EXHIBIT 10.1
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PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
BY AND AMONG
RHYTHMS NETCONNECTIONS INC.
AND
THE PURCHASERS LISTED ON SCHEDULE I HERETO
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Dated as of
February 6, 2000
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This STOCK PURCHASE AGREEMENT is dated as of February 6, 2000 (this
"Agreement"), by and among Rhythms NetConnections Inc., a Delaware corporation
(the "Company"), and each of the purchasers listed on Schedule I hereto
(individually, a "Purchaser" and collectively, the "Purchasers").
WHEREAS, the Company proposes, subject to the terms and conditions set
forth herein, to issue and sell to the Purchasers 250,000 Shares of its 8.25%
Series E Convertible Preferred Stock, liquidation preference $1,000 per share,
par value $0.001 per share (the "Series E Preferred Stock");
WHEREAS, the Company proposes, subject to the terms and conditions set
forth herein, to issue and sell to the Purchasers warrants (each a "Warrant" and
together, the "Warrants") to purchase 5,625,000 shares of the Company's Common
Stock (the "Warrant Shares"), par value $0.001 per share, such Warrants to be
allocated and priced as follows: Warrants to purchase 1,875,000 Warrant Shares
at $45.00 per share with a term of three (3) years from the Closing Date
(defined below), Warrants to purchase 1,875,000 Warrant Shares at $50.00 per
share with a term of five (5) years from the Closing Date and Warrants to
purchase 1,875,000 Warrant Shares at $55.00 per share with a term of seven (7)
years from the Closing Date (each price an "Exercise Price" and together, the
"Exercise Prices"), in substantially the form as attached Exhibit A;
WHEREAS, the Company proposes to form a subsidiary for the purpose of
entering into business relationships in Latin America and desires to grant the
HMTF Purchasers (as defined below) an equity ownership interest equal to
twenty-five percent (25%) of the Capital Stock of such Subsidiary (the "Latin
America Subsidiary"),
WHEREAS, subject to the terms and conditions set forth herein, the
Purchasers desire to purchase such Series E Preferred Stock and Warrants from
the Company;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows.
ARTICLE I
DEFINITIONS
(a) As used in this Agreement, the following terms shall have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For the purposes of this definition and the
definition of "HMTF Purchaser", "control" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Applicable Law" means (a) any United States federal, state, local or
foreign law, statute, rule, regulation, order, writ, injunction, judgment,
decree or permit of any Governmental Authority and (b) any rule or listing
requirement of any applicable national stock exchange or listing requirement of
any national stock exchange or Commission recognized trading market on which
securities issued by the Company or any of the Subsidiaries are listed or
quoted.
"Business Day" means any day other than a Saturday, a Sunday, the day after
Thanksgiving or a day when banks in The City of New York are authorized by
Applicable Law to be closed.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock and (ii) with respect to any other
Person, any and all partnership or other equity interests of such Person.
"Certificate of Designation" means the Certificate of Designation of the
Powers, Preferences and Relative, Participating, Optional and Other Special
Rights and Qualifications, Limitations and Restrictions thereof relating to the
Series E Preferred Stock, in the form attached hereto as Exhibit B.
"Commission" means the United States Securities and Exchange Commission.
"Commission Filings" means all reports, registration statements and other
filings filed by the Company with the Commission (and all notes, exhibits and
schedules thereto and documents incorporated by reference therein).
"Common Stock" means the common stock, par value $0.001 per share, of the
Company.
"Contract" means any contract, lease, loan agreement, mortgage, security
agreement, trust indenture, note, bond, or other agreement (whether written or
oral) or instrument.
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"Conversion Shares" means the shares of Common Stock issuable upon the
conversion of the Series E Preferred Stock in accordance with the terms of the
Certificate of Designation.
"Equity Documents" means this Agreement, the Registration Rights Agreement,
the Certificate of Designation, the Warrants, the Rights Agreement Amendment and
the Management Rights Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, and the rules and
regulations of the Commission promulgated thereunder.
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"Governmental Authority" means (i) any foreign, Federal, state or local
court or governmental or regulatory agency or authority, (ii) any arbitration
board, tribunal or mediator and (iii) any national stock exchange or Commission
recognized trading market on which securities issued by the Company or any of
the Subsidiaries are listed or quoted.
"HMTF" means Hicks, Muse, ▇▇▇▇ & ▇▇▇▇▇ Incorporated, a Texas corporation.
"HMTF Funds" means the funds affiliated with the HMTF Purchaser identified
by the HMTF Purchaser on or prior to the Closing Date.
"HMTF Group" means HMTF and its Affiliates and their respective officers,
directors, partners, members, stockholders and employees (and members of their
respective families and trusts for the primary benefit of such family members),
and HMTF Purchaser and its Affiliates.
"HMTF Purchaser" means any one or more of the following: HMTF Bridge RHY,
LLC and one or more members of the HMTF Group designated by HMTF Bridge RHY, LLC
on or prior to the Closing Date.
"HMTF Shares" means the HMTF Issued Series E Preferred Shares held by
members of the HMTF Group plus the shares of Common Stock issued to and held by
members of the HMTF Group upon conversion of the HMTF Issued Series E Preferred
Shares.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976,
as amended, and applicable rules and regulations.
"Lien" means any mortgage, pledge, lien, security interest, claim,
restriction, charge or encumbrance of any kind.
"Material Adverse Effect" means a material adverse effect on the condition
(financial or otherwise), business, assets or results of operations of the
Company and the Subsidiaries, taken as a whole.
"Permitted Transferee" means, with respect to any Purchaser, or any
Permitted Transferee of any Purchaser, (i) any Purchaser Affiliate of such
Purchaser that is not a holder of common stock of the Company on the date hereof
or an affiliate of such holder; and (ii) any person that is a member of the HMTF
Group and any person investing, directly or indirectly, in or in parallel with
any member of the HMTF Group; provided, however, that each Permitted Transferee
must agree in writing pursuant to a Permitted Transferee Agreement, in
accordance with the provisions of Section 6.5, to be bound by the terms, and
subject to the conditions, of this Agreement to the same extent, and in the same
manner, as the transferring Purchaser prior to the transfer of any Securities to
such Permitted Transferee; and provided, further, that the transfer of
Securities from such Purchaser to such Permitted Transferee is in compliance
with all applicable securities laws.
"Person" means any individual, partnership, corporation, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or agency or political subdivision thereof, or other
entity.
"Purchaser Affiliate" means (a) any direct or indirect holder of any equity
interests or securities in any Purchaser (whether limited or general partners,
members, stockholders or otherwise), (b) any Affiliate of any Purchaser or (c)
any director, officer, employee, representative or agent of (i) such Purchaser,
(ii) any Affiliate of such Purchaser or (iii) any holder of equity interests or
securities referred to in clause (a) above.
"Registration Rights Agreement" means the Registration Rights Agreement, to
be dated as of the Closing Date, to be entered into by and among the Company and
the Purchasers, in the form attached hereto as Exhibit C.
"Rights Agreement Amendment" means an amendment dated as of February 6,
2000 to the Company's Rights Agreement dated as of April 2, 1999 between the
Company and American Securities Transfer and Trust, Inc., in substantially the
form attached as Exhibit D.
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"Securities" means the Shares and the Warrants.
"Securities Act" means the Securities Act of 1933, and the rules and
regulations of the Commission promulgated thereunder.
"Series E Preferred Stock" has the meaning set forth in the first recital
to this Agreement. The Series E Preferred Stock has the designation, powers,
preferences and rights, and qualifications, limitations and restrictions thereof
set forth in the Certificate of Designation.
"Shares" means the shares of Series E Preferred Stock to be issued and sold
by the Company to the Purchasers pursuant to Section 2.1 hereof.
