Exhibit 4.16
PLEDGE AND ESCROW AGREEMENT
Dated as of April 23, 1999 from
RHYTHMS NETCONNECTIONS INC.
as Pledgor to
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
as Trustee
PLEDGE AND ESCROW AGREEMENT
This PLEDGE AND ESCROW AGREEMENT (the "Pledge Agreement") is made and
entered into as of April 23, 1999 by and among Rhythms NetConnections Inc., a
Delaware corporation, having its principal office at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Pledgor"), and State Street Bank and Trust
Company of California, N.A., a national banking association, having its
principal corporate trust office at Library Tower, ▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, as trustee (the "Trustee"), for the
holders of the Senior Notes (as defined herein) issued by the Pledgor under the
Indenture referred to below and for the holders of the Discount Notes (as
defined herein) (collectively, the "Holders").
W I T N E S S E T H:
WHEREAS, the Pledgor and the Initial Purchasers (as defined herein) are
parties to a Purchase Agreement dated April 16, 1999 (the "Purchase Agreement"),
pursuant to which the Pledgor will issue and sell to the Initial Purchasers
$325,000,000 in aggregate principal amount of 12 3/4% Senior Notes due 2009 (the
"Series A Notes") which will be exchangeable into 12 3/4% Senior Notes due 2009,
Series B (the "Series B Notes"), containing terms identical to the Series A
Notes in all material respects (except for references to certain restrictions on
transfers, registration rights and restrictive legends) (the Series A Notes and
the Series B Notes being collectively referred to as the "Senior Notes");
WHEREAS, the Pledgor has outstanding $290,000,000 in aggregate principal
amount at maturity of 13 1/2% Senior Discount Notes due 2008 (the "Discount
Notes");
WHEREAS, the Pledgor and the Trustee have entered into that certain
indenture dated as of the date hereof (as amended, restated, supplemented or
otherwise modified from time to time, the "Indenture"), pursuant to which the
Pledgor is issuing the Senior Notes on the date hereof;
WHEREAS, pursuant to the Indenture, on the Issue Date (as defined herein),
the Pledgor is required to pledge for the benefit of the Holders of the Senior
Notes and the Discount Notes on an equal and ratable basis a portfolio of
securities initially consisting of Government Securities (as defined herein) in
an amount and with such maturity as will be sufficient upon receipt of scheduled
interest and principal payments of such securities, based upon the report of an
internationally recognized firm of independent public accountants or a
nationally recognized investment banking firm, in either case selected by the
Pledgor, to provide for payment in full of the first six scheduled interest
payments due on the Senior Notes (unless and to the extent already paid) at the
stated rate of 12 3/4% (excluding liquidated damages, if any) (the "First Six
Scheduled Interest Payments");
WHEREAS, the Pledgor will also open an account (the "Cash Collateral
Account") with the Trustee at its office in Los Angeles, California, which will
be in the name of the Trustee for the benefit of the Pledgor but under the sole
dominion and control of the Trustee and subject to the terms of this Pledge
Agreement;
WHEREAS, this Pledge Agreement and the Collateral (as defined herein)
secure the Secured Obligations (as defined herein); and
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WHEREAS, the parties hereto desire to set forth their agreement with
regard to the administration of the Collateral Investments Account and the Cash
Collateral Account, the creation and perfection of a Security Interest in the
Collateral, the termination of this Pledge Agreement and other matters.
Capitalized terms used but not defined herein shall have the meanings assigned
to them in the Indenture.
AGREEMENT NOW, THEREFORE, in consideration of the premises herein
contained, and in order to induce the Holders of the Senior Notes to purchase
the Senior Notes, the Pledgor and the Trustee hereby agree, for the benefit of
the Trustee and for the equal and ratable benefit of the Holders of the Senior
Notes and the Discount Notes, as follows:
SECTION 1. Definitions
"Cash Collateral Account" shall have the meaning specified in the
Recitals.
"Collateral" shall have the meaning specified in Section 2.1 hereof.
"Collateral Investments" shall have the meaning specified in Section 3.4
hereof.
"Collateral Investments Account" shall have the meaning specified in
Section 3.5 hereof.
"Event of Default" shall have the meaning specified in Section 12 hereof.
"First Six Scheduled Interest Payments" shall have the meaning specified
in the Recitals.
"FRBNY" shall have the meaning specified in Section 3.5 hereof.
"Holders" shall have the meaning specified in the Recitals.
"Indenture" shall have the meaning specified in the Recitals.
"Initial Portfolio" shall have the meaning specified in Section 3.1
hereof.
"Initial Purchasers" means ▇▇▇▇▇▇▇ Lynch, Pierce, ▇▇▇▇▇▇ & ▇▇▇▇▇
Incorporated, ▇▇▇▇▇▇▇ ▇▇▇▇▇ Barney Inc. and Chase Securities Inc.
"Issue Date" means the time and date of the first issuance of the Senior
Notes under the Indenture.
"Issuer Order" shall have the meaning specified in Section 4 hereof.
"Pledge Agreement" shall have the meaning specified in the Recitals.
"Pledgor Funds" shall have the meaning specified in Section 4 hereof.
"Pledgor's Designee" shall have the meaning specified in Section 4 hereof.
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"Secured Obligations" means the Pledgor's obligations to (i) pay in full
the First Six Scheduled Interest Payments and (ii) repay the principal, premium
and interest (whether accrued before or after the commencement of a bankruptcy,
insolvency or other similar proceeding regardless of whether or not a claim
therefore is allowed or allowable in any such proceeding) on the Senior Notes
and the Discount Notes, as the case may be, in the event that the Senior Notes
or the Discount Notes become due and payable prior to such time as the First Six
Scheduled Interest Payments shall have been paid in full (at which time the
payment of such principal, premium and interest shall no longer be Secured
Obligations except to the extent such principal, premium or interest is then due
and payable).
"UCC" means the Uniform Commercial Code as in effect on the date hereof in
New York State. Unless otherwise defined herein or in the Indenture, terms used
herein which are defined in the UCC are used herein as therein defined.
SECTION 2. Security Interest
2.1 Pledge and Grant of Security Interest. The Pledgor hereby irrevocably
pledges, assigns and sets over to the Trustee, and grants to the Trustee, for
the equal and ratable benefit of the Holders of the Senior Notes and the
Discount Notes, a first priority continuing security interest in all of the
Pledgor's right, title and interest to all of the Collateral, whether now owned
or existing or hereafter acquired or created.
"Collateral" means and includes (whether characterized as investment
property, deposit accounts, cash or otherwise):
(a) the Collateral Investments Account and the Cash Collateral
Account, all funds from time to time deposited or held therein and all
certificates and instruments, if any, from time to time representing or
evidencing the Collateral Investments Account and the Cash Collateral Account;
(b) all Collateral Investments and all certificates and instruments,
if any, representing or evidencing the Collateral Investments, and any and all
security entitlement to the Collateral Investments, and any and all related
securities accounts in which any security entitlement to the Collateral
Investments is carried, including, without limitation, the Collateral
Investments Account;
(c) all notes, certificates of deposit, deposit accounts, checks and
other instruments, if any, from time to time hereafter delivered to or otherwise
possessed by the Trustee or its nominees for or on behalf of the Pledgor in
substitution for or in addition to any or all of the then existing Collateral;
(d) all interest, dividends (if any), cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the then existing Collateral; and
(e) all proceeds of the foregoing, including, without limitation,
cash proceeds.
