EXHIBIT 4.5
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION
OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE
PROVISIONS OF SECTION 7 OF THIS WARRANT.
RHYTHMS NETCONNECTIONS INC.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
THIS CERTIFIES THAT, for value received and subject to the provisions
and upon the terms and conditions hereinafter set forth, SUN FINANCIAL GROUP,
INC. and its assignees are entitled to subscribe for and purchase 239,325
shares of the fully paid and nonassessable Common Stock (as adjusted pursuant
to Section 4 hereof, the "Shares") of RHYTHMS NETCONNECTIONS INC., a Delaware
corporation (the "Company"), at a price per share of $4.45 (such prices and
such other prices as shall result, from time to time, from the adjustments
specified in Section 4 hereof is herein referred to as the "Exercise Price").
As used herein, (a) the term "Date of Grant" shall mean May 19, 1998, and
(b) the term "Other Warrants" shall mean any other warrants issued by the
Company in connection with the transaction with respect to which this Warrant
was issued, and any warrant issued upon transfer or partial exercise of this
Warrant. The term "Warrant" as used herein shall be deemed to include Other
Warrants unless the context clearly requires otherwise.
1. TERM. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time and from time to time from the
Date of Grant through the later of (i) ten (10) years after the Date of Grant
or (ii) five (5) years after the closing of the Company's initial public
offering of its Common Stock effected pursuant to a Registration Statement on
Form S-1 (or its successor) filed under the Securities Act of 1933, as
amended (the "Act").
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, at
the election of the holder hereof, by (a) the surrender of this Warrant (with
the notice of exercise substantially in the form attached hereto as Exhibit A
duly completed and executed) at the principal office of the Company and by
the payment to the Company, by certified or cashier's check, or by wire
transfer to an account designated by the Company (a "Wire Transfer") of an
amount equal to the then applicable Exercise Price multiplied by the number
of Shares then being purchased, or (b) if in connection with a registered
public offering of the Company's securities, the surrender of this Warrant
(with the notice of exercise form attached hereto as Exhibit A-1 duly
completed and executed) at the principal office of the Company together with
notice of arrangements reasonably satisfactory to the Company for payment to
the Company either by certified or cashier's check or by Wire Transfer from
the proceeds of the sale of shares to be sold by the holder in such public
offering of an amount equal to the then applicable Exercise Price per share
multiplied by the number of Shares then being purchased or (c) exercise of
the right provided for in Section 10.3 hereof. The person or persons in
whose name(s) any certificate(s) representing the Shares shall be issuable
upon exercise of this Warrant shall be deemed to have become the holder(s) of
record of, and shall be treated for all purposes as the record holder(s) of,
the shares represented thereby (and such shares
shall be deemed to have been issued) immediately prior to the close of
business on the date or dates upon which this Warrant is exercised. In the
event of any exercise of the rights represented by this Warrant, certificates
for the shares of stock so purchased shall be delivered to the holder hereof
as soon as possible and in any event within thirty (30) days after such
exercise and, unless this Warrant has been fully exercised or expired, a new
Warrant representing the portion of the Shares, if any, with respect to which
this Warrant shall not then have been exercised shall also be issued to the
holder hereof as soon as possible and in any event within such thirty-day
period.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from adverse claims. During the period within which
the rights represented by this Warrant may be exercised, the Company will at
all times have authorized, and reserved for the purpose of the issue upon
exercise of the purchase rights evidenced by this Warrant, a sufficient
number of shares of its Common Stock to provide for the exercise of the
rights represented by this Warrant.
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number and
kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) RECLASSIFICATION OR MERGER. In case of any reclassification
or change of securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision or combination),
or in case of any merger of the Company with or into another corporation
(other than a merger with another corporation in which the Company is the
acquiring and the surviving corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise
of this Warrant), or in case of any sale of all or substantially all of the
assets of the Company, this Warrant shall thereafter entitle the holder to
receive upon exercise that number of shares of capital stock or other
property to which the holder would have been entitled as a result of such
reclassification, merger, change or sale had the Warrant been exercised
immediately prior thereto.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of Common Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision or increased in the
case of a combination, effective at the close of business on the date the
subdivision or combination becomes effective.
