the Closing Time. The
option hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the Firm
Shares upon notice by Xxxxxxx Xxxxx to the Company setting forth the number of
Option Shares as to which the Initial Purchasers are then exercising the option
and the time and date of payment and delivery for such Option Shares. Any such
time and date of delivery for the Option Shares (a "Date of Delivery") shall be
determined by the Xxxxxxx Xxxxx, but shall not be later than seven full business
days after the exercise of said option, nor in any event prior to the Closing
Time, as hereinafter defined. If the option is
11
exercised as to all or any portion of the Option Shares, each of the Initial
Purchasers, acting severally and not jointly, on the basis of the
representations and warranties of the Company contained herein and subject to
the terms and conditions herein set forth, will purchase that proportion of the
total number of Option Shares then being purchased which the number of Firm
Shares set forth in Schedule A opposite the name of such Initial Purchasers
bears to the total number of Firm Shares, subject in each case to such
adjustments as Xxxxxxx Xxxxx in its discretion shall make to eliminate any sales
or purchases of fractional shares.
(c) Delivery. Deliveries of certificates for the Firm Shares shall be made
at the offices of Xxxxx & XxXxxxxx in The City of New York or such other place
as shall be agreed upon by the Initial Purchasers and the Company and payment of
the purchase price for the Firm Shares shall be made by the Initial Purchasers
to the Company by wire transfer of immediately available funds contemporaneous
with closing, at 9:00 a.m., New York City time, on March 3, 2000 or such other
time not later than ten (10) business days after such date as shall be agreed
upon by the Initial Purchasers and the Company (such time and date of payment
and delivery being referred to herein as the "Closing Time"). In addition, in
the event that any or all of the Option Shares are purchased by the Initial
Purchasers, payment of the purchase price for such Option Shares shall be made
at the above-mentioned offices, or at such other place as shall be agreed upon
by Xxxxxxx Xxxxx and the Company, on each Date of Delivery as specified in the
notice from Xxxxxxx Xxxxx to the Company.
(d) Payment. Payment for the Shares purchased by the Initial Purchasers
shall be made to the Company by wire transfer of immediately available funds to
a bank designated by the Company, against delivery to the Initial Purchasers of
certificates for the Shares to be purchased by them. Unless otherwise specified
in writing by the Initial Purchasers prior to the Closing Time or the relevant
Date of Delivery, as the case may be, the Firm Shares and Option Shares, if any,
shall be issued in global form as one or more certificates registered in the
name of Cede & Co. as nominee of DTC pursuant to the DTC Agreement and shall be
made available for examination by the Initial Purchasers in The City of New York
at least one (1) business day prior to the Closing Time or the relevant Date of
Delivery, as the case may be.
(e) Qualified Institutional Buyer. Each Initial Purchaser severally and
not jointly represents and warrants to, and agrees with, the Company that, as of
the date hereof and as of the Closing Date, it is a "qualified institutional
buyer" within the meaning of Rule 144A under the 1933 Act (a "Qualified
Institutional Buyer") and an "accredited investor" within the meaning of Rule
501(a) under the 1933 Act (an "Accredited Investor").
SECTION 3. Covenants of the Company. The Company covenants with each
Initial Purchaser as follows:
(a) Offering Memorandum. The Company, as promptly as possible, will
furnish to each Initial Purchaser, without charge, such number of copies of the
Preliminary Offering Memorandum, the Final Offering Memorandum and any
amendments and supplements thereto and documents incorporated by reference
therein as such Initial Purchaser may reasonably request.
12
(b) Notice and Effect of Material Events. The Company will immediately
notify each Initial Purchaser, and confirm such notice in writing, of (x) any
filing made by the Company of information relating to the offering of the Shares
with any securities exchange or any other regulatory body in the United States
or any other jurisdiction, and (y) prior to the completion of the placement of
the Shares by the Initial Purchasers as evidenced by a notice in writing from
the Initial Purchasers to the Company, any material changes in or affecting the
earnings, business affairs or business prospects of the Company and its
subsidiaries which (i) make any statement in the Offering Memorandum false or
misleading or (ii) are not disclosed in the Offering Memorandum. In such event
or if during such time any event shall occur as a result of which it is
necessary, in the reasonable opinion of the Company, its counsel, the Initial
Purchasers or counsel for the Initial Purchasers, to amend or supplement the
Final Offering Memorandum in order that the Final Offering Memorandum not
include any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light of
the circumstances then existing, the Company will forthwith amend or supplement
the Final Offering Memorandum by preparing and furnishing to each Initial
Purchaser an amendment or amendments of, or a supplement or supplements to, the
Final Offering Memorandum (in form and substance satisfactory in the reasonable
opinion of counsel for the Initial Purchasers) so that, as so amended or
supplemented, the Final Offering Memorandum will not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances existing at the time
it is delivered to a Subsequent Purchaser, not misleading.