"Subsidiary" means, with respect to any Person (i) a corporation a majority
of whose capital stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such Person, by a
subsidiary of such Person, or by such Person and one or more subsidiaries of
such Person, (ii) a partnership in which such Person or a subsidiary of such
Person is, at the date of determination, a general partner of such partnership
and has the power to direct the policies and management of such partnership or
(iii) any other Person (other than a corporation) in which such Person, a
subsidiary of such Person or such Person and one or more subsidiaries of such
Person, directly or indirectly, at the date of determination thereof, has (A) at
least a majority ownership interest or (B) the power to elect or direct the
election of the directors or other governing body of such Person.
"Subsidiary" means a subsidiary of the Company.
"Term" shall mean the 15-year period ending on the fifteenth anniversary of
the Issuance, after which the Shares, if not earlier redeemed or converted,
shall be mandatorily redeemed by the Company.
"Transactions" means the transactions contemplated by this Agreement and
the other Equity Documents.
(b) As used in this Agreement, the following terms shall have the
meanings given thereto in the Sections set forth opposite such terms:
Term Section
Agreement Preamble
Closing 2.2
Closing Date 2.2
Company Preamble
DGCL 3.2(b)
HMTF Director 5.2
HMTF Issued Series E Preferred Shares 5.2
Indemnified Party 8.1(c)
Indemnified Person 8.1(b)
Indemnifying Party 8.1(c)
Information 3.7
Issuance 2.1
Losses 8.1(b)
Management Rights Agreement 2.2(c)
Notices 8.2
Permitted Transferee Agreement 6.5
Projections 3.7
Purchaser; Purchasers Preamble
Purchase Price 2.1
Securities Transfer 6.5
Supplying Purchasers 8.18
ARTICLE II
SALE AND PURCHASE
SECTION 2.1.Agreement to Sell and to Purchase; Purchase Price
On the Closing Date, and upon the terms and subject to the conditions set
forth in this Agreement, the Company shall issue and sell to each Purchaser, and
each Purchaser, severally and not jointly, shall purchase and accept from the
Company such number of Shares and Warrants as is set forth opposite such
Purchaser's name on Schedule 1 hereto (the "Issuance"), for a purchase price of
one thousand dollars ($1,000) per Share (the "Purchase Price").
SECTION 2.2.Closing The closing of the Issuance to each Purchaser (the
"Closing") shall take place on a date to be specified by the Company and such
Purchaser, which shall be no later than the later of (A) the 2nd Business Day
after the date as of which all of the conditions set forth in Article VII hereof
shall have been satisfied as to the purchase by the HMTF Purchaser (or, to the
extent permitted, waived by the party or parties entitled to the benefit
thereof) and (B) 15 Business Days after the date hereof or at such other time
and date as the parties hereto shall agree in writing (such date and time, the
"Closing Date"), at the offices of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, located at
▇▇▇ ▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ or at such other place as the
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parties hereto shall agree in writing. At such time as a Purchaser and the
Company shall have satisfied all the conditions set forth in Article VII, if the
Company elects, such Purchaser and the Company shall close separately on such
date.
At the Closing with respect to each Purchaser:
(a) Such Purchaser shall deliver:
(i) against delivery of a certificate or certificates
representing the Shares and the Warrants being purchased by such Purchaser
pursuant to Section 2.1, an amount equal to the aggregate Purchase Price of such
Securities via wire transfer of immediately available funds to such bank
account as the Company shall designate not later than two Business Days
prior to the Closing Date;
(ii) a copy of the Registration Rights Agreement executed by
such Purchaser.
At the Closing, with respect to each Purchaser:
(b) The Company shall deliver to such Purchaser:
(i) against payment of the Purchase Price therefor, a
certificate or certificates representing the Shares and Warrants being
purchased by such Purchaser pursuant to Section 2.1, which shall be in
definitive form and registered in the name of such Purchaser or its nominee
or designee and in a single certificate or in such other denominations as
such Purchaser shall request not later than two Business Days prior to
the Closing Date;
(ii) an opinion of counsel to the Company, dated the Closing
Date, covering such matters as are customarily covered by such opinions, in
form and substance reasonably acceptable to the Purchasers;
(iii) an officer's certificate of the Company as
contemplated by Section 7.2(f);
(iv) a certificate of the secretary of the Company
covering such matters as are customarily covered by such certificates and as to
the book value per share of the Common Stock, in form and substance reasonably
acceptable to the Purchasers;
(v) a long-form good standing certificate of the Company
issued by the Secretary of State of the State of Delaware; and
(vi) a copy of the Registration Rights Agreement
executed by the Company.
(vii) A copy of the Rights Agreement Amendment.
(c) The Company shall deliver to the HMTF Funds a letter in the
form of Exhibit E executed by the Company (the "Management Rights Agreement").
(d) The Company shall deliver to Purchasers (or their designees) a
transaction fee equal to 3.25% of the Purchase Price of the Shares purchased by
Purchasers, in immediately available funds by wire transfer to an account
designated by Purchasers at least two Business Days prior to the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Purchaser on the date
hereof and on and as of the Closing Date as follows:
SECTION 3.1.Organization and Standing. Each of the Company and the
material domestic Subsidiaries is duly incorporated, validly existing and in
good standing under the laws of its state of incorporation and has all requisite
corporate power and authority to own its properties and assets and to carry on
its business as it is now being conducted and as proposed to be conducted. Each
of the Company and the material domestic Subsidiaries is duly qualified to
transact business as a foreign corporation and is in good standing in each
jurisdiction in which the character of the properties owned or leased by
it or the nature of its business makes such qualification necessary, except
for any such failures to so qualify or be in good standing that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
All of the outstanding shares of Capital Stock of each such material
Subsidiary have been validly issued and are fully paid and non-assessable and,
except as provided on Schedule 3.1 hereof, are owned directly or indirectly by
the Company, free and clear of all pledges, claims, Liens, charges,
encumbrances, and security interest of any kind or nature whatsoever. The
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Company does not own any equity interest in any corporation, partnership,
limited liability company, joint venture, or other entity except as provided on
Schedule 3.1(b) hereof.
The Company has delivered to Purchaser true and complete copies of the
Company's Certificate of Incorporation, as amended to date, and By-laws, as in
effect on the date hereof.
SECTION ▇.▇.▇▇▇▇▇▇▇ Stock. (a) As of the date of this Agreement, the
authorized Capital Stock of the Company consists solely of (i) 250,000,000
shares of Common Stock, par value $0.001 per share, of which 78,296,488 shares
are issued and outstanding as of December 31, 1999 (and no shares of Common
Stock have been issued since December 31, 1999 except those issued in respect to
the exercise of stock options), and (ii) 5,000,000 shares of preferred stock,
par value $0.001 per share, of which no shares are issued or outstanding. Each
share of Capital Stock of the Company that will be issued and outstanding
immediately following the Closing, including without limitation the Shares, will
be duly authorized and validly issued and fully paid and nonassessable, and the
issuance thereof will not have been subject to any preemptive rights or made in
violation of any Applicable Law.
(b) Except as set forth on Schedule 3.2, as of the date of this
Agreement, there are (i) no outstanding options, warrants, agreements,
conversion rights, exchange rights, preemptive rights or other rights (whether
contingent or not) to subscribe for, purchase or acquire any issued or unissued
shares of Capital Stock of the Company or any Subsidiary, (ii) no authorized or
outstanding stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Company or any Subsidiary, (iii) no rights,
contracts, commitments or arrangements (contingent or otherwise) obligating the
Company or any Subsidiary to either (A) redeem, purchase or otherwise acquire,
or offer to purchase, redeem, or otherwise acquire, any outstanding shares of,
or any outstanding warrants or rights of any kind to acquire any shares of, or
any outstanding securities that are convertible into or exchangeable for any
shares of, Capital Stock of the Company, or (B) pay any dividend or make any
distribution in respect of any shares of, or any outstanding securities that are
convertible or exchangeable for any shares of, Capital Stock of the Company,
(iv) no agreements or arrangements under which the Company or any Subsidiary is
obligated to register the sale of any of its securities under the Securities Act
(except as provided hereunder) and except as set forth in Schedule 3.2(a) and
(v) no restrictions upon, or Contracts or understandings of the Company or any
Subsidiary, or, to the knowledge of the Company, Contracts or understandings of
any other Person, with respect to, the voting or transfer of any shares of
Capital Stock of the Company or any Subsidiary. Except as set forth on Schedule
3.2(a), there are no securities or instruments containing antidilution or
similar provisions that will be triggered by the consummation of the
transactions contemplated hereby in accordance with the terms of this Agreement,
the Certificate of Designation or the Warrants. Except as set forth on Schedule
3.2(a), no party has any right of first refusal, right of first offer, right of
co-sale or other similar right regarding the Company's securities. Except as
set forth on Schedule 3.2(a), there are no provisions of the Certificate of
Incorporation, as amended, or the By-laws of the Company, no agreements to which
the Company is a party and no agreements by which the Company or any Subsidiary
are bound, that would (a) require the vote of the holders of more than a
majority of the shares of the Company's issued and outstanding Common Stock,
voting together as a single class, to take or prevent any corporate action,
other than those matters requiring a class vote under General Corporation Law of
the State of Delaware (the "DGCL"), or (b) entitle any party to nominate or
elect any director of the Company or require any of the Company's stockholders
to vote for any such nominee or other person as a director of the Company.