(c) STOCK DIVIDENDS AND OTHER DISTRIBUTIONS. If the Company at
any time while this Warrant is outstanding and unexpired shall (i) pay a
dividend with respect to Common Stock payable in Common Stock, or (ii) make
any other distribution of Common Stock with respect to Common Stock (except
any distribution specifically provided for in Sections 4(a) and 4(b)), then
the Exercise Price shall be adjusted, from and after the date of
determination of shareholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Exercise Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
(d) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the
Exercise Price, the number of Shares purchasable hereunder shall be adjusted,
to the nearest whole share, to the product obtained by multiplying the number
of Shares purchasable immediately prior to such adjustment in the
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Exercise Price by a fraction, the numerator of which shall be the Exercise
Price immediately prior to such adjustment and the denominator of which shall
be the Exercise Price immediately thereafter.
(e) ANTIDILUTION RIGHTS. The Exercise Price shall also be subject
to adjustment from time to time as set forth in Appendix I hereto upon the
occurrence of certain events described therein. The provisions of Appendix I
are incorporated by reference herein with the same effect as if set forth in
full herein.
5. NOTICE OF ADJUSTMENTS. Whenever the Exercise Price or the number
of Shares purchasable hereunder shall be adjusted pursuant to Section 4
hereof, the Company shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Exercise Price and the number of Shares purchasable
hereunder after giving effect to such adjustment, and shall cause copies of
such certificate to be mailed (without regard to Section 13 hereof, by first
class mail, postage prepaid) to the holder of this Warrant at such holder's
last known address.
6. FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor based on the
fair market value of the Common Stock on the date of exercise as reasonably
determined in good faith by the Company's Board of Directors.
7. COMPLIANCE WITH ACT; DISPOSITION OF WARRANT OR SHARES OF COMMON
STOCK.
(a) COMPLIANCE WITH ACT. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant, and the Shares to be issued upon
exercise hereof are being acquired for investment and that such holder will
not offer, sell or otherwise dispose of this Warrant, or any Shares except
under circumstances which will not result in a violation of the Act or any
applicable state securities laws. Upon exercise of this Warrant, unless the
Shares being acquired are registered under the Act and any applicable state
securities laws or an exemption from such registration is available, the
holder hereof shall confirm in writing that the Shares so purchased are being
acquired for investment and not with a view toward distribution or resale in
violation of the Act and shall confirm such other matters related thereto as
may be reasonably requested by the Company. This Warrant and all Shares
issued upon exercise of this Warrant (unless registered under the Act and any
applicable state securities laws) shall be stamped or imprinted with a legend
in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS
RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii)
RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES,
OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT
UNDER WHICH THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."
Said legend shall be removed by the Company, upon the request of a holder, at
such time as the restrictions on the transfer of the applicable security
shall have terminated. In addition, in connection with the issuance of this
Warrant, the holder specifically represents to the Company by acceptance of
this Warrant as follows:
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(1) The holder is aware of the Company's business affairs and financial
condition, and has acquired information about the Company sufficient to reach
an informed and knowledgeable decision to acquire this Warrant. The holder
is acquiring this Warrant for its own account for investment purposes only
and not with a view to, or for the resale in connection with, any
"distribution" thereof in violation of the Act.
(2) The holder understands that this Warrant has not been registered
under the Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the
holder's investment intent as expressed herein.
(3) The holder further understands that this Warrant must be held
indefinitely unless subsequently registered under the Act and qualified under
any applicable state securities laws, or unless exemptions from registration
and qualification are otherwise available. The holder is aware of the
provisions of Rule 144, promulgated under the Act.