(c) Amendment to Offering Memorandum and Supplements. The Company will
advise each initial Purchaser promptly of any proposal to amend or supplement
the Offering Memorandum and will not effect such amendment or supplement without
the consent of the Initial Purchasers. Neither the consent of the Initial
Purchasers, nor the Initial Purchasers' delivery of any such amendment or
supplement, shall constitute a waiver of any of the conditions set forth in
Section 5 hereof.
(d) Qualification of Shares for Offer and Sale. The Company will use its
best efforts, in cooperation with the Initial Purchasers, to qualify the Shares
for offering and sale by the Initial Purchasers to any Subsequent Purchasers
under the applicable securities laws of such jurisdictions as the Initial
Purchasers may reasonably designate and will maintain such qualifications in
effect as long as required for the sale of the Shares; provided, however, that
the Company shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation or as a dealer in securities in
any jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is not
otherwise so subject.
(e) DTC and PORTAL. The Company will cooperate with the Initial Purchasers
and use its reasonable best efforts to (i) permit the Shares to be eligible for
clearance and settlement through the facilities of DTC and (ii) permit the
Shares to be designated as PORTAL Securities in accordance with the ruled and
regulations of the National Association of Securities Dealers, Inc.
13
(f) Use of Proceeds. The Company will use the net proceeds received by it
from the sale of the Shares in the manner specified in the Offering Memorandum
under "Use of Proceeds".
(g) Restrictions on Sale of Securities. During a period of 90 days from
the date of the Offering Memorandum, the Company will not, without the prior
written consent of Xxxxxxx Xxxxx, (i) directly or indirectly, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any equity securities or equity-linked
securities of the Company or any securities convertible into or exercisable or
exchangeable for any of the foregoing or file any registration statement under
the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or
any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of any of the
foregoing, whether any such swap or transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (A) the Shares to
be sold hereunder, (B) any shares of Common Stock issued by the Company upon the
exercise of an option or warrant or the conversion of a security outstanding on
the date hereof and referred to in the Offering Memorandum, (C) any shares of
Common Stock issued or options to purchase Common Stock granted pursuant to
existing employee benefit plans of the Company referred to in the Offering
Memorandum, (D) any shares of Common Stock issued pursuant to any non-employee
director stock plan or dividend reinvestment plan or (E) any shares of Common
Stock delivered by the Company to a transfer agent to pay cash dividends on the
Shares.
(h) Reservation of Common Stock. The Company will reserve and keep
available at all times, free of any preemptive rights, shares of Common Stock
for the purpose of enabling the Company to satisfy any obligations to issue
shares of Common Stock upon conversion of the Shares.
(i) Press Releases. From the date hereof to the Closing Time, without the
prior consent of the Initial Purchasers, the Company will not issue directly or
indirectly any press release or other public communication or hold any press
conference with respect to the Company or the business, financial condition,
assets, results of operations or prospects of the Company, unless in the
judgment of the Company and its counsel, and after notification to the Initial
Purchasers, such press release, communication or conference is required by law.
SECTION 4. Payment of Expenses.
(a) Expenses. The Company will pay all expenses incident to the performance
of its obligations under this Agreement, including (i) the preparation, printing
and any filing of the Offering Memorandum (including financial statements and
any schedules or exhibits) and of each amendment or supplement thereto, (ii) the
preparation, printing and delivery to the Initial Purchasers of the Operative
Documents and such other documents as may be required in connection with the
offering, purchase, sale and delivery of the Shares, (iii) the preparation,
issuance and delivery of the certificates for the Shares to the Initial
Purchasers, including any charges of DTC in connection therewith, (iv) the fees
and disbursements of the Company's counsel, accountants and other advisors, (v)
the qualification of the Shares under securities laws
14
in accordance with the provisions of Section 3(d) hereof, (vi) any fees payable
in connection with the rating of the Shares and (vii) any fees payable to the
review by the National Association of Securities Dealers, Inc. (the "NASD") in
connection with the initial and continued designation of the Shares as PORTAL
securities under the PORTAL Market Rules pursuant to NASD Rule 5322.