(c) The Conversion Shares and Warrant Shares have been duly
authorized and adequately reserved in contemplation of the conversion of the
Series E Preferred Stock and the exercise of the Warrants, respectively, and,
when issued and delivered in accordance with the terms of the Certificate of
Designation or the Warrants, as the case may be, will have been validly issued
and will be fully paid and nonassessable, and the issuance thereof will not have
been subject to any preemptive rights or made in violation of any Applicable
Law.
(d) The holders of the Series E Preferred Stock will, upon
issuance thereof, have the rights set forth in the Certificate of Designation
(subject to the limitations and qualifications set forth therein and under the
DGCL.
SECTION 3.3.Authorization; Enforceability. The Company has the power and
authority to execute, deliver and perform its obligations under each of the
Equity Documents, and has taken all action necessary to authorize the execution,
delivery and performance by it of each of such Equity Documents and to
consummate the Transaction. No other corporate or stockholder proceeding on the
part of the Company is necessary for such authorization, execution, delivery and
consummation. The Company has duly executed and delivered this Agreement and, at
the Closing, the Company will have duly executed and delivered each of the other
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Equity Documents to be executed and delivered at or prior to Closing. This
Agreement constitutes, and each of the other Equity Documents, when executed and
delivered by the Company, will constitute, a legal, valid and binding obligation
of the Company.
SECTION ▇.▇.▇▇ Violation; Consents. (a) The execution, delivery and
performance by the Company of each of the Equity Documents and the consummation
by the Company of the Transactions do not and will not contravene any
Applicable Law, except for any such contravention that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The execution, delivery and performance by the Company of
each of the Equity Documents and the consummation of the Issuance (i) will not
(A) violate, result in a breach of or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any Contract to which the Company is a party
or by which the Company is bound or to which any of its assets is subject, or
(B) result in the creation or imposition of any Lien upon any of the assets of
the Company, except for any such violations, breaches, defaults or Liens that
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect and (ii) will not conflict with or violate any
provision of the certificate of incorporation or bylaws or other governing
documents of the Company.
(b) Except as set forth on Schedule 3.4(b) and except for (i) the
filings by the Company, if any, required by the HSR Act, (ii) applicable
filings, if any, required by applicable federal and state securities laws and
(iii) filing of the Certificate of Designation with the Secretary of State of
the State of Delaware, in each case, which shall be made (or are not required to
be made) on or prior to the Closing Date, no consent, authorization or order of,
or filing or registration with, any Governmental Authority or other Person is
required to be obtained or made by the Company for the execution and delivery of
the Equity Documents or the consummation by the Company of the Transactions
except where the failure to obtain such consents, authorizations or orders, or
make such filings or registrations, would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect or a material adverse
effect on the ability of the Company to consummate the transactions contemplated
hereby.
SECTION 3.5.Commission Filings; Financial Statements.(a) The Company
has filed all reports, registration statements and other filings, together with
any amendments or supplements required to be made with respect thereto, that
it has been required to file with the Commission under the Securities Act and
the Exchange Act. As of the respective dates of their filing with the
Commission, the Commission Filings complied in all material respects with
the applicable provisions of the Securities Act and the Exchange Act and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were
made, not misleading.
(b) Each of the historical consolidated financial statements of
the Company (including any related notes or schedules) included in the
Commission Filings was prepared in accordance with GAAP (except as may be
disclosed therein), and complied in all material respects with the rules and
regulations of the Commission. Such financial statements fairly present the
consolidated financial position of the Company and the Subsidiaries as of the
dates thereof and the consolidated results of operations, cash flows and changes
in stockholders' equity for the periods then ended (subject, in the case of the
unaudited interim financial statements, to normal, recurring year-end audit
adjustments). Except as set forth on Schedule 3.5(b) or as reflected in the
Commission Filings filed prior to the date hereof, the Company does not have any
liabilities or obligations of any nature (whether accrued, absolute, contingent,
unasserted or otherwise) that individually or in the aggregate would be expected
to have a Material Adverse Effect.
SECTION 3.6.Private Offering. Based, in part, on the Purchasers'
representations in Section 4.2, the offer and sale of the Securities is exempt
from the registration and prospectus delivery requirements of the Securities
Act. Neither the Company, nor anyone acting on behalf of it, has offered or sold
or will offer or sell any securities, or has taken or will take any other action
(including, without limitation, any offering of any securities of the Company
under circumstances that would require, under the Securities Act, the
integration of such offering with the offering and sale of the Securities, which
would subject the Issuance to the registration provisions of the Securities
Act).
SECTION 3.7.Provided Information. To the knowledge of the Company,
all written information (excluding information of a general economic nature and
financial projections) concerning the Company and the Transactions (the
"Information") that has been prepared by or on behalf of the Company or any of
the Company's authorized representatives and that has been provided to the
Purchasers or any of their authorized representatives in connection with the
Issuance, when taken as a whole, was, at the time made available, correct in all
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material respects and did not, at the time made available, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not misleading in light of the
circumstances under which such statements are made. All financial projections
concerning the Company and the Transactions (the "Projections") that have been
prepared by or on behalf of the Company or any of the Company's authorized
representatives and that have been delivered to the Purchasers or any of their
authorized representatives in connection with the Transactions have been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the Company's management as to the future financial performance
of the Company and the individual business segments thereof.
SECTION 3.8.Material Adverse Change Except as disclosed in the
Commission Filings filed as of the date hereof or as set forth on Schedule 3.8,
since September 30, 1999, there has not been any event, occurrence or
development of a state of circumstances or facts that has had, or could have
reasonably been expected to have, (i) a Material Adverse Effect or (ii) a
material adverse effect on the ability of the Company to perform its obligations
under this Agreement.
SECTION 3.9.Litigation. Except as disclosed in Commission Filings
filed as of the date hereof or as set forth on Schedule 3.9, there are not any
(a) outstanding judgments against or affecting the Company or any of the
Subsidiaries, (b) proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of the Subsidiaries or (c)
investigations by any Governmental Authority that are, to the knowledge of the
Company, pending or threatened against or affecting the Company or any of the
Subsidiaries that (i) in any manner challenge or seek to prevent, enjoin, alter
or materially delay the Transactions or (ii) if resolved adversely to the
Company or any Subsidiary, would have, individually or in the aggregate, a
Material Adverse Effect.
SECTION 3.10.Permits and Licenses. The Company and the Subsidiaries
have obtained all governmental permits, licenses, franchises and authorizations
required for the Company and the Subsidiaries to conduct their respective
businesses as currently conducted, except for those of which the failure to
obtain would not have a Material Adverse Effect.