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2.2 Secured Obligations. This Pledge Agreement, in accordance with its
terms and the terms of the Indenture, secures the due and punctual payment and
performance of the Secured Obligations.
SECTION 3. Deposit of Initial Portfolio; Collateral Investments
Account and Cash Collateral Account; Collateral Investments
3.1 Deposit of Initial Portfolio. On the Issue Date, the Pledgor shall
deposit, or shall cause to be deposited, into the Collateral Investments Account
for the equal and ratable benefit of the Holders of the Senior Notes and the
Discount Notes, a portfolio of securities initially consisting of Government
Securities in an amount and with such maturity as will be sufficient upon
receipt of scheduled interest and principal payments of such securities to
provide for payment in full of the First Six Scheduled Interest Payments (as
such amount is verified by the report of an internationally recognized firm of
independent public accountants or a nationally recognized investment banking
firm, in either case selected by the Pledgor, in the form of Exhibit A delivered
to the Trustee) (the "Initial Portfolio").
3.2 Maintaining the Collateral Investments Account and the Cash Collateral
Account. So long as any Secured Obligations shall remain unpaid:
(a) The Pledgor will maintain the Collateral Investments Account and
the Cash Collateral Account with State Street Bank and Trust Company of
California, N.A. in Los Angeles, California; and
(b) It shall be a term and condition of the Collateral Investments
Account and the Cash Collateral Account, notwithstanding any term or condition
to the contrary in any other agreement relating to either such account, and
except as otherwise provided by the provisions of Section 3.4, Section 4 and
Section 12 hereof, that no amount (including interest on or other proceeds on
the Collateral Investments Account or the Cash Collateral Account) shall be paid
or released to or for the account of, or withdrawn by or for the account of, the
Pledgor or any other Person other than the Trustee or its designated agent from
the Collateral Investments Account or the Cash Collateral Account (other than
customary brokerage or similar fees, expenses, discounts or commissions payable
in connection with investments of funds pursuant to Section 3.4 hereof);
provided that, notwithstanding the foregoing, no withdrawals may be made by the
Pledgor under Section 3.4, Section 4 or Section 12 hereof.
The Collateral Investments Account and the Cash Collateral Account shall
be subject to such applicable laws, and such applicable regulations of the Board
of Governors of the Federal Reserve System and of any other appropriate banking
or governmental authority, as may now or hereafter be in effect.
3.3 Investing of Amounts in the Collateral Investments Account. All
amounts invested in the Collateral Investments Account shall initially be
invested in the Initial Portfolio. At any time while this Pledge Agreement is in
force, the Pledgor may substitute either:
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(a) Marketable U.S. Securities for the Government Securities pledged as
Collateral hereunder; provided, however, that the Marketable U.S. Securities so
substituted must have a fair market value (measured at the date of substitution)
as certified to the Trustee, in the opinion of a nationally recognized firm of
independent public accountants or a nationally recognized investment banking
firm, in either case selected by the Pledgor, at least equal to 125.0% of the
amount of any of the First Six Scheduled Interest Payments that are unpaid (or
the pro rata portion of such interest payments equal to the percentage of such
interest payments to be secured by such Marketable U.S. Securities) as of the
date such Marketable U.S. Securities are proposed to be substituted as
Collateral hereunder. Concurrently with such substitution, the Pledgor shall (i)
deliver a certificate in the form of Exhibit B hereto reaffirming the
representations and warranties set forth in Section 5 hereof, (ii) deliver an
Opinion of Counsel stating that the Trustee has a perfected lien in such
Marketable U.S. Securities and (iii) deliver the accountants' or investment
bankers' opinion described above. The Pledgor hereby pledges and the Trustee
shall hold a security interest in, for the benefit of the Holders of the Senior
Notes and the Discount Notes, on an equal and ratable basis, any Marketable U.S.
Securities received by the Trustee in accordance with this Section 3.3(a); or
(b) Government Securities with different maturities than the Government
Securities pledged as Collateral hereunder; provided, however, that the
Government Securities so substituted must be in such amount and with such
maturity as will be sufficient upon receipt of scheduled interest and principal
of such securities, in the opinion of a nationally recognized firm of
independent public accountants or a nationally recognized investment banking
firm, in either case selected by the Pledgor, to provide for payment in full of
the First Six Scheduled Interest Payments that are unpaid (or the pro rata
portion of such interest payments equal to the percentage of such interest
payments to be secured by such Government Securities) as of the date such
Government Securities are proposed to be substituted as Collateral hereunder.
Concurrently with such substitution, the Pledgor shall (i) deliver a certificate
in the form of Exhibit B hereto reaffirming the representations and warranties
set forth in Section 5 hereof, (ii) deliver an Opinion of Counsel stating that
the Trustee has a perfected lien in such Government Securities and (iii) deliver
the accountants' or investment bankers' opinion described above. The Pledgor
hereby pledges and the Trustee shall hold a security interest in, for the
benefit of the Holders of the Senior Notes and the Discount Notes, on an equal
and ratable basis, any Government Securities received by the Trustee in
accordance with this Section 3.3(b).
3.4 Investing of Amounts in the Cash Collateral Account. If requested in
writing by the Pledgor, the Trustee will, subject to the provisions of Section 4
and Section 12 hereof, from time to time (i) invest amounts on deposit in the
Cash Collateral Account in such Cash Equivalents in the name of the Trustee as
the Pledgor may select and (ii) invest interest paid on the Cash Equivalents
referred to in clause (i) above, and reinvest other proceeds of any such Cash
Equivalents that may mature or be sold, in each case in such Cash Equivalents in
the name of the Trustee, as the Pledgor may select (the Cash Equivalents
referred to in clauses (i) and (ii) above being collectively "Collateral
Investments"); provided, however, in providing directions hereunder the Pledgor
shall use reasonable and good faith efforts to assure that the amount on deposit
in the Collateral Investments Account and the Cash Collateral Account,
collectively, at any time during the term of this Pledge Agreement, are
sufficient to provide for the payment in full of the First Six Scheduled
Interest Payments remaining unpaid at such time. Interest and
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proceeds that are not invested or reinvested in Collateral Investments as
provided above shall be deposited and held in the Cash Collateral Account.
3.5 Delivery of Collateral.
(a) If and to the extent the Collateral is represented or evidenced
by certificates or instruments, all such certificates or instruments
representing or evidencing the Collateral, including, without limitation,
amounts invested or reinvested in Collateral Investments as provided in Section
3.4 hereof, shall be delivered to and held by or on behalf of the Trustee
pursuant hereto and shall be in suitable form for transfer by delivery, or shall
be accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance sufficient to convey a valid security interest in such
Collateral to the Trustee for the benefit of the Holders of the Senior Notes and
the Discount Notes on an equal and ratable basis or shall be credited to a
securities account (the "Collateral Investments Account") designated by the
Trustee. For the better perfection of the Trustee's rights in and to the
Collateral, the Pledgor shall forthwith, upon the pledge of any Collateral
hereunder, cause all such Collateral, including the Collateral Investments
Account and all other accounts representing a security entitlement to or
containing any Collateral (including, without limitation, any Collateral
Investments) to be registered in the name of the Trustee or such of its nominees
as the Trustee shall direct and the Pledgor shall approve (which approval shall
not be unreasonably withheld), and to be under the sole dominion and control of
the Trustee, which dominion and control shall be agreed to and acknowledged by
any securities intermediary holding any such account in an acknowledgment in the
form of Exhibit C hereto, subject only to the revocable rights specified in
Section 4 hereof. In addition, the Trustee shall have the right at any time to
exchange certificates or instruments representing or evidencing the Collateral
for certificates or instruments of smaller or larger denominations.