(b) DISPOSITION OF WARRANT OR SHARES. With respect to any
offer, sale or other disposition of this Warrant or any Shares acquired
pursuant to the exercise of this Warrant prior to registration of such
Warrant or Shares, the holder hereof agrees to give written notice to the
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of such holder's counsel, or other evidence, if reasonably
requested by the Company, to the effect that such offer, sale or other
disposition may be effected without registration or qualification (under the
Act as then in effect or any federal or state securities law then in effect)
of this Warrant or the Shares and indicating whether or not under the Act
certificates for this Warrant or the Shares to be sold or otherwise disposed
of require any restrictive legend as to applicable restrictions on
transferability in order to ensure compliance with such law. Promptly upon
receiving such written notice and reasonably satisfactory opinion or other
evidence, if so requested, the Company, as promptly as practicable but no
later than fifteen (15) days after receipt of the written notice, shall
notify such holder that such holder may sell or otherwise dispose of this
Warrant or such Shares, all in accordance with the terms of the notice
delivered to the Company. If a determination has been made pursuant to this
Section 7(b) that the opinion of counsel for the holder or other evidence is
not reasonably satisfactory to the Company, the Company shall so notify the
holder promptly with details thereof after such determination has been made.
Notwithstanding the foregoing, this Warrant or such Shares may, as to such
federal laws, be offered, sold or otherwise disposed of in accordance with
Rule 144 or 144A under the Act, provided that the Company shall have been
furnished with such information as the Company may reasonably request to
provide a reasonable assurance that the provisions of Rule 144 or 144A have
been satisfied. Each certificate representing this Warrant or the Shares
thus transferre (except a transfer pursuant to Rule 144 or 144A) shall bear a
legend as to the applicable restrictions on transferability in order to
ensure compliance with such laws, unless in the aforesaid opinion of counsel
for the holder, such legend is not required in order to ensure compliance
with such laws. The Company may issue stop transfer instructions to its
transfer agent in connection with such restrictions.
(c) APPLICABILITY OF RESTRICTIONS. Neither any restrictions of
any legend described in this Warrant nor the requirements of Section 7(b)
above shall apply to any transfer or grant of a security interest in, this
Warrant (or the Common Stock obtainable upon exercise thereof) or any part
hereof (i) to a partner of the holder if the holder is a partnership, (ii) to
a partnership of which the holder is a partner, or (iii) to any affiliate of
the holder if the holder is a corporation; PROVIDED, HOWEVER, in any such
transfer, if applicable, the transferee shall on the Company's request agree
in writing to be bound by the terms of this Warrant as if an original
signatory hereto.
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8. RIGHTS AS SHAREHOLDERS; INFORMATION. No holder of this Warrant, as
such, shall be entitled to vote or receive dividends or other distributions
or be deemed the holder of Shares, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any of the
rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. The holders of Warrants will not be
entitled to share in the assets of the Company in the event of a liquidation,
dissolution or the winding up of the Company. Notwithstanding the foregoing,
the Company will transmit to the holder of this Warrant such information,
documents and reports as are generally distributed to the holders of common
stock of the Company concurrently with the distribution thereof to the
shareholders.
9. REGISTRATION RIGHTS. The Company grants registration rights to the
holder of this Warrant for the Common Stock issuable upon exercise hereof,
comparable to the registration rights granted to holders under the Warrant
Registration Rights Agreement, dated as of May 5, 1998, among the Company and
the Initial Purchasers (as defined therein), with the following exception:
(1) the holder will have no shelf registration rights.
10. ADDITIONAL RIGHTS.
10.1 SECONDARY SALES. The Company agrees that it will not interfere
with the holder of this Warrant in obtaining liquidity if opportunities to
make secondary sales of the Company's securities become available. To this
end, the Company will promptly provide the holder of this Warrant with notice
of any offer (of which it has knowledge) to acquire from the Company's
security holders more than fifteen percent (15%) of the total voting power of
the Company and will not interfere with any attempt by the holder in
arranging the sale of this Warrant to the person or persons making such offer.