SECTION 3.11.Intellectual Property, etc. Schedule 3.11 sets forth a
true and complete list of all patents, patent applications, trademarks, trade
names, service marks and registered copyrights and make work rights and
applications therefor, if any, owned by or licensed to the Company that are
material to the Company. All patents, patent applications, trademarks, mask
works, service marks and copyrights of the Company have been duly applied for or
registered and filed with or issued by each appropriate governmental entity in
the jurisdictions indicated on Schedule 3.11, all necessary affidavits of
continuing use have been filed and all necessary maintenance fees have been paid
to continue all such rights in effect. The Company owns or is licensed or
otherwise has the right to use, without payment to any other person except for
fees set forth in Schedule 3.11, all intellectual property used in or necessary
for the Company's business, as presently conducted and as proposed to be
conducted, except with respect to "shrink-wrap" software. The Company's
ownership and/or use of intellectual property in its business, as presently
conducted and as proposed to be conducted does not conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or result in any loss of a material benefit under or the creation
of any Lien in or upon any of the properties or assets of the Company under, any
contract between the Company and any person or any other intellectual property
rights of any other person, except for any such conflict, violation, default,
right of termination, cancellation, acceleration, loss of material benefit or
creation of any Lien which would not have a Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally as to itself only, and not jointly, hereby
represents and warrants to the Company as of the date hereof and as of the
Closing Date as follows:
SECTION 4.1. Organization; Authorization; Enforceability. Such Purchaser
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite power and authority to
own its properties and assets and to carry on its business as it is now being
conducted and as currently proposed to be conducted. Such Purchaser has the
power to execute, deliver and perform its obligations under each of the Equity
Documents to which it is a party and has taken all action necessary to authorize
the execution, delivery and performance by it of such Equity Documents and to
consummate the transactions contemplated hereby and thereby. No other
proceedings on the part of such Purchaser are necessary for such authorization,
execution, delivery and consummation. Such Purchaser has duly executed and
delivered this Agreement and, at the Closing, such Purchaser will have duly
executed and delivered each of the other Equity Documents to be executed and
PAGE 8
delivered at or prior to Closing. This Agreement constitutes, and each of the
other Equity Documents to which such Purchaser is a party, when executed and
delivered by such Purchaser, will constitute, a legal, valid and binding
obligation of such Purchaser.
SECTION 4.2. Private Placement. (a) Such Purchaser understands that (i)
the offering and sale of the Securities, the Conversion Shares and the Warrant
Shares in the Issuance by the Company is intended to be exempt from registration
under the Securities Act pursuant to Section 4(2) thereof and (ii) there is no
existing public or other market for the Securities.
(b) Such Purchaser (either alone or together with its advisors)
has sufficient knowledge and experience in financial and business matters so as
to be capable of evaluating the merits and risks of its investment in the
Securities, the Conversion Shares and the Warrant Shares, and is capable of
bearing the economic risks of such investment.
(c) Such Purchaser is acquiring the Securities, the Conversion
Shares and the Warrant Shares to be acquired hereunder for its own account (or
for accounts over which it exercises investment authority or as otherwise
provided herein), for investment and not with a view to the public resale or
distribution thereof, in violation of any securities law.
(d) Such Purchaser understands that the Securities, the Conversion
Shares and the Warrant Shares will be issued in a transaction exempt from the
registration or qualification requirements of the Securities Act and applicable
state securities laws, and that such securities must be held indefinitely unless
a subsequent disposition thereof is registered or qualified under the Securities
Act and such laws or is exempt from such registration or qualification.
(e) Such Purchaser (A) has been furnished with or has had full
access to all of the information that it considers necessary or appropriate to
make an informed investment decision with respect to the Securities, the
Conversion Shares and the Warrant Shares and that it has requested from the
Company, (B) has had an opportunity to discuss with management of the Company
the intended business and financial affairs of the Company and to obtain
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to it or to which it had access and (C) can bear the
economic risk of (x) an investment in the Securities, the Conversion Shares and
the Warrant Shares indefinitely and (y) a total loss in respect of such
investment, has such knowledge and experience in business and financial matters
so as to enable it to understand and evaluate the risks of and form an
investment decision with respect to its investment in the Securities, the
Conversion Shares and the Warrant Shares and to protect its own interest in
connection.
(f) The foregoing representations with respect to the Conversion
Shares and the Warrant Shares are made only if and to the extent the offering of
the Shares and the Warrants constitutes an offering of the Conversion Shares and
the Warrant Shares.
SECTION ▇.▇.▇▇ Violation; Consents. (a) The execution, delivery and
performance by such Purchaser of each of the Equity Documents to which it is a
party and the consummation of the Transactions do not and will not contravene
any Applicable Law, except for such contraventions as would not, individually or
in the aggregate, reasonably be expected to have a material adverse effect on
the ability of such Purchaser to timely perform its obligations under this
Agreement. The execution, delivery and performance by such Purchaser of each of
the Equity Documents to which it is a party and the consummation of the
Transactions contemplated therein (i) will not (A) violate, result in a breach
of or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under
any Contract to which such Purchaser is party or by which such Purchaser is
bound or to which any of its assets is subject, or (B) result in the creation or
imposition of any Lien upon any of the assets of such Purchaser, except for any
such violations, breaches, defaults or Liens that would not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on the
ability of such Purchaser to timely perform its obligations under this
Agreement, and (ii) will not conflict with or violate any provision of the
certificate of incorporation or bylaws or other governing documents of such
Purchaser.
(b) Except for (i) the filings by the Purchaser, if any,
required by the HSR Act, and (ii) applicable filings, if any, with the
Commission pursuant to the Exchange Act, in each case, which shall be made (or
are not required to be made) on or prior to the Closing Date, no consent,
authorization or order of, or filing or registration with, any Governmental
Authority or other Person is required to be obtained or made by such Purchaser
for the execution, delivery and performance of any of the Equity Documents to
which it is a party or the consummation of any of the transactions contemplated
therein, except where the failure to obtain such consents, authorizations or
PAGE 9
orders, or make such filings or registrations, would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
ability of such Purchaser to timely perform its obligations under this
Agreement.
SECTION ▇.▇.▇▇ Litigation. There are not any (a) outstanding judgments
against or affecting the Purchaser or any of its subsidiaries, (b) proceedings
pending or, to the knowledge of the Purchaser, threatened against or affecting
the Purchaser or any of its subsidiaries or (c) investigations by any
Governmental Authority that are, to the knowledge of the Purchaser, pending or
threatened against or affecting the Purchaser or any of its subsidiaries that,
in any case, individually or in the aggregate, would reasonably be expected to
have a material adverse effect on the ability of such Purchaser to timely
perform its obligations under this Agreement.
ARTICLE V
COVENANTS OF THE COMPANY
SECTION 5.1.Operation of Business. From the date hereof until the Closing
Date, the Company shall, and shall cause each of the Subsidiaries to:
(i) operate its business in all material respects in the ordinary
course and in compliance with Applicable Laws;
(ii) not adopt any amendment to its charter or bylaws or comparable
organizational documents;
(iii) not split, combine or reclassify any shares of the Company's
Capital Stock;
(iv) not declare or pay any dividend or distribution (whether in cash,
stock or property) in respect of its Capital Stock or increase the number of
shares subject to the Company's stock incentive and option plan;
(v) not take any action, or knowingly omit to take any action, that
would, or that would reasonably be expected to, result in (A) any of the
representations and warranties of the Company set forth in Article III becoming
untrue or (B) any of the conditions to the obligations of Purchaser set forth in
Section 7.2 not being satisfied or (C) the triggering of any of the
anti-dilution adjustments contained in the Certificate of Designation for the
Series E Preferred Stock (had such Certificate been in effect); or
(vi) enter into any agreement or commitment to do any of the foregoing.