(b) The Trustee shall become the holder or entitlement holder, as
the case may be, of the Collateral Investments and of any and all security
entitlements to the Collateral Investments, through action by the Federal
Reserve Bank of New York ("FRBNY") or another securities intermediary, as
confirmed (in writing or electronically or otherwise in accordance with standard
industry practice) to the Trustee by FRBNY or such other securities intermediary
(i) indicating by book-entry that the Collateral Investments or a security
entitlement thereto has been credited to the Collateral Investments Account, or
(ii) acquiring the Collateral Investments or a security entitlement thereto for
the Trustee and accepting the same for credit to the Collateral Investments
Account.
(c) Prior to the acquisition by the Trustee of Collateral
Investments (or acquisition by the Trustee of any security entitlement thereto),
as provided in subsection (a) or (b) of this Section 3.5, the Trustee shall
establish the Collateral Investments Account on its books as an account
segregated from all other custodial or collateral accounts at its office at ▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. Upon acquisition of
any Collateral Investments by the Trustee (or the Trustee's acquisition of a
security entitlement thereto), as confirmed to the Trustee by FRBNY or another
securities intermediary, the Trustee shall make appropriate book entries
indicating that the Collateral Investments and/or such security entitlement have
been credited to and are held in the Collateral Investments Account. Subject to
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the other terms and conditions of this Pledge Agreement, all Collateral
Investments held by the Trustee pursuant to this Pledge Agreement shall be held
in the Collateral Investments Account subject (except as expressly provided in
Section 4 hereof) to the exclusive dominion and control of the Trustee and
exclusively for the benefit of the Trustee and for the equal and ratable benefit
of the Holders of the Senior Notes and the Discount Notes and segregated from
all other funds or other property otherwise held by the Trustee.
(d) All Collateral shall be retained in the Cash Collateral Account
and the Collateral Investments Account pending disbursement pursuant to the
terms hereof.
(e) On the date hereof, the Trustee shall deliver to the Pledgor and
the Initial Purchasers a duly executed certificate, in the form of Exhibit D
hereto, of an officer of the Trustee, confirming the Trustee's establishment and
maintenance of the Collateral Investments Account and the Cash Collateral
Account and its receipt and holding of the Initial Portfolio and any other
Collateral or a security entitlement thereto and the crediting of the Initial
Portfolio and any other Collateral or such security entitlement to the
Collateral Investments Account, all in accordance with this Pledge Agreement.
(f) On the date hereof, the Pledgor shall deliver to the Trustee the
report of an internationally recognized firm of independent public accountants
or a nationally recognized investment banking firm, in either case selected by
the Pledgor, substantially in the form of Exhibit A hereto.
SECTION 4. Disbursements of Collateral
The Trustee shall hold the Collateral in the Collateral Investments
Account and the Cash Collateral Account and release the same, or a portion
thereof, only as follows:
(a) At least one Business Day prior to the due date of any of the
First Six Scheduled Interest Payments, the Trustee shall release from the Cash
Collateral Account and/or liquidate Collateral in the Collateral Investments
Account, and transfer to the Trustee, as Paying Agent (or any other entity then
acting as Paying Agent under the Indenture) in order to pay to the Holders of
the Senior Notes proceeds sufficient to provide for payment in full of such
interest then due on the Senior Notes; provided that, in the event Collateral is
not required to be liquidated, the Pledgor will give the Trustee at least three
Business Days' notice pursuant to written instructions executed by the Pledgor
(an "Issuer Order"). The Trustee will take any action necessary to provide for
the payment of such interest then due on the Senior Notes to the Holders of the
Senior Notes in accordance with the payment provisions of the Indenture and the
Senior Notes from (and to the extent of) proceeds of the funds in the Cash
Collateral Account or the Collateral Investments Account, as the case may be.
Nothing in this Section 4 shall affect the Trustee's rights to apply the
Collateral to the payments of amounts due on the Senior Notes or Discount Notes
upon acceleration thereof prior to such time as the First Six Scheduled Interest
Payments shall have been paid in full.
(b) If the Pledgor makes any payment or portion of any payment of
the First Six Scheduled Interest Payments from a source of funds other than the
Cash Collateral Account or the Collateral Investments Account ("Pledgor Funds"),
the Pledgor may, after payment in full
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of such interest payment or portion thereof from such Pledgor Funds, direct the
Trustee in writing to release to the Pledgor or to another party at the
direction of the Pledgor (the "Pledgor's Designee") proceeds from the Cash
Collateral Account or the Collateral Investments Account in an amount less than
or equal to the amount of Pledgor Funds applied to such interest payment. Upon
receipt of an Issuer Order by the Trustee, the Trustee shall pay over to the
Pledgor or the Pledgor's Designee, as the case may be, the requested amount from
proceeds in the Cash Collateral Account or the Collateral Investments Account,
as the case may be. Concurrently with any release of funds requested by the
Pledgor pursuant to this Section 4(b), the Pledgor shall deliver to the Trustee
a certificate signed by an officer of the Pledgor stating that such release has
been authorized by the Pledgor and will not contravene any provision of
applicable law or its certificate of incorporation or its by-laws or any
material agreement or other material instrument binding upon the Pledgor or any
of its subsidiaries or any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Pledgor or any of its subsidiaries
or result in the creation or imposition of any Lien on any assets of the
Pledgor, except for the security interest granted under the Pledge Agreement.
(c) At least one Business Day prior to the due date of any of the
First Six Scheduled Interest Payments, the Pledgor covenants to give the Trustee
(by Issuer Order) notice as to whether such payment of interest will be made
pursuant to Section 4(a) or 4(b) hereof and as to the respective amounts of
interest that will be paid pursuant to Section 4(a) or 4(b) hereof; provided
that, in the event Collateral is not required to be liquidated, the Pledgor will
give the Trustee at least three Business Days' notice pursuant to an Issuer
Order. If no such notice is given, the Trustee shall act pursuant to Section
4(a) as if it had received an Issuer Order pursuant to this paragraph for the
payment in full of the interest then due.
(d) The Trustee shall liquidate Collateral Investments pursuant to
Section 4(a) hereof in order to make any scheduled payment of interest or any
release hereunder unless instructed to not do so by Issuer Order.
(e) In the event that the Collateral held in the Cash Collateral
Account and the Collateral Investments Account exceeds the amount sufficient, in
the opinion of an internationally recognized firm of independent public
accountants or a nationally recognized investment banking firm, in either case
selected by the Pledgor, to provide for payment in full of the First Six
Scheduled Interest Payments (or, in the event an interest payment or payments
have been made, an amount sufficient to provide for payment in full of the First
Six Scheduled Interest Payments remaining unpaid at such time), the Trustee
shall release to the Pledgor at the Pledgor's request and upon receipt of such
opinion any such excess Collateral.