10.2 MERGERS. The Company shall provide the holder of this Warrant
with at least thirty (30) days' notice of the terms and conditions of any of
the following potential transactions: (i) the sale, lease, exchange,
conveyance or other disposition of all or substantially all of the Company's
property or business, or (ii) its merger into or consolidation with any other
corporation (other than a wholly-owned subsidiary of the Company), or any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of. The Company will reasonably cooperate with the holder in
arranging the sale of this Warrant in connection with any such transaction.
10.3 RIGHT TO CONVERT WARRANT INTO STOCK: NET ISSUANCE.
(a) RIGHT TO CONVERT. In addition to and without limiting the
rights of the holder under the terms of this Warrant, the holder shall have
the right to convert this Warrant or any portion thereof (the "Conversion
Right") into shares of Common Stock as provided in this Section 10.3 at any
time or from time to time during the term of this Warrant. Upon exercise of
the Conversion Right with respect to a particular number of shares subject to
this Warrant (the "Converted Warrant Shares"), the Company shall deliver to
the holder (without payment by the holder of any exercise price or any cash
or other consideration) (X) that number of shares of fully paid and
nonassessable Common Stock equal to the quotient obtained by dividing the
value of this Warrant (or the specified portion hereof) on the Conversion
Date (as defined in subsection
5
(b) hereof), which value shall be determined by subtracting (A) the aggregate
Exercise Price of the Converted Warrant Shares immediately prior to the
exercise of the Conversion Right from (B) the aggregate fair market value of
the Converted Warrant Shares issuable upon exercise of this Warrant (or the
specified portion hereof) on the Conversion Date (as herein defined) by (Y)
the fair market value of one share of Common Stock on the Conversion Date (as
herein defined).
Expressed as a formula, such conversion shall be computed as follows:
X = B - A
-----
Y
Where: X = the number of shares of Common Stock that may
be issued to holder
Y = the fair market value (FMV) of one share of
Common Stock
A = the aggregate Exercise Price (i.e., Converted
Warrant Shares x Exercise Price)
B = the aggregate FMV (i.e., FMV x Converted
Warrant Shares)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance
with the foregoing formula is other than a whole number, the Company shall
pay to the holder an amount in cash equal to the fair market value of the
resulting fractional share on the Conversion Date (as hereinafter defined).
For purposes of Section 9 of this Warrant, shares issued pursuant to the
Conversion Right shall be treated as if they were issued upon the exercise of
this Warrant.
(b) METHOD OF EXERCISE. The Conversion Right may be exercised by
the holder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant which are being surrendered (referred to in Section
10.3(a) hereof as the Converted Warrant Shares) in exercise of the Conversion
Right. Such conversion shall be effective upon receipt by the Company of
this Warrant together with the aforesaid written statement, or on such later
date as is specified therein (the "Conversion Date"), and, at the election of
the holder hereof, may be made contingent upon the closing of the sale of the
Company's Common Stock to the public in a public offering pursuant to a
Registration Statement under the Act (a "Public Offering"). Certificates for
the shares issuable upon exercise of the Conversion Right and, if applicable,
a new warrant evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Conversion Date and shall be delivered to
the holder within thirty (30) days following the Conversion Date.
(c) DETERMINATION OF FAIR MARKET VALUE. For purposes of this
Section 10.3, "fair market value" of a share of Common Stock as of a
particular date (the "Determination Date") shall mean:
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(i) If the Conversion Right is exercised in connection with
and contingent upon a Public Offering, and if the Company's Registration
Statement relating to such Public Offering ("Registration Statement") has
been declared effective by the SEC, then the initial "Price to Public"
specified in the final prospectus with respect to such offering.
(ii) If the Conversion Right is not exercised in connection
with and contingent upon a Public Offering, then as follows:
(A) If traded on a securities exchange, the fair market value of the
Common Stock shall be deemed to be the average of the closing prices of the
Common Stock on such exchange over the 30-day period ending five business
days prior to the Determination Date;
(B) If traded over-the-counter, the fair market value of the Common
Stock shall be deemed to be the average of the closing bid prices of the
Common Stock over the 30-day period ending five business days prior to the
Determination Date; and
(C) If there is no public market for the Common Stock, then fair
market value shall be determined by mutual agreement of the holder of this
Warrant and the Company.