(b) Termination of Agreement. If this Agreement is terminated by the
Initial Purchasers in accordance with the provisions of Section 5(k) or Section
10(a)(i) hereof, the Company shall reimburse the Initial Purchasers for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Initial Purchasers.
SECTION 5. Conditions of Initial Purchasers' Obligations. The obligations of
the several Initial Purchasers hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any of its subsidiaries
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Opinions of Counsel for Company. At the Closing Time, the Initial
Purchasers shall have received the opinions, dated as of the Closing Time, (i)
of Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP, counsel for the Company, to the effect set
forth in Exhibit A-1 hereto, (ii) of Xxxx and Xxxx LLP, counsel for the Company,
to the effect set forth in Exhibit A-2 hereto, (iii) of Xxxxxxxxxx & Xxxxx,
counsel for the Company, to the effect set forth in Exhibit A-3 hereto, (iv) of
Leboeuf, Lamb, Xxxxxx & XxxXxx L.L.P., counsel for the Company, to the effect
set forth on Exhibit A-4 hereto and (v) of Xxxxxxx Xxxxxxxxxx, General Counsel
of the Company, to the effect set forth on Exhibit A-5 hereto. In giving the
opinion described in clause (i) above such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the law of the State of New
York, the federal law of the United States and the General Corporation Law of
the State of Delaware, upon the opinions of counsel satisfactory to the Initial
Purchasers.
(b) Opinion of Counsel for Initial Purchasers. At the Closing Time, the
Initial Purchasers shall have received the favorable opinion, dated as of the
Closing Time, of Xxxxx & XxXxxxxx, counsel for the Initial Purchasers,
substantially to the effect set forth in Exhibit A-6 hereto. In giving such
opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York, the federal law of
the United States and the General Corporation Law of the State of Delaware, upon
the opinions of counsel satisfactory to the Initial Purchasers.
(c) Officers' Certificate. At the Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Offering Memorandum, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the Initial
Purchasers shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, dated as of the Closing Time, to the effect that (i) there has
been no such material adverse change, (ii) the representations and warranties in
Section 1 hereof are true and correct with the same force and
15
effect as though expressly made at and as of the Closing Time and (iii) the
Company has complied with all agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to the Closing Time.
(d) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Initial Purchasers shall have received from
PricewaterhouseCoopers LLP a letter dated such date, in form and substance
satisfactory to the Initial Purchasers, containing statements and information of
the type ordinarily included in accountants' "comfort letters" to Initial
Purchasers with respect to the financial statements and certain financial
information contained in the Offering Memorandum.
(e) Bring-down Comfort Letter. At the Closing Time, the Initial Purchasers
shall have received from PricewaterhouseCoopers LLP a letter, dated as of the
Closing Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (d) of this Section, except that the specified
date referred to shall be a date not more than three business days prior to the
Closing Time.
(f) PORTAL. At the Closing Time, the Shares shall have been designated for
trading on PORTAL.
(g) Registration Rights Agreements. The Issuer and the Initial Purchasers
shall have entered into the Registration Rights Agreement, dated as of the
Closing Time, substantially in form and substance as described in the Offering
Memorandum under the heading "Description of the Preferred Stock--Registration
Rights."
(h) Lock-up Agreements. At the Closing Time, the Initial Purchasers shall
have received an agreement substantially in the form of Exhibit B hereto signed
by the persons listed on Schedule B hereto.
(i) Conditions to Purchase of Option Shares. In the event that the Initial
Purchasers exercise their option provided in Section 2(b) hereof to purchase all
or any portion of the Option Shares, the representations and warranties of the
Company contained herein and the statements in any certificates furnished by the
Company and any subsidiary of the Company hereunder shall be true and correct as
of each Date of Delivery and, at the relevant Date of Delivery, the Initial
Purchasers shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming that
the certificate delivered at the Closing Time pursuant to Section 5(c)
hereof remains true and correct as of such Date of Delivery.