SECTION 5.2. HMTF Director For so long as members of the HMTF Group
own any combination of the shares of Series E Preferred Shares issued to members
of the HMTF Group on the Closing Date (the "HMTF Issued Series E Preferred
Shares") and Common Stock issued upon conversion of HMTF Issued Series E
Preferred Shares that, taken together, would represent, if all HMTF Issued
Series E Preferred Shares were converted, an amount of Common Stock issuable
upon conversion of 40% or more of the HMTF Issued Series E Preferred Shares, the
holders of a majority of the then outstanding HMTF Shares shall have a right to
designate one member of the Company's Board of Directors (the "HMTF Director");
provided, however, that the right to designate the HMTF Director under this
Section 5.2 shall be suspended at any time that members of the HMTF Group own at
least 100 shares of Series E Preferred Stock and have the right to elect a
person to the Board of Directors under the terms of the Series E Preferred Stock
set forth in the Certificate of Designation. In the event the holders of a
majority of the then outstanding HMTF Shares are entitled under this Section 5.2
to designate the HMTF Director for election to the Company's Board of Directors
and elect to have the Board of Directors appoint the HMTF Director, they shall
so notify the Company in writing and the Company shall (a) increase the size of
the Board of Directors by one and fill the vacancy created thereby by electing
the HMTF Director and (b) in connection with the meeting of stockholders of the
Company next following such election, nominate such HMTF Director for election
as director by the stockholders and use its commercially reasonable efforts to
cause the HMTF Director to be so elected. If the holders of a majority of the
then outstanding HMTF Shares are entitled under this Section 5.2 to designate
the HMTF Director for election to the Company's Board of Directors and a vacancy
shall exist in the office of a HMTF Director, the holders of a majority of the
then outstanding HMTF Shares shall be entitled to designate a successor and the
Board of Directors shall elect such successor and, in connection with the
meeting of stockholders of the Company next following such election, nominate
such successor for election as director by the stockholders and use its
commercially reasonable efforts to cause the successor to be elected.
SECTION 5.3. Access to Books and Records. (a) The Company shall afford
to each of the Purchasers and the Purchasers' accountants, counsel and
representatives full access during normal business hours throughout the period
prior to the Closing Date (or the earlier termination of this Agreement pursuant
to Section 8.4) to all its properties, books, Contracts, commitments and records
(including, but not limited to, tax returns) and, during such period, shall,
upon request, furnish promptly to each of the Purchasers (i) a copy of each
PAGE 10
report, schedule and other document filed or received by any of them pursuant to
the requirements of Federal or state securities laws and (ii) all other
information concerning its business, properties and personnel as the Purchasers
may reasonably request, provided that no investigation or receipt of information
pursuant to this Section 5.3 shall affect any representation or warranty of the
Company or the conditions to the obligations of the Purchasers.
(b) The Company shall supplement the Information and the Projections
from time to time until the Closing Date if there is a material change in the
Information and the Projections previously provided, but no such supplement
shall be given effect for purposes of determining whether the Company has
breached any representations or warranties for purposes of Section 7.2 and
Section 8.1.
SECTION 5.4. Agreement to Take Necessary and Desirable Actions. The
Company shall (a) subject to the satisfaction of the conditions set forth in
Section 7.1, execute and deliver the Equity Documents and such other documents,
certificates, agreements and other writings, and (b) take such other actions, in
each case, as may be necessary or reasonably requested by any of the Purchasers
in order to consummate or implement the Issuance in accordance with the terms of
this Agreement.
SECTION 5.5. Compliance with Conditions; Commercially Reasonable Efforts.
The Company shall use all commercially reasonable efforts to cause all
conditions precedent to the obligations of the Company and the Purchasers to be
satisfied. Upon the terms and subject to the conditions of this Agreement, the
Company will use all commercially reasonable efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary, proper
or advisable consistent with Applicable Law to consummate and make effective in
the most expeditious manner practicable the Issuance in accordance with the
terms of this Agreement.
SECTION 5.6.HSR Act Notification. To the extent required by the HSR Act,
the Company shall, to the extent it has not already done so, (a) use all
commercially reasonable efforts to file or cause to be filed, as promptly as
practicable after the execution and delivery of this Agreement, with the United
States Federal Trade Commission and the Antitrust Division of the United States
Department of Justice, all reports and other documents required to be filed by
it under the HSR Act concerning the transactions contemplated hereby and (b) use
all commercially reasonable efforts to promptly comply with or cause to be
complied with any requests by the United States Federal Trade Commission or the
Antitrust Division of the United States Department of Justice for additional
information concerning such transactions, in each case so that the waiting
period applicable to this Agreement and the transactions contemplated hereby
under the HSR Act shall expire as soon as practicable after the execution and
delivery of this Agreement. The Company agrees to request, and to cooperate with
the Purchasers in requesting, early termination of any applicable waiting period
under the HSR Act.
SECTION 5.7.Consents and Approvals. The Company (a) shall use all
commercially reasonable efforts to obtain all necessary consents, waivers,
authorizations and approvals of all Governmental Authorities and of all other
Persons required in connection with the execution, delivery and performance of
the Equity Documents or the consummation of the Issuance and (b) shall
diligently assist and cooperate with the Purchasers in preparing and filing all
documents required to be submitted by the Purchasers to any Governmental
Authority in connection with the Issuance (which assistance and cooperation
shall include, without limitation, timely furnishing, upon written requests, to
the Purchasers all information concerning the Company and the Subsidiaries that
counsel to the Purchasers reasonably determines is required to be included in
such documents or would be helpful in obtaining any such required consent,
waiver, authorization or approval).
SECTION 5.8.Reservation of Shares. The Company shall:
(i) cause to be authorized and reserve and keep available at all times
during which any of the Shares and Warrants remain outstanding, free from
preemptive rights, out of its treasury stock or authorized but unissued shares
of Capital Stock, or both, solely for the purpose of effecting the conversion or
exercise of the Shares or Warrants pursuant to the terms of the Certificate of
Designation, sufficient shares of Common Stock to provide for the issuance of
the maximum number of shares issuable upon conversion or exercise of outstanding
Shares and Warrants;
(ii) issue and cause the transfer agent to deliver such shares of
Common Stock as required upon conversion or exercise of the Shares and Warrants;
and
(iii) if any shares of Common Stock reserved for the purpose of
issuance upon conversion of the Shares and Warrants require registration with or
approval of any Governmental Authority under any Applicable Law before such
shares may be validly issued or delivered, secure such registration or approval,
as the case may be, and maintain such registration or approval in effect so long
as so required.
PAGE 11
SECTION 5.9.Use of Proceeds. The Company shall use the proceeds from the
Issuance for payment of expenses incurred in connection with the Transactions
and for general corporate purposes.
SECTION 5.10.Filing of Certificate of Designation. Prior to the Issuance,
the Company shall file the Certificate of Designation with the Secretary of
State of the State of Delaware pursuant to Section 151(g) of the DGCL.
SECTION 5.11.Listing of Shares. The Company shall use all commercially
reasonable efforts to cause the shares of Common Stock issuable upon conversion
of the Shares to be listed or otherwise eligible for trading on the NASDAQ
National Market System or other national securities exchange.
SECTION 5.12.Periodic Information. For so long as the Securities are
outstanding the Company shall file all reports required to be filed by the
Company under Section 13 or 15(d) of the Exchange Act and shall provide the
holders of the Securities and prospective purchasers of such shares with the
information specified in Rule 144A(d) under the Securities Act.
SECTION 5.13.Legends. So long as applicable, each certificate representing
any portion of the Securities, shall contain, be stamped or otherwise imprinted
with a legend in the following form (in addition to any legend required under
applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES. SUCH SHARES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OTHER THAN PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
After the above requirement for a legend is no longer applicable because the
Securities are freely transferable under the Securities Act, the Company shall
remove such legend upon request from a holder of such Securities, if outside
counsel for such holder reasonably determines that the transfer of such
Securities is no longer restricted by the Securities Act and outside counsel for
the Company reasonably concurs in such determination.
SECTION 5.14. Payment; Paying Agent; Certain Information. The Company
shall
(i) make any required payments on the Securities;
(ii) maintain (a) an office or agency where the Securities may be
presented for payment (the "Paying Agent"), (b) an office or agency where the
Securities may be presented for conversion (the "Conversion Agent"), and (c) a
Registrar, which shall be an office or an agency where the Securities may be
presented for transfer; and
(iii) provide certain information to the Purchasers, including such
information and notices as may be necessary for the Purchasers to exercise their
rights under this Agreement and in connection with conversion or exercise of the
Securities.