(f) Upon the release of any Collateral from the Cash Collateral
Account or the Collateral Investments Account in accordance with the terms of
this Pledge Agreement, the security interest evidenced by this Pledge Agreement
in such released Collateral will automatically terminate and be of no further
force and effect.
(g) Nothing contained in Section 3 hereof, this Section 4 or any
other provision of this Pledge Agreement shall (i) afford the Pledgor any right
to issue entitlement orders with respect to any security entitlement to the
Collateral Investments or any securities account in which any such security
entitlement may be carried, or otherwise afford the Pledgor
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control of any such security entitlement or (ii) otherwise give rise to any
rights of the Pledgor with respect to the Collateral Investments, any security
entitlement thereto or any securities account in which any such security
entitlement may be carried, other than the Pledgor's rights under this Pledge
Agreement as the beneficial owner of collateral pledged to and subject to the
exclusive dominion and control (except as expressly provided in this Section 4)
of the Trustee in its capacity as such (and not as a securities intermediary).
The Pledgor acknowledges, confirms and agrees that the Trustee holds a security
entitlement to the Collateral Investments solely as trustee for the Holders of
the Senior Notes and the Discount Notes and not as a securities intermediary.
SECTION 5. Representations and Warranties
The Pledgor hereby represents and warrants on its own behalf, as of the
date hereof, that:
(a) The execution and delivery by the Pledgor of, and the
performance by the Pledgor of its obligations under, this Pledge Agreement have
been duly authorized by all necessary corporate action and will not contravene
or constitute a default under any provision of applicable law or its certificate
of incorporation or its by-laws or any material agreement or other material
instrument binding upon the Pledgor or any of its subsidiaries or any judgment,
order or decree of any governmental body, agency or court having jurisdiction
over the Pledgor or any of its subsidiaries, or result in the creation or
imposition of any Lien on any assets of the Pledgor, except for the security
interests granted under this Pledge Agreement; no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required (i) for the performance by the Pledgor of its obligations
under this Pledge Agreement, (ii) for the pledge by the Pledgor of the
Collateral pursuant to this Pledge Agreement or (iii) except for any such
consents, approvals, authorizations or orders required to be obtained by the
Trustee (or the Holders) for reasons other than the consummation of this
transaction, for the exercise by the Trustee of the rights provided for in this
Pledge Agreement or the remedies in respect of the Collateral pursuant to this
Pledge Agreement.
(b) The Pledgor is the beneficial owner of the Initial Portfolio,
free and clear of any Lien or claims of any person or entity (except for the
security interests granted under this Pledge Agreement). No financing statement
covering Pledgor's interest in the Collateral is on file in any public office
other than any financing statements filed pursuant to this Pledge Agreement.
(c) This Pledge Agreement has been duly authorized, validly executed
and delivered by the Pledgor and (assuming the due authorization and valid
execution and delivery of this Pledge Agreement by the Trustee and
enforceability of the Pledge Agreement against the Trustee in accordance with
its terms) constitutes a valid and binding agreement of the Pledgor, enforceable
against the Pledgor in accordance with its terms, except as (i) the
enforceability hereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, preference, reorganization, moratorium or similar laws now or
hereafter in effect relating to or affecting creditors' rights or remedies
generally, (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability and the discretion of the court
before which any proceeding therefor may be brought, (iii) the exculpation
provisions and rights to
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indemnification hereunder may be limited by U.S. federal and state securities
laws and public policy considerations and (iv) the waiver of rights and defenses
contained in Section 12(b), Section 15.11 and Section 15.15 hereof may be
limited by applicable law.
(d) Upon the delivery to the Trustee of the certificates or
instruments, if any, representing or evidencing the Collateral, and the transfer
and pledge to the Trustee of the Collateral or the acquisition by the Trustee of
a security entitlement thereto, in accordance with the terms hereof, the pledge
of and grant of a security interest in the Collateral securing the payment of
the Secured Obligations for the benefit of the Trustee and the Holders of the
Senior Notes and the Discount Notes will constitute a first priority perfected
security interest in such Collateral (except, with respect to proceeds, only to
the extent permitted by Section 9-306 of the UCC), enforceable as such against
all creditors of the Pledgor and any persons purporting to purchase any of the
Collateral from the Pledgor, except in each case as enforcement may be affected
by general equitable principles (whether considered in a proceeding in equity or
at law) and other than as permitted by the Indenture.
(e) There are no legal or governmental proceedings pending or, to
the best of the Pledgor's knowledge, threatened to which the Pledgor or any of
its subsidiaries is a party or to which any of the properties of the Pledgor or
any of its subsidiaries is subject that would materially adversely affect the
power or ability of the Pledgor to perform its obligations under this Pledge
Agreement or to consummate the transactions contemplated hereby.
(f) The pledge of the Collateral pursuant to this Pledge Agreement
is not prohibited by law or governmental regulation (including, without
limitation, Regulations T, U and X of the Board of Governors of the Federal
Reserve System) applicable to the Pledgor.
(g) No Event of Default exists.
SECTION 6. Further Assurances
The Pledgor will, promptly upon request by the Trustee (which request the
Trustee may submit in its discretion or at the direction of the Holders of a
majority in principal amount of the Senior Notes or of the Discount Notes then
outstanding), execute and deliver or cause to be executed and delivered, or use
its reasonable best efforts to procure, all assignments, instruments and other
documents, deliver any instruments to the Trustee and take any other actions
that are reasonably necessary or desirable to perfect, continue the perfection
of, or protect the first priority of the Trustee's security interest in and to
the Collateral, to protect the Collateral against the rights, claims, or
interests of third persons (other than any such rights, claims or interests
created by or arising through the Trustee), or to enable the Trustee to exercise
and enforce its rights and remedies hereunder with respect to any Collateral or
to otherwise effect the purposes of this Pledge Agreement. The Pledgor also
agrees, whether or not requested by the Trustee, to take all actions (including
the filing of UCC-1 financing statements in the appropriate jurisdictions) that
are necessary to perfect or continue the perfection of, or to protect the first
priority of, the Trustee's security interest in and to the Collateral, and to
protect the Collateral against the rights, claims or interests of third persons
(other than any such rights, claims or interests created by or arising through
the Trustee). The Pledgor will furnish to the Trustee all
10
opinions, certificates and other documents required to be furnished pursuant to
Section 10.24 of the Indenture in the manner set forth therein.
SECTION 7. Covenants
The Pledgor covenants and agrees on its behalf with the Trustee and the
Holders of the Senior Notes and the Discount Notes that from and after the date
of this Pledge Agreement until the payment in full in cash of the Secured
Obligations:
(a) it will not (and will not purport to) sell, assign or otherwise
dispose of, or grant any option or warrant with respect to, any of the
Collateral;
(b) it will not create or permit to exist any Lien upon or with
respect to any of the Collateral (except for the security interests granted
under this Pledge Agreement and any Lien created by or arising through the
Trustee) and at all times will be the sole beneficial owner of the Collateral;
and
(c) it will not (i) enter into any agreement or understanding that
restricts or inhibits or purports to restrict or inhibit the Trustee's rights or
remedies hereunder, including, without limitation, the Trustee's right to sell
or otherwise dispose of the Collateral or (ii) fail to pay or discharge any tax,
assessment or levy of any nature with respect to the Collateral not later than
five days prior to the date of any proposed sale under any judgment, writ or
warrant of attachment with respect to the Collateral.