10.4 EXERCISE PRIOR TO EXPIRATION. To the extent this Warrant is
not previously exercised as to all of the Shares subject hereto, and if the
fair market value of one share of the Common Stock is greater than the
Exercise Price then in effect, this Warrant shall be deemed automatically
exercised pursuant to Section 10.3 above (even if not surrendered)
immediately before its expiration. For purposes of such automatic exercise,
the fair market value of one share of the Series Preferred upon such
expiration shall be determined pursuant to Section 10.3(c). To the extent
this Warrant or any portion thereof is deemed automatically exercised
pursuant to this Section 10.4, the Company agrees to promptly notify the
holder hereof of the number of Shares, if any, the holder hereof is to
receive by reason of such automatic exercise.
11. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and
other equitable remedies;
(b) The Shares have been duly authorized and reserved for issuance
by the Company and, when issued in accordance with the terms hereof will be
validly issued, fully paid and non-assessable;
(c) The rights, preferences, privileges and restrictions granted
to or imposed upon the classes and series of the Company's capital stock and
the holders thereof are as set forth in the Charter;
(d) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Charter or by-laws,
do not and will not contravene any material law, governmental rule or
regulation, judgment or order applicable to the Company, and do not and will
not conflict with or contravene any
7
provision of, or constitute a default under, any material indenture,
mortgage, contract or other instrument of which the Company is a party or by
which it is bound or require the consent or approval of, the giving of notice
to, the registration or filing with or the taking of any action in respect of
or by, any Federal, state or local government authority or agency or other
person, except for the filing of notices pursuant to federal and state
securities laws, which filings will be effected by the time required thereby;
and
(e) There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against
the Company in any court or before any governmental commission, board or
authority which, if adversely determined, will have a material adverse effect
on the ability of the Company to perform its obligations under this Warrant.
12. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
13. NOTICES. Any notice, request, communication or other document
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered, or shall be sent by certified or registered mail,
postage prepaid, to each such holder at its address as shown on the books of
the Company or to the Company at the address indicated therefor on the
signature page of this Warrant.
14. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of
the obligations of the Company relating to the Shares issuable upon the
exercise or conversion of this Warrant shall survive the exercise, conversion
and termination of this Warrant and all of the covenants and agreements of
the Company shall inure to the benefit of the successors and assigns of the
holder hereof.
15. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to the
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction,
upon receipt of an indemnity reasonably satisfactory to the Company, or in
the case of any such mutilation upon surrender and cancellation of such
Warrant or stock certificate, the Company will make and deliver a new Warrant
or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed
or mutilated Warrant or stock certificate.
16. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
Warrant.
17. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of California.
18. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained
herein shall survive indefinitely until, by their respective terms, they are
no longer operative.
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19. REMEDIES. In case any one or more of the covenants and agreements
contained in this Warrant shall have been breached, the holders hereof (in
the case of a breach by the Company), or the Company (in the case of a breach
by a holder), may proceed to protect and enforce their or its rights either
by suit in equity and/or by action at law, including, but not limited to, an
action for damages as a result of any such breach and/or an action for
specific performance of any such covenant or agreement contained in this
Warrant.
20. NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the holder of this Warrant against impairment.
21. SEVERABILITY. The invalidity or unenforceability of any provision
of this Warrant in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction, or affect any
other provision of this Warrant, which shall remain in full force and effect.
22. RECOVERY OF LITIGATION COSTS. If any legal action or other
proceeding is brought for the enforcement of this Warrant, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any
of the provisions of this Warrant, the successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees and other
costs incurred in that action or proceeding, in addition to any other relief
to which it or they may be entitled.