SECTION 5.15. Latin American Subsidiary. The Company agrees to form the
Latin American Subsidiary and to issue to the HMTF Purchasers an aggregate
equity interest in (and proportional representation on the board of) the Latin
American Subsidiary equal to twenty-five percent (25%) of the issued and
outstanding Capital Stock of the Latin American Subsidiary as soon as
practicable after its formation. The HMTF Purchasers' interest will not be
reduced or diluted by the first twenty-five million dollars ($25,000,000)
invested by the Company. The organizational and constitutive documents for the
Latin American Subsidiary and the joint venture will be subject to the HMTF
Purchasers' prior approval, such consent not to be unreasonably withheld or
delayed, and shall contain with respect to the HMTF Purchasers such terms as are
customary for private equity investments in private companies (including,
without limitation, appropriate liquidity and minority protection provisions).
SECTION 5.16.Latin American Venture. Attached hereto as Exhibit F is a
term sheet describing the indicative terms of a proposed joint venture
arrangement to exploit DSL opportunities in Latin America. The Company will use
commercially reasonable efforts to cause the Latin American Subsidiary to effect
the joint venture, but nothing in this Section 5.16 shall compel the Company to
go forward with the joint venture if in its commercial judgment it would be
imprudent or inadvisable to do so. The Company will not create any other
entity, or enter into any other venture or partnership to exploit DSL
opportunities in Latin America without granting the HMTF Purchasers an interest
identical to that held in the Latin American Subsidiary. The HMTF Purchasers
shall be entitled to representation on any board subcommittee or other
board-level task force assigned to supervise the Company's Latin American
venture, if formed, in proportion to their equity interest in the Latin American
Subsidiary.
PAGE 12
ARTICLE VI
COVENANTS OF THE PURCHASERS
SECTION 6.1.Agreement to Take Necessary and Desirable Actions. Each
Purchaser shall (a) subject to the satisfaction of the conditions set forth in
Section 7.2, execute and deliver each of the Equity Documents to which it is a
party and such other documents, certificates, agreements and other writings and
(b) take such other actions as may be reasonably necessary, desirable or
requested by the Company in order to consummate or implement the Transactions
in accordance with the terms of this Agreement.
SECTION 6.2.Compliance with Conditions; Commercially Reasonable Efforts.
Each Purchaser will use all commercially reasonable efforts to cause all of the
obligations imposed upon it in this Agreement to be duly complied with, and to
cause all conditions precedent to the obligations of the Company and the
Purchasers to be satisfied. Upon the terms and subject to the conditions of this
Agreement, each Purchaser will use all commercially reasonable efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable consistent with applicable law to consummate and
make effective in the most expeditious manner practicable the Transactions in
accordance with the terms of this Agreement.
SECTION 6.3.HSR Act Notification. To the extent required by the HSR Act,
each Purchaser shall, if it has not already done so, (a) use all commercially
reasonable efforts to file or cause to be filed, as promptly as practicable
after the execution and delivery of this Agreement, with the United States
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice, all reports and other documents required to be filed by
it under the HSR Act concerning the transactions contemplated hereby and (b) use
all commercially reasonable efforts to promptly comply with or cause to be
complied with any requests by the United States Federal Trade Commission or the
Antitrust Division of the United States Department of Justice for additional
information concerning such transactions in each case so that the waiting period
applicable to this Agreement and the transactions contemplated hereby under the
HSR Act shall expire as soon as practicable after the execution and delivery of
this Agreement. Purchaser agrees to request, and to cooperate with the Company
in requesting, early termination of any applicable waiting period under the HSR
Act.
SECTION 6.4.Consents and Approvals. Each Purchaser (a) shall use all
commercially reasonable efforts to obtain all necessary consents, waivers,
authorizations and approvals of all Governmental Authorities other than as
expressly set forth in Section 6.3 regarding the HSR Act, and of all other
Persons required in connection with the execution, delivery and performance of
this Agreement or the consummation of the Transactions and (b) shall diligently
assist and cooperate with the Company in preparing and filing all documents
required to be submitted by the Company to any Governmental Authority in
connection with such Transactions (which assistance and cooperation shall
include, without limitation, timely furnishing to the Company all information
concerning such Purchaser that counsel to the Company reasonably determines is
required to be included in such documents or would be helpful in obtaining any
such required consent, waiver, authorization or approval).
SECTION 6.5.Restrictions on Transfer. No Purchaser shall sell, assign,
transfer, pledge, hypothecate, deposit in a voting trust or otherwise dispose of
any portion of the Securities (any such disposition, a "Securities Transfer"),
other than (a) to a Permitted Transferee of such Purchaser that has agreed in
writing (each, a "Permitted Transferee Agreement") to be bound by the terms and
provisions of this Section 6.5 to the same extent that the transferring
Purchaser would be bound if it beneficially owned the Securities transferred to
such Permitted Transferee or (b)(i) in any transaction in compliance with Rule
144 under the Securities Act or any successor rule or regulation, (ii) in a
transaction exempt from the registration requirements of the Securities Act or
(iii) pursuant to a registration statement. Each Purchaser shall promptly notify
the Company of any Securities Transfer to a Permitted Transferee of such
Purchaser, which notification shall include a Permitted Transferee Agreement
executed by each Permitted Transferee of such Purchaser to whom any Securities
have been transferred.
ARTICLE VII
CONDITIONS PRECEDENT TO CLOSING
SECTION 7.1.Conditions to the Company's Obligations. The obligations of
the Company with respect to a Purchaser hereunder required to be performed on
the Closing Date shall be subject to the satisfaction or waiver, at or prior to
the Closing, of the following conditions:
(a) The representations and warranties of such Purchaser contained
in this Agreement shall have been true and correct when made and, in addition,
shall be repeated and true and correct in all material respects on and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date.
PAGE 13
(b) Such Purchaser shall have performed in all material respects
all obligations and agreements, and complied in all material respects with all
covenants contained in this Agreement to be performed and complied with by such
Purchaser at or prior to the Closing Date.
(c) Any applicable waiting period under the HSR Act with respect
to the purchase by such Purchaser shall have expired or been terminated.
(d) The Company shall have obtained all necessary consents,
waivers, authorizations and approvals of all Governmental Authorities and of all
other Persons required in connection with the execution, delivery and
performance of the Equity Documents or the consummation of the Issuance.
(e) Such Purchaser shall have entered into the Registration Rights
Agreement.
SECTION 7.2.Conditions to Each Purchaser's Obligations. The obligations of
a Purchaser hereunder required to be performed on the Closing Date shall be
subject to the satisfaction or waiver, at or prior to the Closing, of the
following conditions:
(a) The representations and warranties of the Company contained in
this Agreement (i) shall have been true and correct when made and (ii) shall be
(A) in the case of representations and warranties that are qualified as to
materiality or Material Adverse Effect, true and correct and (B) in all other
cases, true and correct in all material respects, in the case of clauses (A) and
(B), as of the Closing Date with the same force and effect as though made on and
as of the Closing Date.
(b) The Company shall have performed in all material respects all
of its obligations, agreements and covenants contained in this Agreement to be
performed and complied with at or prior to the Closing Date.
(c) The Company shall have entered into the Registration Rights
Agreement.
(d) The Company shall have filed the Certificate of Designation
with the Secretary of State of the State of Delaware.
(e) Any applicable waiting period under the HSR Act with respect
to the purchase by such Purchaser shall have expired or been terminated.
(f) The Company shall have delivered to such Purchaser a
certificate executed by it or on its behalf by a duly authorized representative,
dated the Closing Date, to the effect that each of the conditions specified in
paragraph (a) through (e) of this Section 7.2 has been satisfied.
(g) No provision of any Applicable Law, injunction, order or
decree of any Governmental Entity shall be in effect which has the effect of
making the Transactions illegal or shall otherwise restrain or prohibit the
consummation of the Transactions.