SECTION 8. Power of Attorney
The Pledgor hereby irrevocably appoints the Trustee as the Pledgor's
attorney-in-fact, coupled with an interest, with full authority in the place and
stead of the Pledgor and in the name of the Pledgor or otherwise, from time to
time in the Trustee's reasonable discretion to take any action and to execute
any instrument which the Trustee may reasonably deem necessary or advisable to
accomplish the purposes of this Pledge Agreement, including, without limitation,
to receive, endorse and collect all instruments made payable to the Pledgor
representing any interest payment, dividend or other distribution in respect of
the Collateral or any part thereof and to give full discharge for the same, and
the reasonable expenses of the Trustee incurred in connection therewith shall be
payable by the Pledgor. This power of attorney is coupled with an interest and
is irrevocable by the Pledgor. In addition to all of the powers granted to the
Trustee pursuant to the Indenture, the Pledgor hereby appoints and constitutes
the Trustee to exercise to the fullest extent permitted by law all of the
following powers upon and at any time after the occurrence and during the
continuance of an Event of Default:
(a) collection of proceeds of any Collateral;
(b) conveyance of any item of Collateral to any purchaser thereof;
(c) giving of any notices or recording of any Liens under Section 6
hereof; and
11
(d) paying or discharging taxes or Liens levied or placed upon the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by the Trustee in its sole reasonable
discretion, and such payments made by the Trustee to become part of the Secured
Obligations of the Pledgor to the Trustee, due and payable immediately upon
demand. The Trustee's authority under this Section 8 shall include, without
limitation, the authority to endorse and negotiate any checks or instruments
representing proceeds of the Collateral in the name of the Pledgor, execute and
give receipt for any certificate of ownership or any document constituting
Collateral, transfer title to any item of Collateral, sign the Pledgor's name on
all financing statements (to the extent permitted by applicable law) or any
other documents deemed necessary or appropriate by the Trustee to preserve,
protect or perfect the security interest in the Collateral and to file the same,
prepare, file and sign the Pledgor's name on any notice of Lien, and to take any
other actions arising from or incident to the powers granted to the Trustee in
this Pledge Agreement.
SECTION 9. Trustee May Perform
Without limiting the authority granted under Section 8 and except with
respect to the failure of the Pledgor to deliver investment instructions (which
shall be governed by the other terms of this Pledge Agreement), if the Pledgor
fails to perform any agreement contained herein, the Trustee may, but shall not
be obligated to, itself perform, or cause performance of, such agreement, and
the reasonable expenses of the Trustee incurred in connection therewith shall be
payable by the Pledgor.
SECTION 10. No Assumption of Duties; Reasonable Care
The rights and powers granted to the Trustee hereunder are being granted
in order to preserve and protect the security interest of the Trustee and the
Holders of the Senior Notes and the Discount Notes in and to the Collateral
granted hereby and shall not be interpreted to, and shall not impose any duties
on the Trustee in connection therewith other than those expressly provided
herein or imposed under applicable law. Except as provided by applicable law or
by the Indenture, the Trustee shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which the Trustee
accords similar property held by the Trustee for similar accounts, it being
understood that the Trustee in its capacity as such shall not have any
responsibility for
(a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturity or other matters relative to any Collateral,
whether or not the Trustee has or is deemed to have knowledge of such matters,
(b) taking any necessary steps to preserve rights against any
parties with respect to any Collateral,
(c) investing or reinvesting any of the Collateral other than as
directed by the Pledgor in accordance with Section 3 hereof, or
12
(d) the validity, sufficiency or priority of the Collateral or the
perfection or the maintenance of the perfection of any security interest granted
hereby, provided, however, that nothing contained in this Pledge Agreement shall
relieve the Trustee of any responsibilities as a securities intermediary under
applicable law.
SECTION 11. Indemnity
The Pledgor shall indemnify, hold harmless and defend the Trustee and its
directors, officers, agents and employees, from and against any and all claims,
actions, obligations, liabilities and expenses, including reasonable defense
costs, reasonable investigative fees and costs, and reasonable legal fees and
damages arising from the Trustee's performance as Trustee under this Pledge
Agreement, except to the extent that such claim, action, obligation, liability
or expense is directly attributable to the bad faith, gross negligence or
willful misconduct of such indemnified person. The provisions of this Section 11
shall survive termination of this Pledge Agreement and the registration and
removal of the Trustee.
SECTION 12. Remedies upon Event of Default
If any Event of Default under the Indenture or a material default
hereunder (any such Event of Default or default being referred to in this Pledge
Agreement as an "Event of Default") shall have occurred and be continuing:
(a) The Trustee and the Holders of the Senior Notes and the Discount
Notes shall have, on an equal and ratable basis, in addition to all other rights
given by law or by this Pledge Agreement or the Indenture, all of the rights and
remedies with respect to the Collateral of a secured party under the UCC. In
addition, with respect to any Collateral that shall then be in or shall
thereafter come into the possession or custody of the Trustee, the Trustee may
and, at the direction of the Holders of a majority in principal amount of the
Senior Notes and of the Discount Notes then outstanding shall, appoint a broker
or other expert to sell or cause the same to be sold at any broker's board or at
public or private sale, in one or more sales or lots, at such price or prices
such broker or other expert may deem best, for cash or on credit or for future
delivery, without assumption of any credit risk. The purchaser of any or all of
the Collateral so sold shall thereafter hold the same absolutely, free from any
claim, encumbrance or right of any kind whatsoever created by or through the
Pledgor. The Trustee will give the Pledgor reasonable notice of the time and
place of any public sale thereof, or of the time after which any private sale or
other intended disposition is to be made. Any sale of the Collateral conducted
in conformity with reasonable commercial practices of banks, insurance
companies, commercial finance companies or other financial institutions
disposing of property similar to the Collateral shall be deemed to be
commercially reasonable. Any requirements of reasonable notice shall be met if
such notice is mailed to the Pledgor as provided in Section 15.1 hereof at least
ten (10) days before the time of the sale or disposition. The Trustee or any
Holder of Senior Notes or Discount Notes may, in its own name or in the name of
a designee or nominee, buy any of the Collateral at any public sale and, if
permitted by applicable law, at any private sale. All expenses (including court
costs and reasonable attorneys' fees, expenses and disbursements) of, or
incident to, the
13
enforcement of any of the provisions hereof shall be recoverable from the
proceeds of the sale or other disposition of the Collateral.
(b) The Pledgor further agrees to use its reasonable best efforts to
do or cause to be done all such other acts as may be necessary to make such sale
or sales of all or any portion of the Collateral pursuant to this Section 12
valid and binding and in compliance with any and all other applicable
requirements of law. The Pledgor further agrees that a breach of any of the
covenants contained in this Section 12 will cause irreparable injury to the
Trustee and the Holders of the Senior Notes and the Discount Notes, that the
Trustee and the Holders of the Senior Notes and the Discount Notes have no
adequate remedy at law in respect of such breach and, as a consequence, that
each and every covenant contained in this Section 12 shall be specifically
enforceable against the Pledgor, and the Pledgor hereby waives and agrees not to
assert any defenses against an action for specific performance of such covenants
except for a defense that no Event of Default has occurred.
