EXHIBIT 4.10
THE TRANSFER OF THIS WARRANT IS SUBJECT TO
RESTRICTIONS CONTAINED HEREIN. THIS WARRANT
HAS BEEN ISSUED IN RELIANCE UPON THE
REPRESENTATION OF THE HOLDER THAT IT HAS BEEN
ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH
A VIEW TOWARD THE RESALE OR OTHER DISTRIBUTION
THEREOF. NEITHER THIS WARRANT NOR THE SHARES
ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS.
RHYTHMS NETCONNECTIONS INC.
Common Stock Purchase Warrant
To Subscribe for and Purchase April 6, 1999
136,996 Shares of Common Stock of
Rhythms NetConnections Inc.
THIS CERTIFIES that, for the per share purchase price equal to the price per
share paid for shares of Common Stock ("Common Stock") of Rhythms NetConnections
Inc., a Delaware corporation (the "Company") in the Company's initial public
offering of such securities (such price as from time to time to be adjusted as
provided herein is called the "Warrant Price"), MCI WorldCom Venture Fund, Inc.
or its registered assigns (the "Holder") is entitled to subscribe for and
purchase from the Company, up to 136,996 shares (subject to adjustment as
provided herein) of fully paid and non-assessable Common Stock, subject to the
provisions and upon the terms and conditions hereinafter set forth at the
Warrant Price, at or prior to 5:00 p.m. Pacific time on April 5, 2004 (the
"Exercise Period).
This Warrant and any Warrant subsequently issued upon exchange or transfer
hereof are hereinafter collectively called the "Warrant."
Section 1. EXERCISE OF WARRANT. The rights represented by this Warrant
may be exercised by the Holder, in whole or in part (but not as to fractional
shares) at any time or from time to time during the Exercise Period by the
completion of the purchase form attached hereto and by the surrender of this
Warrant (properly endorsed) at the office of the Company as it may designate by
notice in writing to the Holder hereof at the address of the Holder appearing on
the books of the Company, and by payment to the Company of the Warrant Price in
cash or by certified or official bank check, for each share being purchased. (In
addition, see Section 2 below for net issuance provisions.) In the event of any
exercise of the rights represented by this Warrant, a certificate or
certificates for the shares of Common Stock so purchased, registered in the name
of the Holder, or its nominee or other party designated in the purchase form by
the Holder hereof, shall be delivered to the Holder within thirty (30) business
days after the date on which the rights represented by this Warrant shall have
been so exercised; and, unless this
Warrant has expired or has been exercised in full, a new Warrant representing
the number of shares (except a remaining fractional share), if any, with respect
to which this Warrant shall not then have been exercised shall also be issued to
the Holder within such time. The person in whose name any certificate for shares
of Common Stock is issued upon exercise of this Warrant shall for all purposes
be deemed to have become the holder of record of such shares on the date on
which this Warrant was surrendered and payment of the Warrant Price is made,
except that, if the date of such surrender and payment is a date on which the
stock transfer books of the Company are closed, such person shall be deemed to
have become the holder of such shares at the close of business on the next
succeeding date on which the stock transfer books are open. No fractional shares
shall be issued upon exercise of this Warrant and no payment or adjustment shall
be made upon any exercise on account of any cash dividends on the Common Stock
issued upon such exercise. If any fractional interest in a share of Common Stock
would, except for the provision of this Section 1, be delivered upon such
exercise, the Company, in lieu of delivery of a fractional share thereof, shall
pay to the Holder an amount in cash equal to the current market price of such
fractional share as determined in good faith by the Board of Directors of the
Company.
Section 2. NET ISSUANCE.
(a) RIGHT TO CONVERT. In addition to and without limiting the
rights of the Holder under the terms of this Warrant, if the fair market value
of a share of Common Stock is greater than the Warrant Price, in lieu of
exercising this Warrant for cash the Holder shall have the right to convert this
Warrant or any portion thereof (the "Conversion Right") into shares of Common
Stock equal to the value of this Warrant or the portion thereof being canceled
as provided in this Section 2 at any time or from time to time during the
Exercise Period. Upon exercise of the Conversion Right with respect to a
particular number of shares subject to the Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the Holder (without payment by the Holder
of any exercise price or any cash or other consideration) that number of shares
of fully paid and nonassessable Common Stock computed using the following
formula:
X = Y (A - B)
----------
A
Where X = the number of shares of Common Stock to be delivered to
the holder
Y = the number of Converted Warrant Shares
A = the fair market value of one share
of the Company's Common Stock on the
Conversion Date (as defined below)
B = the per share exercise price of
the Warrant (as adjusted to the
Conversion Date)
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Holder an amount in cash equal to the fair
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market value of the resulting fractional share on the Conversion Date (as
defined below). Shares issued pursuant to the Conversion Right shall be treated
as if they were issued upon the exercise of the Warrant.