(h) Such Purchaser shall have received an opinion of counsel to
the Company, dated the Closing Date, and addressed to such Purchaser, in form
and substance reasonably acceptable to the Purchaser.
(i) Such Purchaser shall have received certificates representing
the Securities purchased by such Purchaser concurrently with the Company's
receipt of the Purchase Price for such Securities.
(j) The Purchaser shall have executed and caused its rights agent
to execute the Rights Agreement Amendment.
(k) The Company shall have delivered to the HMTF Purchasers a
Management Rights Agreement executed by the Company and addressed to the HMTF
Funds.
(l) There shall not have occurred (i) any event, circumstance,
condition, fact, effect or other matter which has had or could reasonably be
expected to have a material adverse effect (x) on the business, assets,
financial condition, prospects, or results of operations of the Company and the
Subsidiaries taken as a whole or (y) on the ability of the Company and the
Subsidiaries to perform on a timely basis any material obligation under this
Agreement or to consummate the Issuance contemplated hereby; or (ii) any
material disruption of or material adverse change in financial, banking or
capital market conditions that would reasonably be expected to materially impair
the Company's ability to obtain financing on reasonable terms.
PAGE 14
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1.Indemnification. (a) All representations,
warranties, covenants and agreements contained in this Agreement shall survive
the Closing for 18 months (except (i) covenants and agreements that are required
to be performed after the Closing Date and (ii) the last sentence of Section
3.2(a), which shall survive indefinitely). Notwithstanding the foregoing, with
respect to claims asserted pursuant to this Section 8.1 before the expiration of
the applicable representation, warranty, covenant or agreement, such claims
shall survive until the date they are finally adjudicated or otherwise resolved.
(b) The Company agrees to indemnify and hold harmless each Purchaser
and each Purchaser Affiliate (each an "Indemnified Person"), from and against
(and to reimburse each indemnified person as the same are incurred) any and all
losses (including, but not limited to, impairment of the value of the Shares and
Warrants as of the date such loss first becomes known, but excluding
consequential damages), claims, damages, liabilities, costs and expenses
(collectively, "Losses") to which any indemnified person may become subject or
which any indemnified person may incur based upon, arising out of, or in
connection with (i) a breach of any representation, warranty or covenant of this
Agreement by the Company or (ii) any claim, litigation, investigation or
proceeding brought by or on behalf of any Person other than the Company relating
to the Issuance, and to reimburse each indemnified person upon demand for any
reasonable legal or other reasonable out of pocket expenses incurred in
connection with investigating or defending any of the foregoing, provided the
maximum amount indemnifiable to each Purchaser (and its successors or assigns)
under clause (i) shall not exceed the purchase price of the Shares and Warrants
purchased by such Purchaser.
(c) If a Person entitled to indemnity hereunder (an "Indemnified
Party") asserts that the Company (the "Indemnifying Party") has become obligated
to the Indemnified Party pursuant to Section 8.1(b), or if any suit, action,
investigation, claim or proceeding is begun, made or instituted as a result of
which the Indemnifying Party may become obligated to the Indemnified Party
hereunder, the Indemnified Party shall notify the Indemnifying Party promptly
and shall cooperate with the Indemnifying Party, at the Indemnifying Party's
expense, to the extent reasonably necessary for the resolution of such claim or
in the defense of such suit, action or proceedings, including making available
any information, documents and things in the possession of the Indemnified
Party. Notwithstanding the foregoing notice requirement, the right to
indemnification hereunder shall not be affected by any failure to give, or delay
in giving, notice unless, and only to the extent that, the rights and remedies
of the Indemnifying Party shall have been materially prejudiced as a result of
such failure or delay.
(d) In fulfilling its obligations under this Section 8.1, after the
Indemnifying Party has provided each Indemnified Party with a written notice of
its acceptance of liability under this Section 8.1, as between such Indemnified
Party and the Indemnifying Party, the Indemnifying Party shall have the right to
investigate, defend, settle or otherwise handle, with the aforesaid cooperation,
any claim, suit, action or proceeding brought by a third party in such manner as
the Indemnifying Party may in its sole discretion reasonably deem appropriate;
provided, that (i) counsel retained by the Indemnifying Party is reasonably
satisfactory to the Indemnified Party and (ii) the Indemnifying Party will not
consent to any settlement or entry of judgment imposing any obligations on any
other party hereto other than financial obligations for which such party will be
indemnified hereunder, unless such party has consented in writing to such
settlement or judgment (which consent may be given or withheld in its sole
discretion) and (iii) the Indemnifying Party will not consent to any settlement
or entry of judgment unless, in connection therewith, the Indemnifying Party
obtains a full and unconditional release of the Indemnified Party from all
liability with respect to such suit, action, investigation claim or proceeding.
Notwithstanding the Indemnifying Party's election to assume the defense or
investigation of such claim, action or proceeding, the Indemnified Party shall
have the right to employ separate counsel and to participate in the defense or
investigation of such claim, action or proceeding, which participation shall be
at the expense of the Indemnifying Party, if (i) on the advice of counsel to the
Indemnified Party use of counsel of the Indemnifying Party's choice could
reasonably be expected to give rise to a material conflict of interest, (ii) the
Indemnifying Party shall not have employed counsel reasonably satisfactory to
the Indemnified Party to represent the Indemnified Party within a reasonable
time after notice of the assertion of any such claim or institution of any such
action or proceeding, (iii) if the Indemnifying Party shall authorize the
Indemnified Party to employ separate counsel at the Indemnifying Party's expense
or (iv) such action shall seek relief other than monetary damages against the
Indemnified Party.
(e) The Company and the Purchasers agree that any payment of Losses
made hereunder will be treated by the parties on their tax returns as an
adjustment to the Purchase Price. If, notwithstanding such treatment by the
parties, a final determination (which shall include the form 870-AD or successor
form) with respect to the Indemnified Party or any of its affiliates causes any
PAGE 15
such payment not to be treated as an adjustment to Purchase Price, then the
Indemnifying Party shall indemnify the Indemnified Party for any taxes payable
by the Indemnified Party or any subsidiary by reason of the receipt of such
payment (including any payments under this Section 8.1(e)), determined at an
assumed marginal tax rate equal to the highest marginal tax rate then in effect
for corporate taxpayers in the relevant jurisdiction.
SECTION 8.2.Notices. All notices, demands, requests, consents, approvals
or other communications (collectively, "Notices") required or permitted to be
given hereunder or which are given with respect to this Agreement shall be in
writing and shall be personally served, delivered by reputable air courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below, or to such other address as such
party shall have specified most recently by written notice. Notice shall be
deemed given on the date of service or transmission if personally served or
transmitted by telegram, telex or facsimile. Notice otherwise sent as provided
herein shall be deemed given on the next business day following delivery of such
notice to a reputable air courier service.
To the Company:
Rhythms NetConnections Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ 9210
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To the Purchasers:
To the appropriate member of the HMTF Group
c/o Hicks, Muse, ▇▇▇▇ & ▇▇▇▇▇ Incorporated
1325 Avenue of the ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Hicks, Muse, ▇▇▇▇ & ▇▇▇▇▇ Incorporated
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.P.
1325 Avenue of the Americas (▇▇▇▇ ▇▇▇▇▇)
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
SECTION 8.3.Governing Law. This Agreement shall be governed by,
interpreted under, and construed in accordance with the laws of the State of New
York, regardless of the laws that might otherwise govern under applicable
principles of conflicts of law thereof.
SECTION 8.4.Termination. (a) This Agreement may be terminated as
between the Company and any Purchaser (i) at any time prior to the Closing Date
by mutual written agreement of the Company and such Purchaser, (ii) if the
Closing shall not have occurred on or prior toMarch 31, 2000 either the Company
or such Purchaser, at any time after March 31, 2000, provided that the right to
terminate this Agreement under this Section 8.4(a)(ii) shall not be available to
any party whose failure to fulfill any obligation under this Agreement was the
cause of or resulted in the failure of the Closing to occur on or before such
date, (iii) if any Governmental Authority shall have issued a nonappealable
final order, decree or ruling or taken any other action having the effect of
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, by either the Company or such Purchaser, (iv) if
PAGE 16
either the Company or such Purchaser shall have breached any of its material
obligations under this Agreement, by the non-breaching party, or (v) if an event
described in Section 7.2(l) shall have occurred, by such Purchaser. Any party
desiring to terminate this Agreement pursuant to clauses 8.4(a)(ii), (iii), (iv)
or (v) shall promptly give notice of such termination to the other party.