SECTION 13. Expenses
The Pledgor will upon demand pay to the Trustee the amount of any and all
reasonable expenses, including, without limitation, the reasonable fees,
expenses and disbursements of its counsel, experts and agents retained by the
Trustee, that the Trustee may incur in connection with
(a) the review, negotiation and administration of this Pledge
Agreement,
(b) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral,
(c) the exercise or enforcement of any of the rights of the Trustee
and the Holders of the Senior Notes and the Discount Notes hereunder or
(d) the failure by the Pledgor to perform or observe any of the
provisions hereof.
SECTION 14. Security Interest Absolute
All rights of the Trustee and the Holders of the Senior Notes and the
Discount Notes and security interests hereunder, and all obligations of the
Pledgor hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Indenture or the
indenture governing the Discount Notes or any other agreement or instrument
relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other amendment or
waiver of or any consent to any departure from the Indenture or the indenture
governing the Discount Notes;
14
(c) any exchange, surrender, release or non-perfection of any Liens
on any other collateral for all or any of the Secured Obligations; or
(d) to the extent permitted by applicable law, any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Pledgor in respect of the Secured Obligations or of this
Pledge Agreement.
SECTION 15. Miscellaneous Provisions
15.1 Notices. Any notice or communication shall be sufficiently given if
in writing and delivered in person or mailed by first class mail, commercial
courier service or telecopier communication, addressed as follows:
if to the Pledgor: Rhythms NetConnections Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇ Phleger & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ "▇" ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
if to the Trustee: State Street Bank and Trust Company of
California, N.A.
Library Tower
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Corporate Trust Department (Rhythms
NetConnections Inc. 12 3/4% Senior
Notes due 2009)
with a copy to: ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
15.2 No Adverse Interpretation of Other Agreements. This Pledge Agreement
may not be used to interpret another pledge, security or debt agreement of the
Pledgor or any subsidiary thereof. No such pledge, security or debt agreement
(other than the Indenture) may be used to interpret this Pledge Agreement.
15
15.3 Severability. The provisions of this Pledge Agreement are severable,
and if any clause or provision shall be held invalid, illegal or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provisions, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Pledge Agreement in any jurisdiction.
15.4 Headings. The headings in this Pledge Agreement have been inserted
for convenience of reference only, are not to be considered a part thereof and
shall in no way modify or restrict any of the terms or provisions hereof.
15.5 Counterpart Originals. This Pledge Agreement may be signed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall together constitute one and the same agreement.
15.6 Benefits of Pledge Agreement. Nothing in this Pledge Agreement,
express or implied, shall give to any person, other than the parties hereto and
their successors hereunder, and the Holders of the Senior Notes and the Discount
Notes, any benefit or any legal or equitable right, remedy or claim under this
Pledge Agreement.
15.7 Amendments, Waivers and Consents. Any amendment or waiver of any
provision of this Pledge Agreement and any consent to any departure by the
Pledgor from any provision of this Pledge Agreement shall be effective only if
made or duly given in compliance with all of the terms and provisions of the
Indenture, and neither the Trustee nor any Holder of Senior Notes or Discount
Notes shall be deemed, by any act, delay, indulgence, omission or otherwise, to
have waived any right or remedy hereunder or to have acquiesced in any Event of
Default or in any breach of any of the terms and conditions hereof. Failure of
the Trustee or any Holder of Senior Notes or Discount Notes to exercise, or
delay in exercising, any right, power or privilege hereunder shall not preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. A waiver by the Trustee or any Holder of the Senior Notes or the
Discount Notes of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy that the Trustee or such Holder of
Senior Notes or Discount Notes would otherwise have on any future occasion. The
rights and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
15.8 Interpretation of Agreement. To the extent a term or provision of
this Pledge Agreement conflicts with the Indenture, the Indenture shall control
with respect to the subject matter of such term or provision. Acceptance of or
acquiescence in a course of performance rendered under this Pledge Agreement
shall not be relevant to determine the meaning of this Pledge Agreement even
though the accepting or acquiescing party had knowledge of the nature of the
performance and opportunity for objection.
15.9 Continuing Security Interest; Termination.
(a) This Pledge Agreement shall create a continuing security
interest in and to the Collateral and shall, unless otherwise provided in the
Indenture or in this Pledge Agreement,
16
remain in full force and effect until the payment in full in cash of the Secured
Obligations. This Pledge Agreement shall be binding upon the Pledgor, its
transferees, successors and assigns, and shall inure, together with the rights
and remedies of the Trustee hereunder, to the benefit of the Trustee, the
Holders of the Senior Notes and the Discount Notes and their respective
successors, transferees and assigns.
(b) This Pledge Agreement shall terminate upon the payment in full
in cash of the Secured Obligations. At such time, the Trustee shall, pursuant to
an Issuer Order, reassign and redeliver to the Pledgor all of the Collateral
hereunder that has not been sold, disposed of, retained or applied by the
Trustee in accordance with the terms of this Pledge Agreement and the Indenture.
Such reassignment and redelivery shall be without warranty by or recourse to the
Trustee in its capacity as such, except as to the absence of any Liens on the
Collateral created by or arising through the Trustee, and shall be at the
reasonable expense of the Pledgors.
15.10 Survival Provisions. All representations, warranties and covenants
of the Pledgor contained herein shall survive the execution and delivery of this
Pledge Agreement, and shall terminate only upon the termination of this Pledge
Agreement. The obligations of the Pledgor under Sections 11 and 13 hereof shall
survive the termination of this Pledge Agreement.
15.11 Waivers. The Pledgor waives presentment and demand for payment of
any of the Secured Obligations, protest and notice of dishonor or default with
respect to any of the Secured Obligations, and all other notices to which the
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
15.12 Authority of the Trustee.
(a) The Trustee shall have and be entitled to exercise all powers
hereunder that are specifically granted to the Trustee by the terms hereof,
together with such powers as are reasonably incident thereto. The Trustee may
perform any of its duties hereunder or in connection with the Collateral by or
though agents or employees and shall be entitled to retain counsel and to act in
good faith in reliance upon the advice of counsel concerning all such matters.
Except as otherwise expressly provided in this Pledge Agreement, the Indenture
or the indenture governing the Discount Notes, neither the Trustee nor any
director, officer, employee, attorney or agent of the Trustee shall be liable to
the Pledgor for any action taken or omitted to be taken by the Trustee, in its
capacity as Trustee, hereunder, except for its own bad faith, gross negligence
or willful misconduct, and the Trustee shall not be responsible for the
validity, effectiveness, sufficiency or priority hereof or of any document or
security furnished pursuant hereto. The Trustee and its directors, officers,
employees, attorneys and agents shall be entitled to rely on any communication,
instrument or document believed by it or them to be genuine and correct and to
have been signed or sent by the proper person or persons. The Trustee shall have
no duty to cause any financing statement or continuation statement to be filed
in respect of the Collateral.