(b) METHOD OF EXERCISE. The Conversion Right may be exercised by
the Holder by the surrender of the Warrant at the principal office of the
Company together with a written statement specifying that the Holder thereby
intends to exercise the Conversion Right and indicating the total number of
shares under the Warrant that the Holder is exercising through the Conversion
Right. Such conversion shall be effective upon receipt by the Company of the
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to the Warrant, shall be
issued as of the Conversion Date and shall be delivered to the Holder promptly
following the Conversion Date.
(c) DETERMINATION OF FAIR MARKET VALUE. For purposes of this
Section 2, fair market value of a share of Common Stock on the Conversion Date
shall mean:
(i) If traded on a stock exchange, the fair market
value of the Common Stock shall be deemed to be the average of the closing
selling prices of the Common Stock on the stock exchange determined by the Board
to be the primary market for the Common Stock over the ten (10) trading day
period (or such shorter period immediately following the closing of an initial
public offering) ending on the date prior to the Conversion Date, as such prices
are officially quoted in the composite tape of transactions on such exchange;
(ii) If traded over-the-counter, the fair market value
of the Common Stock shall be deemed to be the average of the closing bid prices
(or, if such information is available, the closing selling prices) of the Common
Stock over the ten (10) trading day period (or such shorter period immediately
following the closing of an initial public offering) ending on the date prior to
the Conversion Date, as such prices are reported by the National Association of
Securities Dealers through its NASDAQ system, any successor system or any
exchange on which it is listed, whichever is applicable; or
(iii) If there is no public market for the Common Stock,
then the fair market value shall be determined by mutual agreement of the holder
of the Warrant and the Company, and if the holder and the Company are unable to
so agree, by an investment banker of national reputation selected by the Company
and reasonably acceptable to the holder of the Warrant.
Section 3. STOCK SPLITS, CONSOLIDATION, MERGER AND SALE. In the event
that before the issuance of the shares of Common Stock into which this Warrant
may be exercised the outstanding shares of Common Stock shall be split, combined
or consolidated, by dividend, reclassification or otherwise, into a greater or
lesser number of shares of Common Stock or any other class or classes of stock,
as appropriate, the Warrant Price in effect immediately prior to such
combination or consolidation and the number of shares purchasable under this
Warrant shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately adjusted. If there shall be effected any
consolidation or merger of the Company
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with another corporation, or a sale of all or substantially all of the Company's
assets to another corporation, and if the holders of Common Stock shall be
entitled pursuant to the terms of any such transaction to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such consolidation, merger or sale, lawful and adequate provisions
shall be made whereby the Holder of this Warrant shall thereafter have the right
to receive, upon the basis and upon the terms and conditions specified herein
and in lieu of the shares of Common Stock immediately theretofore receivable
upon the exercise of such Warrant, such shares of stock, securities or assets as
may be issuable or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore so receivable had such consolidation,
merger or sale not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the Holder to the end
that the provisions hereof shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of this Warrant.
(a) STOCK TO BE RESERVED. The Company will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon the exercise of this Warrant as herein provided, such number of
shares of Common Stock as shall then be issuable upon the exercise of this
Warrant.
(b) ISSUE TAX. The issuance of certificates for shares of Common
Stock upon exercise of this Warrant shall be made without charge to the Holders
of this Warrant for any issuance tax in respect thereof provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the Holder of this Warrant.
(c) CLOSING OF BOOKS. The Company will at no time close its
transfer books against the transfer of the shares of Common Stock issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.
Section 4. NOTICES OF RECORD DATES. In the event of:
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution (other than cash
dividends out of earned surplus), or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other corporation, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, then and in each such event the Company will give
notice to the Holder of this Warrant specifying (i) the date on which any
such record is to be taken for the purpose of such dividend,
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distribution or right and stating the amount and character of such dividend,
distribution or right, and (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock will be entitled
to exchange their shares of Common Stock for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be given at least ten (10) days and not more than ninety (90) days
prior to the date therein specified, and such notice shall state that the action
in question or the record date is subject to the effectiveness of a registration
statement under the Securities Act of 1933, as amended (the "Securities Act") or
to a favorable vote of shareholders, if either is required.