(b) If this Agreement is terminated as between the Company and a
Purchaser, as permitted by Section 8.4(a), such termination shall be without
liability of any party (or any stockholder, director, officer, partner,
employee, agent, consultant or representative of such party) to any other party
to this Agreement; provided that if such termination shall result from the
willful (a) failure of any party to fulfill a condition to the performance of
the obligations of the other party, (b) failure to perform a covenant of this
Agreement or (c) breach by any party hereto of any representation or warranty
contained herein, such failing or breaching party shall be fully liable for any
and all losses (excluding consequential damages) incurred or suffered by the
other party as a result of such failure or breach. The provisions of Sections
8.2, 8.3, this Section 8.4, Sections 8.5, 8.8, 8.10, 8.11, 8.12, 8.13, 8.14,
8.16, 8.17, 8.18 and 8.20 shall survive any termination hereof pursuant to
Section 8.4(a).
SECTION 8.5.Entire Agreement. As between the Company and each Purchaser
this Agreement and the other Equity Documents (including all agreements entered
into pursuant hereto and thereto and all certificates and instruments delivered
pursuant hereto and thereto) constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements, representations, understandings, negotiations and discussions
between the parties, whether oral or written, with respect to the subject matter
hereof.
SECTION 8.6.Modifications and Amendments. No amendment, modification or
termination of this Agreement as between the Company and a Purchaser shall be
binding unless executed in writing by the Company and such Purchaser intending
to be bound thereby.
SECTION 8.7.Waivers and Extensions. Any party to this Agreement may waive
any condition, right, breach or default that such party has the right to waive,
provided that such waiver will not be effective against the waiving party unless
it is in writing, is signed by such party, and specifically refers to this
Agreement. Waivers may be made in advance or after the right waived has arisen
or the breach or default waived has occurred. Any waiver may be conditional. No
waiver of any breach of any agreement or provision herein contained shall be
deemed a waiver of any preceding or succeeding breach thereof nor of any other
agreement or provision herein contained. No waiver or extension of time for
performance of any obligations or acts shall be deemed a waiver or extension of
the time for performance of any other obligations or acts.
SECTION 8.8.Titles and Headings. Titles and headings of sections of this
Agreement are for convenience only and shall not affect the construction of any
provision of this Agreement.
SECTION 8.9.Exhibits and Schedules. Each of the exhibits and schedules
referred to herein and attached hereto is an integral part of this Agreement and
is incorporated herein by reference.
SECTION 8.10.Expenses. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense;
provided, however, that (a) the Company shall pay the filing fee payable in
respect to any HSR Act filing, and (b) if this Agreement is terminated with
respect to any Purchaser for any reason other than a breach by such Purchaser
and other than the failure of the condition set forth in Section 7.2(l)(ii) to
be satisfied, then (without limiting any party's right to recover damages
pursuant to Section 8.4(b)) the Company shall reimburse such Purchaser for such
Purchaser's reasonable out-of-pocket costs and expenses incurred in connection
with this Agreement.
SECTION ▇.▇▇.▇▇▇▇▇ Releases and Public Announcements. All public
announcements or disclosures relating to the Issuance or this Agreement shall be
made only if mutually agreed upon by the Company and the Purchasers, except to
the extent such disclosure is, in the opinion of counsel, required by law or by
regulation of any applicable national stock exchange or Commission recognized
trading market; provided that (a) any such required disclosure shall only be
made, to the extent consistent with law and regulation of any applicable
national stock exchange or Commission recognized trading market, after
consultation with each Purchaser and (b) no such announcement or disclosure
(except as required by law or by regulation of any applicable national stock
exchange or Commission recognized trading market) shall identify any Purchaser
without such Purchaser's prior consent.
SECTION 8.12.Assignment; No Third Party Beneficiaries. This Agreement and
the rights, duties and obligations hereunder may not be assigned or delegated by
the Company without the prior written consent of the Purchasers, and may not
assigned or delegated by any Purchaser without the Company's prior written
consent except that each Purchaser may assign any or all of its rights and
PAGE 17
obligations under this Agreement to any one or more of its Affiliates. Any
assignment or delegation of rights, duties or obligations hereunder made by the
Company without the prior written consent of the Purchasers, shall be void and
of no effect. This Agreement and the provisions hereof shall be binding upon and
shall inure to the benefit of each of the parties and their respective
successors and permitted assigns. This Agreement is not intended to confer any
rights or benefits on any Persons other than the parties hereto, except as
expressly set forth in Section 5.2, Section 8.1, this Section 8.12 or Section
8.20.
SECTION 8.13.Severability. This Agreement shall be deemed severable, and
the invalidity or unenforceability of any term or provision hereof shall not
affect the validity or enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or provision, the parties hereto intend that there shall be added as a part of
this Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible and be valid and enforceable.
SECTION 8.14.Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
SECTION 8.15.Further Assurances. As between the Company and a Purchaser,
each party hereto, upon the request of any other party hereto, shall do all such
further acts and execute, acknowledge and deliver all such further instruments
and documents as may be necessary or desirable to carry out the transactions
contemplated by this Agreement, including, in the case of the Company, such
acts, instruments and documents as may be necessary or desirable to convey and
transfer to each Purchaser the Shares and Warrants to be purchased by it
hereunder.
SECTION 8.16.Remedies Cumulative. The remedies provided herein shall be
cumulative and shall not preclude the assertion by any party hereto of any other
rights or the seeking of any remedies against the other party hereto.
SECTION 8.17.Several Liability of the Purchasers. Nothing in this
Agreement (including, without limitation, Article VI) shall be construed to
impose on any Purchaser any liability for any action or failure to act of any
other Purchaser, including any breach of this Agreement by any such other
Purchaser.
SECTION ▇.▇▇.▇▇ Duty to Other Purchasers. Each Purchaser confirms with
each other Purchaser that such Purchaser has conducted its own due diligence in
connection with its investment in the Securities and the other Purchasers may
therefore have information different from, or additional to, the information
possessed by such Purchaser. In addition, although certain of such other
Purchasers (the "Supplying Purchasers") may have shared information received by
them (including information contained in third party reports prepared for such
other Purchasers) with such Purchaser, no representation or warranty is being
made with respect to such information by any Supplying Purchaser or any such
third party. Nothing in this Section 8.18 is meant to limit any duty, obligation
or liability the Company may have to any Purchaser under this Agreement or
otherwise.
SECTION 8.19.Specific Performance. The parties hereto agree that the
remedy at law for any breach of this Agreement may be inadequate, and that as
between the Company and a Purchaser any party by whom this Agreement is
enforceable shall be entitled to specific performance in addition to any other
appropriate relief or remedy. Such party may, in its sole discretion, apply to a
court of competent jurisdiction for specific performance or injunctive or such
other relief as such court may deem just and proper in order to enforce this
Agreement as between the Company and a Purchaser, or prevent any violation
hereof, and, to the extent permitted by applicable as between the Company and a
Purchaser law, each party waives any objection to the imposition of such relief.
SECTION ▇.▇▇.▇▇ Purchaser Affiliate Liability. No Purchaser Affiliate
shall have any liability or obligation of any nature whatsoever in connection
with or under this Agreement or the transactions contemplated hereby, and the
Company hereby waives and releases all claims of any such liability and
obligation, it being understood that no such Person or entity (other than
Purchaser) shall be liable for or in respect of this Agreement with the
transactions contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RHYTHMS NETCONNECTIONS INC.
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Name: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: Chief Executive Officer
PAGE 18
HMTF BRIDGE RHY, LLC
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
PAGE 19