(b) The Pledgor acknowledges that the rights and responsibilities of
the Trustee under this Pledge Agreement with respect to any action taken by the
Trustee or the exercise or non-exercise by the Trustee of any option, right,
request, judgment or other right or remedy provided for herein or resulting or
arising out of this Pledge Agreement shall, as between
17
the Trustee and the Holders of the Senior Notes and the Discount Notes, be
governed by the Indenture and the indenture governing the Discount Notes and by
such other agreements with respect thereto as may exist from time to time among
them, but, as between the Trustee and the Pledgor, the Trustee shall be
conclusively presumed to be acting as agent for the Holders of the Senior Notes
and the Discount Notes with full and valid authority so to act or refrain from
acting, and the Pledgor shall not be obligated or entitled to make any inquiry
respecting such authority.
15.13 Final Expression. This Pledge Agreement, together with the Indenture
and any other agreement executed in connection herewith, is intended by the
parties as a final expression of this Pledge Agreement and is intended as a
complete and exclusive statement of the terms and conditions thereof.
15.14 Rights of Holders of the Notes. No Holder of Senior Notes or
Discount Notes shall have any independent rights hereunder other than those
rights granted to individual Holders of the Senior Notes or Discount Notes
pursuant to Section 5.08 of the Indenture and Section 5.08 of the indenture
governing the Discount Notes, respectively; provided that nothing in this
subsection shall limit any rights granted to the Trustee under the Senior Notes,
the Discount Notes, the Indenture or the indenture governing the Discount Notes.
15.15 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial;
Waiver of Damages.
(a) THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER
THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THE
PLEDGOR, THE TRUSTEE AND THE HOLDERS OF THE SENIOR NOTES AND THE DISCOUNT NOTES
IN CONNECTION WITH THIS PLEDGE AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT,
EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. NOTWITHSTANDING
THE FOREGOING: THE MATTERS IDENTIFIED IN 31 C.F.R. SECTIONS 357.10 AND 357.11
(AS IN EFFECT ON THE DATE OF THIS AGREEMENT) SHALL BE GOVERNED SOLELY BY THE
LAWS SPECIFIED THEREIN.
(b) THE PLEDGOR AGREES THAT NEITHER ANY HOLDER OF SENIOR NOTES OR
DISCOUNT NOTES NOR (EXCEPT AS OTHERWISE PROVIDED IN THIS PLEDGE AGREEMENT, THE
INDENTURE OR THE INDENTURE GOVERNING THE DISCOUNT NOTES) THE TRUSTEE IN ITS
CAPACITY AS TRUSTEE SHALL HAVE ANY LIABILITY TO THE PLEDGOR (WHETHER ARISING IN
TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE PLEDGOR IN CONNECTION
WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED
AND THE RELATIONSHIP ESTABLISHED BY THIS PLEDGE AGREEMENT, OR ANY ACT, OMISSION
OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL
AND NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING ON THE TRUSTEE OR SUCH
HOLDER OF SENIOR NOTES OR DISCOUNT NOTES, AS THE CASE MAY BE, THAT SUCH LOSSES
18
WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF THE TRUSTEE OR SUCH HOLDERS
OF SENIOR NOTES OR DISCOUNT NOTES, AS THE CASE MAY BE, CONSTITUTING BAD FAITH,
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(c) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR WAIVES
THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE TRUSTEE OR ANY HOLDER OF
SENIOR NOTES OR DISCOUNT NOTES IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER PERTAINING TO THIS
PLEDGE AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT ENTERED IN FAVOR OF THE
TRUSTEE OR ANY HOLDER OF SENIOR NOTES OR DISCOUNT NOTES, OR TO ENFORCE BY
SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR PERMANENT
INJUNCTION, THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT BETWEEN
THE PLEDGOR ON THE ONE HAND AND THE TRUSTEE AND/OR THE HOLDERS OF THE SENIOR
NOTES OR DISCOUNT NOTES ON THE OTHER HAND.
15.16 Wire Transfers.
(a) The Trustee is authorized to seek confirmation of fund transfer
instructions by telephone call-back to the person or persons designated on
Exhibit E hereto, and the Trustee may rely upon the confirmations of anyone
purporting to be the person or persons so designated. The persons and telephone
numbers for call-backs may be changed only in a writing actually received and
acknowledged by the Trustee. The parties to this Pledge Agreement acknowledge
that such security procedure is commercially reasonable.
(b) It is understood that the Trustee and the beneficiary's bank in
any funds transfer may rely solely upon any account numbers or similar
identifying number provided by either of the other parties hereto to identify
(i) the beneficiary, (ii) the beneficiary's bank, or (iii) an order it executes
using any such identifying number, even where its use may result in a person
other than the beneficiary being paid, or the transfer of funds to a bank other
than the beneficiary's bank or an intermediary bank designated.
19
IN WITNESS WHEREOF, the Pledgor and the Trustee have each caused this
Pledge Agreement to be duly executed and delivered as of the date first above
written.
Pledgor:
RHYTHMS NETCONNECTIONS INC.
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: Chief Executive Officer & President
Trustee:
STATE STREET BANK OF TRUST COMPANY OF
CALIFORNIA, N.A.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Assistant Vice President
20
EXHIBIT A
[Letterhead]
April 23, 1999
Independent Public Accountants' or Investment Banking Firms' Report
on Sufficiency of Marketable U.S. Securities
[to be supplied separately by Pricewaterhouse Coopers LLP]
A-1
EXHIBIT B
RHYTHMS NETCONNECTIONS INC.
The undersigned officers of Rhythms NetConnections Inc. a Delaware
corporation (the "Pledgor"), hereby certify to the Trustee, pursuant to Section
3.3 of the Pledge and Escrow Agreement dated as of April 23, 1999 (the "Pledge
Agreement") between the Pledgor and State Street Bank and Trust Company of
California, N.A., as trustee (the "Trustee") under the Indenture dated as of
April 23, 1999 (the "Indenture") between the Pledgor and the Trustee, as
follows:
The representations and warranties of the Pledgor set forth in Section 5
of the Pledge Agreement are true and correct as of the day hereof.
RHYTHMS NETCONNECTIONS INC.
By:_______________________________________
Name:
Title:
Dated:___________________________
▇-▇
▇▇▇▇▇▇▇ ▇
▇▇▇▇▇ ▇▇, ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ and Trust Company of California, N.A.
Library Tower
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: Rhythms NetConnections Inc.