23. ENTIRE AGREEMENT; MODIFICATION. This Warrant constitutes the
entire agreement between the parties pertaining to the subject matter
contained in it and supersedes all prior and contemporaneous agreements,
representations, and undertakings of the parties, whether oral or written,
with respect to such subject matter.
RHYTHMS NETCONNECTIONS INC.
By /s/ ▇▇▇▇▇▇ ▇'▇▇▇▇▇▇
----------------------------
Title VP and GM Eastern Region
Address: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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APPENDIX I
CERTAIN ADJUSTMENT PROVISIONS
-----------------------------
1. CAPITALIZED TERMS. Capitalized terms used in this Appendix I that
are not otherwise defined herein shall have the respective meanings assigned
to them in the Warrant, to which this Appendix I is attached, if therein
defined.
2. ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF ADDITIONAL STOCK.
The Exercise Price shall be subject to adjustment from time to time as
follows:
(a) Upon each issuance by the Company of any Additional
Stock, without consideration or for a consideration per share less than the
Exercise Price in effect immediately prior to the issuance of such Additional
Stock, the Exercise Price in effect immediately prior to each such issuance
shall forthwith (except as otherwise provided in this Section 2) be adjusted
to a price determined by multiplying the Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
(including, without limitation, the number of shares of Common Stock issuable
upon the conversion of all outstanding Preferred Stock and all other
convertible securities and the exercise of all outstanding Preferred Stock
and all other convertible securities and the exercise of all outstanding
options, warrants or other rights to purchase Common Stock or other
securities convertible into Common Stock) immediately prior to such issuance
plus the number of shares of Additional Stock which could be purchased were
the then Exercise Price used instead (calculated by dividing the total
consideration to be received by the Company in such issuance by the then
Exercise Price) and the denominator of which shall be the number of shares of
Common Stock outstanding (including, without limitation, the number of shares
of Common Stock issuable upon the conversion of all outstanding Preferred
Stock and all other convertible securities and the exercise of all
outstanding Preferred Stock and all other convertible securities and the
exercise of all outstanding options, warrants or other rights to purchase
Common Stock or other securities convertible into Common Stock) immediately
prior to such issuance plus the number of shares of such Additional Stock
issued in such issuance. For purposes of this Section 2, the number of
shares of Common Stock outstanding (including, without limitation, the
number of shares of Common Stock issuable upon the conversion of all
outstanding Preferred Stock and all other convertible securities and he
exercise of all outstanding Preferred Stock and all other convertible
securities and the exercise of all outstanding options, warrants or other
rights to purchase Common Stock or other securities convertible into Common
Stock) shall include the aggregate number of shares of Common Stock actually
outstanding and the number of shares deemed to be outstanding as determined
below.
(b) No adjustment of the Exercise Price shall be made in an amount
less than one cent per share, provided that any adjustments which are not
required to be made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment made prior to
one (1) year from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of one (1) year from the date of
the event giving rise to the adjustment being carried forward. Except to the
limited extent provided for in subsections 2(d)(iii) and 2(d)(iv) below, no
adjustment of the Exercise Price pursuant to subsection 2(a) of this Appendix
I shall have the effect of increasing the Exercise Price above the Exercise
Price in effect immediately prior to such adjustment.
10
(c) In the case of issuance by the Company of Additional Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined in good
faith by the Board of Directors of the Company irrespective of any accounting
treatment. In the case of the issuance of Additional Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed,
paid or incurred by this corporation for any underwriting or otherwise in
connection with the issuance and sale thereof.
(d) In the case of the issuance (whether before, on or after the
Grant Date) of options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock
or options to purchase or rights to subscribe for such convertible or
exchangeable securities, the following provisions shall apply for all
purposes of this Section 2:
(i) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but
without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in a manner consistent
with subsection 2(c) of this Appendix I), if any, received by the Company
upon issuance of such options or rights plus the minimum exercise price
provided in such options or rights (without taking into account potential
antidilution adjustments) for the Common Stock covered thereby.