(ii) Opinions of Counsel for the Company. At the relevant Date of
Delivery, the Initial Purchasers shall have received the opinions, dated as
of such Date of Delivery, of each of Xxxxxxx, Phleger & Xxxxxxxx LLP, Xxxx
and Xxxx LLP, Xxxxxxxxxx & Cohen, Leboeuf, Lamb, Xxxxxx & XxxXxx L.L.P. and
of Xxxxxxx Xxxxxxxxxx, each in form and substance to the effect set froth in
Exhibits A-1 through A-5 hereof. In giving the opinion pursuant to this
subsection, Xxxxxxx Xxxxxxx & Xxxxxxxx LLP may rely, as to all matters
governed by the laws of
16
jurisdictions other than the law of the State of New York, the federal law
of the United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel satisfactory to the Initial
Purchasers.
(iii) Opinion of Counsel for Initial Purchasers. At the relevant Date
of Delivery, the Initial Purchasers shall have received the favorable
opinion, dated as of such Date of Delivery of Xxxxx & XxXxxxxx, counsel for
the Initial Purchasers, substantially to the effect set forth in Exhibit A-6
hereto. In giving such opinion such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the law of the State of New
York, the federal law of the United States and the General Corporation Law
of the State of Delaware, upon the opinions of counsel satisfactory to the
Initial Purchasers.
(iv) Bring-down Comfort Letter. At the relevant Date of Delivery, the
Initial Purchasers shall have received from PricewaterhouseCoopers LLP a
letter, dated as of such Date of Delivery, to the effect that they reaffirm
the statements made in the letter furnished pursuant to subsection (e) of
this Section, except that the specified date referred to shall be a date not
more than three business days prior to such Date of Delivery.
(j) Additional Documents. At the Closing Time and at each Date of Delivery,
counsel for the Initial Purchasers shall have been furnished such documents and
opinions as they may reasonably require for the purpose of enabling them to pass
upon the issuance and sale of the Shares as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties of the
Company, or the fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Company in connection with the issuance and sale of the
Shares as herein contemplated shall be satisfactory in form and substance to the
Initial Purchasers and counsel for the Initial Purchasers.
(k) Termination of Agreement. If any condition specified in this Section 5
shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option Shares on
a Date of Delivery which is after the Closing Time, the obligations of the
Initial Purchasers to purchase the relevant Option Shares, may be terminated by
the Initial Purchasers by notice to the Company at any time at or prior to the
Closing Time or such Date of Delivery, as the case may be, and such termination
shall be without liability of any party to any other party except as provided in
Section 4 hereof and except that Sections 1, 7, 8 and 9 hereof shall survive any
such termination and remain in full force and effect.
SECTION 6. Subsequent Offers and Resales of the Shares.
(a) Offer and Sale Procedures. Each of the Initial Purchasers and the
Company hereby acknowledge and agree to observe the following procedures in
connection with the offer and sale of the Shares:
(i) Offers and Sales only to Qualified Institutional Buyers. Offers
and sales of the Shares will be made only by the Initial Purchasers or
Affiliates thereof qualified to do so in the jurisdictions in which such
offers or sales are made. Each such offer or sale
17
shall only be made to persons whom the offeror or seller reasonably believes
to be qualified institutional buyers (as defined in Rule 144A under the 1933
Act).
(ii) No General Solicitation. The Shares will be offered by
approaching prospective Subsequent Purchasers on an individual basis. No
general solicitation or general advertising (within the meaning of Rule
502(c) under the 0000 Xxx) will be used in the United States in connection
with the offering of the Shares.
(iii) Purchases by Non-Bank Fiduciaries. In the case of a non-bank
Subsequent Purchaser of Shares acting as a fiduciary for one or more third
parties, in connection with an offer and sale to such purchaser pursuant to
clause (a) above, each third party shall, in the judgment of the applicable
Initial Purchaser, be a Qualified Institutional Buyer.
(iv) Subsequent Purchaser Notification. Each Initial Purchaser will
take reasonable steps to inform, and cause each of its Affiliates to take
reasonable steps to inform, persons acquiring Shares from such Initial
Purchaser or Affiliate, as the case may be, in the United States that the
Shares (A) have not been registered under the 1933 Act and have not been
registered under any state securities laws, (B) are being sold to them
without registration under the 1933 Act in reliance on Rule 144A or in
accordance with another exemption from registration under the 1933 Act, as
the case may be, and (C) may not be offered, sold or otherwise transferred
except (1) to the Company, (2) pursuant to an effective registration
statement under the 1933 Act, (3) outside the United States in accordance
with Rule 904 of Regulation S, or (4) inside the United States in accordance
with (x) Rule 144A to a person whom the seller reasonably believes is a
Qualified Institutional Buyer that is purchasing such Shares for its own
account or for the account of a Qualified Institutional Buyer to whom notice
is given that the offer, sale or transfer is being made in reliance on Rule
144A or (y) the exemption from registration under the 1933 Act provided by
Rule 144, if available.