Section 5. NO SHAREHOLDER RIGHTS OR LIABILITIES. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision hereof, in the absence of affirmative action by the
Holder hereof to purchase shares of Common Stock, and no mere enumeration hereon
of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for the Warrant Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
Section 6. REPRESENTATIONS OF HOLDER. The Holder hereby represents and
acknowledges to the Company that:
(a) this Warrant, the Common Stock issuable upon exercise of this
Warrant and any securities issued with respect to any of them by way of a stock
dividend or stock split or in connection with a recapitalization, merger,
consolidation or other reorganization will be "restricted securities" as such
term is used in the rules and regulations under the Securities Act and that such
securities have not been and may not be registered under the Securities Act or
any state securities law, and that such securities must be held indefinitely
unless registration is effected or transfer can be made pursuant to appropriate
exemptions;
(b) the Holder has read, and fully understands, the terms of this
Warrant set forth on its face and the attachments hereto, including the
restrictions on transfer contained herein;
(c) the Holder is purchasing for investment for its own account
and not with a view to or for sale in connection with any distribution of this
Warrant or the Common Stock of the Company issuable upon exercise of this
Warrant and it has no intention of selling such securities in a public
distribution in violation of the federal securities laws or any applicable state
securities laws; provided that nothing contained herein will prevent Holder from
transferring such securities in compliance with the terms of this Warrant and
the applicable federal and state securities laws;
(d) the Holder is an "accredited investor" within the meaning of
paragraph (a) of Rule 501 of Regulation D promulgated by the Securities; and
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(e) the Company may affix the following legend (in addition to
any other legend(s), if any, required by applicable state corporate and/or
securities laws) to certificates for shares of Common Stock (or other
securities) issued upon exercise of this Warrant ("Warrant Shares"):
"These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold,
offered for sale, pledged or hypothecated in the absence of a
registration statement in effect with respect to the
securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not
required or unless sold pursuant to Rule 144 of such Act."
Section 7. LIMITATIONS ON DISPOSITION.
(a) The Holder of this Warrant, by acceptance hereof, agrees to
comply in all respects with the provisions of this Section 7. Without in any way
limiting the representations set forth above, the Holder of this Warrant agrees
not to make any disposition of this Warrant or any Warrant Shares, unless and
until the transferee has agreed in writing for the benefit of the Company to be
bound by this Section 7 and the other provisions of this Warrant as if such
transferee were the original Holder hereof, provided and to the extent such
provisions are then applicable, and:
(i) There is then in effect a Registration Statement
under the Securities Act covering such proposed disposition and such disposition
is made in accordance with such Registration Statement; or
(ii) (A) the Holder shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and the
Company has given its prior written consent, and (B) if reasonably requested by
the Company, the Holder shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition will not
require registration of the Warrant and/or the Warrant Shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(b) Notwithstanding the provisions of paragraph (a) above, (i) no
such Registration Statement, prior consent or opinion of counsel shall be
necessary for a transfer (A) by a Holder which is a partnership to a partner of
such partnership or a retired partner of such partnership who retires after the
date hereof, or to the estate of any such partner or retired partner or to the
transfer by gift, will or intestate succession of any partner to his spouse or
to the siblings, lineal descendants or ancestors of such partner or his spouse,
or (B) to an "affiliate" of the Holder as that term is defined in Rule 405
promulgated by the Securities and Exchange Commission under the Securities Act,
if the transferee agrees in writing to be subject to the terms hereof to the
same extent as if he were an original Holder hereunder, and (ii) no transferee
shall be required, as a condition to any transfer of the Warrant or the Warrant
Shares by the Holder, to agree to be bound by this Section 7, if the transferee
is acquiring the Warrant and/or Warrant Shares pursuant to a Registration
Statement under the Securities Act or in a transaction made
6
pursuant to Rule 144. Each new certificate evidencing the Warrant and/or Warrant
Shares so transferred shall bear the appropriate restrictive legends set forth
in Section 6(f) above, except that such certificate shall not bear such
restrictive legend if, in the opinion of counsel for the Company, such legend is
not required in order to establish or assist in compliance with any provisions
of the Securities Act or any applicable state securities laws.
Section 8. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant
is lost, stolen, mutilated or destroyed, the Company may, on such terms as to
indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
Section 9. PRESENTMENT. Prior to due presentment of this Warrant
together with a completed assignment form attached hereto for registration of
transfer, the Company may deem and treat the Holder as the absolute owner of the
Warrant, notwithstanding any notation of ownership or other writing thereon, for
the purpose of any exercise thereof and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
Section 10. NOTICE. Notice or demand pursuant to this Warrant shall be
sufficiently given or made, if sent by first-class mail, postage prepaid,
addressed, if to the Holder of this Warrant, to the Holder at its last known
address as it shall appear in the records of the Company, and if to the Company,
at 0000 Xxxxx Xxxxxx Xxxxxxx, Xxxxxxxxx, Xxxxxxxx 00000, Attention: Secretary.