(ii) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for (assuming
satisfaction of any conditions to conversion or exchange, including without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) convertible or exchangeable securities or upon
exercise of options to purchase or rights to subscribe for such convertible
or exchangeable securities and subsequent conversion or exchange thereof
shall be deemed to have been issued at the time such securities were issued
or such options or rights were issued and for a consideration equal to the
consideration, if any, received by the Company for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Company (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities
or the exercise of any related options or rights (the consideration in each
case to be determined in a manner consistent with subsection 2(c) of this
Appendix I).
(iii) In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable to the Company
upon exercise of such options or rights or upon conversion of or in exchange
for such convertible or exchangeable securities, including but not limited
to, a change resulting from antidilution provisions thereof, the Exercise
Price, to the extent in any way affected by or computed using such options,
rights or securities, shall be adjusted based upon the actual issuance of
Common Stock or any payment of such consideration upon the exercise of any
such options or rights or the conversion or exchange of such securities.
(iv) Upon the expiration of any such options or rights,
the termination of any such options or rights to convert or exchange, or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Exercise Price, to the extent in any way
affected by or computed using such options, rights or securities or options
or rights related to such securities, shall be recomputed to
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reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually
issued upon the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or rights
related to such securities.
(v) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to subsections 2(d)(i)
and 2(d)(ii) of this Appendix I shall be appropriately adjusted to reflect
any change, termination or expiration of the type described in either
subsection 2(d)(iii) or 2(d)(iv) hereof.
(e) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 2(d) of this
Appendix I) by this Company after the Grant Date other than:
(i) Shares of Common Stock issued pursuant to a
transaction described in Sections 4(a), 4(b) and 4(c) of the Warrant,
(ii) Shares of Common Stock issuable or issued to
employees, consultants or directors of the Company directly or pursuant to a
compensatory benefit plan (including a stock option plan or restricted stock
plan) approved by the Board of Directors of the Company,
(iii) Shares of Common Stock issued upon conversion of
Preferred Stock,
(iv) Shares of Common Stock issued or issuable (a) in a
public offering before or in connection with which all outstanding shares of
Series A Preferred Stock and Series B Preferred Stock will be converted to
Common Stock or (b) upon exercise of warrants or rights granted to under
writers in connection with such a public offering,
(v) Shares of Common Stock issued or issuable to
persons or entities with which the corporation has business relationships
provided such issuances are for other than primarily equity financing
purposes and are approved by the Board of Directors of the Company, or
(vi) up to 1, 972,000 shares of Common Stock issued or
issuable upon exercise of warrants (the "Warrants") granted to purchasers of
units (the "Units") consisting of 131/2% Senior Discount Notes due 2008 and
such Warrants, which Units were issued on or about May 5, 1998.
12
EXHIBIT A
NOTICE OF EXERCISE
To: RHYTHMS NETCONNECTIONS INC. (the "Company")
1. The undersigned hereby:
/ / elects to purchase ____ shares of Common Stock of the Company
pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in full, or
/ / elects to exercise its net issuance rights pursuant to
Section 10.3 of the attached Warrant with respect to ____ shares
of Common Stock.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name or names as are specified
below:
_____________________________
(Name)
_____________________________
_____________________________
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares,
all except as in compliance with applicable securities laws.
_____________________________
(Signature)
__________________________
(Date)
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EXHIBIT A-1
NOTICE OF EXERCISE
To: RHYTHMS NETCONNECTIONS INC. (the "Company")
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S____, filed ____________, 19__, the
undersigned hereby:
/ / elects to purchase ____ shares of Common Stock of the Company (or
such lesser number of shares as may be sold on behalf of the
undersigned at the Closing) pursuant to the terms of the attached
Warrant, or
/ / elects to exercise its net issuance rights pursuant to
Section 10.3 of the attached Warrant with respect to ____ Shares
of Common Stock.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such __________ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $_____________ or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such
shares, the undersigned agrees to deliver the difference to the Company prior to
the Closing.
_____________________________
(Signature)
__________________________
(Date)
EXHIBIT B
CHARTER