(v) Restrictions on Transfer. The transfer restrictions and the
other provisions of this Agreement and the Offering Memorandum, including
the legend required thereby, shall apply to the Shares except as otherwise
agreed by the Company and the Initial Purchasers. Following the sale of the
Shares by the Initial Purchasers to Subsequent Purchasers in accordance with
the terms and procedures contained herein, the Initial Purchasers shall not
be liable or responsible to the Company for any losses, damages or
liabilities suffered or incurred by the Company, including any losses,
damages or liabilities under the 1933 Act, arising from or relating to any
resale or transfer of any Share.
(vi) Delivery of Offering Memorandum. Each Initial Purchaser will
deliver to each purchaser of the Shares from such Initial Purchaser, in
connection with its original distribution of the Shares, a copy of the
Offering Memorandum, as amended and supplemented at the date of such
delivery.
18
(b) Covenants of the Company. The Company covenants with each Initial
Purchaser as follows:
(i) Due Diligence. In connection with the original distribution of
the Shares, the Company agrees that, prior to any offer or resale of the
Shares by the Initial Purchasers, the Initial Purchasers and counsel for the
Initial Purchasers shall have the right to make reasonable inquiries into
the business of the Company and its subsidiaries. The Company also agrees to
provide answers to each prospective Subsequent Purchaser of Shares who so
requests concerning the Company and its subsidiaries (to the extent that
such information is available or can be acquired and made available to
prospective Subsequent Purchasers without unreasonable effort or expense and
to the extent the provision thereof is not prohibited by applicable law) and
the terms and conditions of the offering of the Shares, as provided in the
Offering Memorandum.
(ii) Integration. The Company agrees that it will not and will cause
its Affiliates not to make any offer or sale of securities of the Company of
any class if, as a result of the doctrine of "integration" referred to in
Rule 502 under the 1933 Act, such offer or sale would render invalid (for
the purpose of (i) the sale of the Shares by the Company to the Initial
Purchasers, (ii) the resale of the Shares by the Initial Purchasers to
Subsequent Purchasers or (iii) the resale of the Shares by such Subsequent
Purchasers to others, in each case in accordance with the terms and
conditions herein set forth) the exemption from the registration
requirements of the 1933 Act provided by Section 4(2) thereof or by Rule
144A thereunder or otherwise.
(iii) Rule 144A Information. The Company agrees that, in order to
render the Shares eligible for resale pursuant to Rule 144A under the 1933
Act, while any of the Shares remain outstanding, it will make available,
upon request, to any holder of Shares or prospective purchasers of Shares
the information specified in Rule 144A(d)(4), unless the Company furnishes
information to the Commission pursuant to Section 13 or 15(d) of the 1934
Act (such information, whether made available to holders or prospective
purchasers or furnished to the Commission, is herein referred to as
"Additional Information").
(iv) Restriction on Repurchases. Until the expiration of two years
after the original issuance of the Shares, the Company will not, and will
cause its Affiliates not to, purchase or agree to purchase or otherwise
acquire any Shares which are "restricted securities" (as such term is
defined under Rule 144(a)(3) under the 1933 Act), whether as beneficial
owner or otherwise (except as agent acting as a securities broker on behalf
of and for the account of customers in the ordinary course of business in
unsolicited broker's transactions).
(c) Resale Pursuant to Rule 144A. Each Initial Purchaser represents and
agrees, that, except as permitted by Section 6(a) above, it has offered and sold
Shares and will offer and sell Shares as part of their distribution at any time,
only in accordance with Rule 144A under the 1933 Act. Each Initial Purchaser
severally represents and agrees that it has not entered and will not enter into
any contractual arrangements with respect to the distribution of the Shares,
except with its affiliates or with the prior written consent of the Company.
19
SECTION 7. Indemnification.