Dear Sir or Madam:
Reference is made to Collateral Investments Account No. 122038-0110 into
which certain securities, instruments and other properties are deposited from
time to time (the "Collateral Investments Account") maintained by you (the
"Trustee"). Pursuant to the Pledge and Escrow Agreement dated April 23, 1999
(the "Pledge Agreement"), Rhythms NetConnections Inc. (the "Pledgor"), has
granted to the Trustee for the holders of 12 3/4% Senior Notes due 2009 referred
to in the Indenture dated as of April 23, 1999 (the "Indenture") and the
Pledgor's 13 1/2% Senior Discount Notes due 2008 (the "Discount Notes"), between
the Trustee and the Pledgor, a security interest in certain property of the
Pledgor, including, among other things, the following (the "Collateral
Investments"): (a) the Collateral Investments Account and the Cash Collateral
Account, (b) all certificates and instruments, if any, representing or
evidencing the Collateral and the Collateral Investments, (c) any and all
securities entitlements to the Collateral and the Collateral Investments, (d)
any and all related securities accounts in which security entitlements to the
Collateral and the Collateral Investments are carried, (e) all notes,
certificates of deposit, deposit accounts, checks and other instruments from
time to time hereafter delivered to or otherwise possessed by the Trustee for or
on behalf of the Pledgor in substitution for or in addition to any or all the
then existing Collateral or Collateral Investments, (f) all interest, dividends,
cash, instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the then
existing Collateral or Collateral Investments, and (g) all proceeds of any and
all of the foregoing Collateral (including, without limitation, proceeds that
constitute property of the types described in clauses (a) - (f) of this
paragraph) and, to the extent not otherwise included, all cash. It is a
condition to the continued maintenance of the Collateral Investments Account
with you that you agree to this letter agreement.
By signing this letter agreement, you acknowledge notice of, and consent
to the terms and provisions of, the Pledge Agreement, a copy of which is
attached hereto, and confirm to the Trustee that the description of the
Collateral Investments Account set forth on Schedule 1 hereof is correct and
that you have received no notice of any other pledge or assignment of the
Collateral Investments Account. Further, you hereby agree with the Trustee that:
(a) Notwithstanding anything to the contrary in any other agreement
relating to the Collateral Investments Account, the Collateral Investments
Account is and will be subject to the
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terms and conditions of the Pledge Agreement, will be maintained solely for the
benefit of the Trustee, will be entitled "Rhythms Collateral Investments
Account" and will be subject to written instructions only from an officer of the
Trustee. You hereby agree to comply with all instructions (including, without
limitation, any instructions to liquidate all or less than all the Collateral
Investments and transfer the proceeds thereof to the Trustee), originated by the
Trustee relating to the Collateral Investments Account without further consent
from any other person (including, without limitation, the Pledgor), and not to
comply with any instructions originated by any person other than the Trustee.
(b) You will maintain a record of all securities, instruments, checks and
other remittance items received in the Collateral Investments Account and, in
addition to providing the Trustee and the Pledgor with a report describing the
contents on the Collateral Investments Account on a regular basis (or upon
Trustee's or Pledgor's request), furnish to the Trustee a monthly statement of
the Collateral Investments Account to be transmitted electronically to the
Trustee at Library Tower, ▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Corporate Trust Department (Rhythms NetConnections
Inc. 12 3/4% Senior Notes due 2009).
(c) You will transfer, in same day funds, as soon as practicable upon
receipt, all amounts collected from the Collateral Investments Account on such
day to Cash Collateral Account No. 122038-020 (the "Cash Collateral Account").
(d) All transfers referred to in paragraph (c) above shall be made by you
irrespective of, and without deduction for, any counterclaim, defense,
recoupment or set-off and shall be final, and you will not seek to recover from
the Trustee for any reason any such payment once made.
(e) All service charges and fees with respect to the Collateral
Investments Account shall be payable by the Pledgor.
(f) The Trustee shall be entitled to exercise any and all rights of the
Pledgor in respect of the Collateral Investments Account in accordance with the
terms of the pledge Agreement, and the undersigned shall comply in all respects
with such exercise.
This letter agreement shall be binding upon you and your successors and
assigns and shall inure to the benefit of the Trustee, the holders of the Notes
and the Discount Notes and their successors, transferees and assigns. You may
terminate this letter agreement only upon thirty days' prior written notice to
the Pledgor and the Trustee. Upon such termination you shall close the
Collateral Investments Account and transfer all funds in the Collateral
Investments Account to the Cash Collateral Account. After any such termination,
you shall nonetheless remain obligated promptly to transfer to the Cash
Collateral Account all securities, instruments, funds and other property
received in respect of the Collateral Investments Account.
This letter agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to choice-of-law
principles.
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Very truly yours,
RHYTHMS NETCONNECTIONS INC.
By:_______________________________________
Name:
Title:
Acknowledged and agreed to
as of the date first above written:
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.
By:___________________________________
Name:
Title:
▇-▇
▇▇▇▇▇▇▇ ▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ AND TRUST COMPANY OF CALIFORNIA, N.A.
OFFICER'S CERTIFICATE
Pursuant to the Pledge and Escrow Agreement (the "Pledge Agreement") dated
as of April 23, 1999 by and among Rhythms NetConnections Inc. (the "Pledgor")
and State Street Bank and Trust Company of California, N.A., as trustee (the
"Trustee") for the holders of the Pledgor's 12 3/4% Senior Notes due 2009 and 13
1/2% Senior Discount Notes due 2008, the undersigned officer of the Trustee, on
behalf of the Trustee, makes the following certifications to the Pledgor and the
Initial Purchasers. Capitalized terms used and not defined in this Officer's
Certificate have the meanings set forth or referred to in the Pledge Agreement.
1. Substantially contemporaneously with the execution and delivery of this
Officer's Certificate, the Trustee has established with State Street Bank and
Trust Company of California, N.A. a cash collateral account (the "Cash
Collateral Account") and, as securities intermediary, a securities account in
the name of "Rhythms Collateral Investments Account" (the "Collateral
Investments Account") with respect to which the Trustee is the entitlement
holder, and has made appropriate book entries in its records establishing that
the Initial Portfolio and the Collateral Investments and the Trustee's
securities entitlement thereto have been credited to and are held in the Cash
Collateral Account or the Collateral Investments Account, as the case may be,
all in accordance with the Pledge Agreement.
2. The Trustee has established and maintained and will maintain the Cash
Collateral Account and the Collateral Investments Account and all securities
entitlements and other positions carried in the Cash Collateral Account or the
Collateral Investments Account solely in its capacity as Trustee and has not
asserted and will not assert any claim to or interest in the Cash Collateral
Account or the Collateral Investments Account or any such securities
entitlements or other positions except in such capacity.
3. The Trustee has acquired its security entitlement to the Collateral
Investments directly through a "securities account" (as defined in Section
8-501(a) of the UCC) maintained by State Street Bank and Trust Company for the
benefit of State Street Bank and Trust Company of California, N.A. at the
Federal Reserve Bank of Boston, as securities intermediary, for value and
without notice of any adverse claim thereto. Without limiting the generality of
the foregoing, the Cash Collateral Account and the Collateral Investments are
not and the Trustee's security entitlement to the Collateral Investments is not,
to the Trustee's knowledge, subject to any Lien granted by or to arising through
or in favor of any securities intermediary (including, without limitation, State
Street Bank and Trust Company or the Federal Reserve Bank of Boston) through
which the Trustee derives its security entitlement to the Collateral
Investments.
4. The Trustee has not caused or permitted the Cash Collateral Account or
the Collateral Investments or its security entitlement hereto to become subject
to any Lien created by or arising through the Trustee.
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IN WITNESS WHEREOF, the undersigned officer has executed this Officer's
Certificate on behalf of State Street Bank and Trust Company of California, N.A.
as Trustee this 23rd day of April, 1999.
STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A.
By:_______________________________________
Name:
Title:
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EXHIBIT E
Telephone Numbers for Call-Backs and
Persons Designated to Confirm Funds Transfer Instructions
If to Pledgor:
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Name Telephone Number
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
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