The Company may alter the address to which communications are to be sent by
giving notice of such change of address in conformity with the provisions of
this Section 10 for the giving of notice.
Section 11. GOVERNING LAW. The validity, interpretation and performance
of this Warrant shall be governed by the laws of the State of Delaware without
regard to principles of conflicts of laws.
Section 12. SUCCESSORS, ASSIGNS. Subject to the restrictions on transfer by
Holder set forth in Section 7 hereof, all the terms and provisions of the
Warrant shall be binding upon and inure to the benefit of and be enforceable by
the respective successors and assigns of the parties hereto.
Section 13. AMENDMENT. This Warrant may be modified, amended or
terminated by a writing signed by the Company and the Holder.
Section 14. SEVERABILITY. Should any part but not the whole of this
Warrant for any reason be declared invalid, such decision shall not affect the
validity of any remaining portion, which remaining portion shall remain in force
and effect as if this Warrant had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this Warrant without including
therein any such part which may, for any reason, be hereafter declared invalid.
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Section 15. "MARKET STAND-OFF" AGREEMENT. Holder hereby agrees that,
during the period of duration (such period not to exceed 180 days) specified by
the Company and an underwriter of Common Stock or other securities of the
Company, following the effective date of a registration statement of the Company
filed under the Securities Act of 1933, as amended, it shall not, to the extent
requested by the Company and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any securities of the Company held by it
at any time during such period except Common Stock included in such
registration; PROVIDED, HOWEVER, that:
(i) such agreement shall be applicable only to the first two such
registration statements of the Company which cover common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(ii) all officers and directors of the Company and all other
persons with registration rights enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Common Stock of the Holder (and the shares or
securities of every other person subject to the foregoing restriction) until the
end of such period.
Section 16. NO IMPAIRMENT. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder of this Warrant against impairment.
Section 17. NO RIGHT TO REDEEM. Except as explicitly provided herein,
this Warrant may not be called by the Company.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and delivered on and as of the day and year first above written by one of its
officers thereunto duly authorized.
RHYTHMS NETCONNECTIONS INC.,
a Delaware corporation
/s/ Xxxxxxxxx Xxxxx
Dated: April 6, 1999 ------------------------------------------
Xxxxxxxxx Xxxxx, President and
Chief Executive Officer
The undersigned Holder agrees and accepts this Warrant and acknowledges that
it has read and confirms each of the representations contained in Section 6.
MCI WORLDCOM VENTURE FUND, INC.
By: /s/ Xxxxx Xxxxx
---------------------------------------
Its: President
--------------------------------------
Address: 0000 Xxxxxxxxxxxx Xxxxxx, X.X.
--------------------------------------
Xxxxxxxxxx, X.X. 00000
--------------------------------------
[SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT]
PURCHASE FORM
(To be executed by the Warrant Holder if he desires to exercise the Warrant in
whole or in part)
To: RHYTHMS NETCONNECTIONS INC.
The undersigned, whose Social Security or other identifying number is
_______________, hereby irrevocably elects the right of purchase represented by
the within Warrant for, and to purchase thereunder, ___________________________
shares of Common Stock provided for therein and tenders payment herewith to the
order of
RHYTHMS NETCONNECTIONS INC.
in the amount of
$
------------
The undersigned requests that certificates for such shares be issued as follows:
Name:
-------------------------------------------------------------------------
Address:
----------------------------------------------------------------------
Deliver to:
-------------------------------------------------------------------
Address:
----------------------------------------------------------------------
and, if said number of shares shall not be all the shares purchasable hereunder,
that a new Warrant for the balance remaining of the shares purchasable under the
within Warrant be registered in the name of, and delivered to, the undersigned
at the address stated below:
Address:
---------------------------------------------------
---------------------------------------------------
Dated: ____________, 199__ Signature:
----------------------------------
(Signature must conform in all
respects to the name of the Warrant
Holder as specified on the face of
the Warrant, without alteration,
enlargement or any change
whatsoever)
ASSIGNMENT
(To be executed by the Warrant Holder if he desires to effect a transfer of the
Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________, whose Social Security or other identification
number is ________________________ [residing/located] at
____________________________ ____________________ the attached Warrant, and
appoints _____________________________ residing at
__________________________________________________________________ the
undersigned's attorney-in-fact to transfer said Warrant on the books of the
Company, with full power of substitution in the premises.
Dated: ______________, 199__.
In the presence of:
--------------------------------------- ----------------------------------
(Signature must conform in all
respects to the name of the Warrant
Holder as specified on the face of
the Warrant, without alteration,
enlargement or any change
whatsoever)