(a) Indemnification of Initial Purchasers. The Company agrees to indemnify
and hold harmless each Initial Purchaser and each person, if any, who controls
any Initial Purchaser within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Final Offering
Memorandum (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section 7(d)
below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Xxxxxxx Xxxxx), reasonably
incurred in investigating, preparing or defending against any litigation, or
any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Initial Purchaser expressly for use in the Offering Memorandum (or any amendment
thereto), which information is described in Section 1(a)(ii) hereof; and
provided further that the Company will not be liable to an Initial Purchaser
with respect to any Preliminary Offering Memorandum to the extent that the
Company shall sustain the burden of proof of proving that any such loss,
liability, claim, damage or expense resulted from the fact that such Initial
Purchaser, in contravention of a requirement of this Agreement or applicable
law, sold Shares to a person to whom such Initial Purchaser failed to send or
give, at or prior to the Closing Date, a copy of the Final Offering Memorandum
as then amended or supplemented if (i) the Company has previously furnished
copies thereof (sufficiently in advance of the Closing Date to allow for the
distribution by the Closing Date) to the Initial Purchasers and the loss,
liability, claim, damage or expense of such Initial Purchaser resulted from an
untrue statement or omission or alleged untrue statement or omission of a
material fact contained in or omitted from the Preliminary Offering Memorandum
which was corrected in the Final Offering Memorandum as, if applicable, amended
or supplemented prior to the Closing Date and (ii) giving or sending such Final
Offering Memorandum by the Closing Date to the party or parties
20
asserting such loss, liability, claim, damage or expense would have constituted
a complete defense to the claim asserted by such person.
(b) Indemnification of Company, Directors and Officers. Each Initial
Purchaser severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who would be required to sign the Offering
Memorandum if it were a registration statement on Form S-1, and each person, if
any, who controls the Company within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Offering Memorandum in
reliance upon and in conformity with written information furnished to the
Company by such Initial Purchaser expressly for use in the Offering Memorandum.
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 7(a) above,
counsel to the indemnified parties shall be selected by Xxxxxxx Xxxxx, and, in
the case of parties indemnified pursuant to Section 7(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 7 or Section
8 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 7(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying
21
party shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement.
SECTION 8. Contribution. If the indemnification provided for in Section 7
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Initial Purchasers on the other hand from the offering of the
Shares pursuant to this Agreement or (ii) if the allocation provided by clause
(i) is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and of the Initial Purchasers
on the other hand in connection with the statements or omissions which resulted
in such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Shares pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Shares pursuant
to this Agreement (before deducting expenses) received by the Company and the
total underwriting discount received by the Initial Purchasers, bear to the
aggregate initial offering price of the Shares.
The relative fault of the Company on the one hand and the Initial
Purchasers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Initial Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Initial Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation (even if the Initial Purchasers were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 8 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed pursuant to
this Agreement were offered to the Subsequent Purchasers exceeds the amount of
any damages which such Initial Purchaser has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission.
22
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 0000 Xxx) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls an Initial
Purchaser within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as such Initial Purchaser,
and each director of the Company, each officer of the Company who would be
required to sign the Offering Memorandum if it were a registration statement on
Form S-1, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company. The Initial Purchasers' respective
obligations to contribute pursuant to this Section 8 are several in proportion
to the number of Firm Shares set forth opposite their respective names in
Schedule A hereto and not joint.
SECTION 9. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any Initial Purchaser or controlling person, or by or on behalf
of the Company, and shall survive delivery of the Shares to the Initial
Purchasers.
SECTION 10. Termination of Agreement.
(a) Termination; General. The Initial Purchasers may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Offering
Memorandum, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the Initial Purchasers, impracticable to market the Shares or to
enforce contracts for the sale of the Shares, or (iii) if trading in any
securities of the Company has been suspended or limited by the Commission, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or limited, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof, and provided further that Sections 1, 7
and 8 shall survive such termination and remain in full force and effect.
23
SECTION 11. Default by One or More of the Initial Purchasers. If one of the
Initial Purchasers shall fail at the Closing Time or a Date of Delivery to
purchase the Shares which it is obligated to purchase under this Agreement (the
"Defaulted Shares"), the other Initial Purchaser shall have the right, but not
the obligation, within 24 hours thereafter, to make arrangements, for the non-
defaulting Initial Purchaser, or any other Initial Purchasers, to purchase all,
but not less than all, of the Defaulted Shares in such amounts as may be agreed
upon and upon the terms herein set forth; if, however, the other Initial
Purchaser shall not have completed such arrangements within such 24-hour period,
then this Agreement shall terminate without liability on the part of the non-
defaulting Initial Purchaser.
No action pursuant to this Section shall relieve any defaulting Initial
Purchaser from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement, either the non-defaulting Initial Purchaser or the Company shall
have the right to postpone the Closing Time or the relevant Date of Delivery, as
the case may be, for a period not exceeding seven days in order to effect any
required changes in the Offering Memorandum or in any other documents or
arrangement.
SECTION 12. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Initial
Purchasers shall be directed to the Initial Purchasers at North Tower, World
Financial Center, New York, New York 10281-11201, attention of Xxxx Xxxx, with a
courtesy copy to Xxxxxxx X. Xxxx, Xxxxx & XxXxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000; notices to the Company shall be directed to it at 0000 Xxxxx
Xxxxxx Xxxxxxx, Xxxxxxxxx, Xxxxxxxx 00000, attention of Xxxxx Xxxxxxxx, with a
courtesy copy to Xxxxxxx X. Xxxxxxxxx, Xxxxxxx Xxxxxxx & Xxxxxxxx LLP, 000
Xxxxxxxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxxxxx, Xxxxxxxx 00000.
SECTION 13. Parties. This Agreement shall inure to the benefit of and be
binding upon the Initial Purchasers and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Initial Purchasers and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 7 and 8
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Initial Purchasers and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Shares from any
Initial Purchaser shall be deemed to be a successor by reason merely of such
purchase.
SECTION 14. Governing Law and Time. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES
OF DAY REFER TO NEW YORK CITY TIME.
24
SECTION 15. Effect of Headings. The Article and Section headings herein and
the Table of Contents are for convenience only and shall not affect the
construction hereof.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Initial Purchasers and the Company in accordance with its terms.
Very truly yours,
RHYTHMS NETCONNECTIONS, INC.
By:
-------------------------------------
Xxxxx Xxxxxxxx
Chief Financial Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
XXXXXXX XXXXX & CO.
XXXXXXX LYNCH, PIERCE, XXXXXX & XXXXX
INCORPORATED
XXXXXXX XXXXX BARNEY INC.
By: XXXXXXX LYNCH, PIERCE, XXXXXX & XXXXX
INCORPORATED
By:
------------------------------------
Authorized Signatory
25
SCHEDULE A
Name of Initial Purchaser Number of Firm Shares
-------------------------- ---------------------
Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated....... 1,375,000
Xxxxxxx Xxxxx Barney Inc................................. 1,125,000
Total................................................. 2,500,000
=========
26
SCHEDULE B
Brentwood Affiliates Fund, L.P.
Brentwood Associates VII, X.X.
Xxxxxxx Xxxxxxx Xxxxxxxxx & Xxxxx VIII, L.P.
KPCB VIII Founders Fund, L.P.
KPCB VIII Information Sciences Zaibatsu Fund II, L.P.
MCI WorldCom Venture Fund, Inc.
G-Past, L.L.C.
Microsoft Corporation
Xxxxxxxxx X. Xxxxx
Xxxxx Xxxxxxxx
Xxxxxxx X. Xxxxxx
Xxxxx X. Xxxxx
Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxx
Xxxxx X. Xxxxxxx
Xxxxx Xxxxx
Xxxxxxx X. Xxxxxxxx
Xxxx X. Xxxxxxx
Xxxxxx X. Xxxxxx
27
Exhibit A-1
FORM OF OPINION OF COMPANY'S LEGAL COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(i)
[Form of Xxxxxxx Phleger opinion follows]
X-0
Xxxxxxx X-0
FORM OF OPINION OF COMPANY'S LEGAL COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(ii)
[Form of Xxxx and Xxxx opinion follows]
X-0
Xxxxxxx X-0
FORM OF OPINION OF COMPANY'S LEGAL COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(iii)
[Form of Xxxxxxxxxx & Xxxxx opinion follows]
X-0
Xxxxxxx X-0
FORM OF OPINION OF COMPANY'S LEGAL COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(iv)
[Form of XxXxxxx Xxxx opinion follows]
X-0
Xxxxxxx X-0
FORM OF OPINION OF THE COMPANY'S LEGAL COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(v)
[Form of General Counsel opinion follows]
X-0
Xxxxxxx X-0
FORM OF OPINION OF INITIAL PURCHASERS' LEGAL COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
[Form of Xxxxx & XxXxxxxx opinion follows]
A-6
Exhibit B
Form of Lock-Up Agreement
A-7
