<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ROCKY MOUNTAIN INTERNET, INC.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the approximate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration number or the
Form or schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------
(3) Filing Party:
---------------------------------------------------------------
(4) Date Filed:
---------------------------------------------------------------
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
999 EIGHTEENTH STREET, SUITE 2201
DENVER, COLORADO 80202
(303) 672-0700
May 25, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of
Stockholders of Rocky Mountain Internet, Inc. (the "Company"), which will be
held on Thursday, June 24, 1999 at 12:00 noon (local time), at the Embassy
Suites Hotel, 1881 Curtis Street, Denver, Colorado.
At this meeting, you will be asked to vote, in person or by proxy, on
the following matters:
1. the election of five directors to serve on the Board of Directors for
a one-year term;
2. the change of the name of the Company from Rocky Mountain Internet,
Inc. to "RMI.net;"
3. the approval of an amendment to the Company's Amended and Restated
Certificate of Incorporation, as amended, to increase the number of
authorized shares of the Company's common stock;
4. the approval of the Company's 1998 Employees' Option Plan as amended
to increase the number of shares of the Company's common stock that
may be issued thereunder;
5. the ratification and approval of the issuance of the Company's Series
B Convertible Preferred Stock (including shares to be issued as
dividends) and related issuances;
6. the ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors; and
7. any other business as may properly come before the meeting or any
adjournments thereof.
The official Notice of Meeting, Proxy Statement and form of proxy are
included with this letter. The matters listed in the Notice of Meeting are
described in detail in the accompanying Proxy Statement.
Regardless of your plans for attending in person, it is important that
your shares be represented and voted at the 1999 Annual Meeting.
Accordingly, you are urged to complete, sign and mail the enclosed proxy card
as soon as possible.
Sincerely,
/s/ DOUGLAS H. HANSON
Douglas H. Hanson
Chairman and Chief Executive Officer
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
999 EIGHTEENTH STREET, SUITE 2201
DENVER, COLORADO 80202
(303) 672-0700
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 24, 1999
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders (the
"Annual Meeting") of Rocky Mountain Internet, Inc. (the "Company") will be
held on Thursday, June 24, 1999 at 12:00 noon (local time), at the Embassy
Suites Hotel, 1881 Curtis Street, Denver, Colorado and any postponements and
adjournments thereof, to consider and act upon the following proposals:
1. To elect five directors to serve on the Board of Directors for a
one-year term and until their successors are elected and qualified;
2. To approve and adopt and amendment to Article 1 of the Company's
Amended and Restated Certificate of Incorporation to change the name
of the Company from Rocky Mountain Internet, Inc. to "RMI.net;"
3. To approve and adopt an amendment to Article 4 of the Company's
Amended and Restated Certificate of Incorporation, as amended, to
increase the number of authorized shares of the Company's common
stock;
4. To approve the Company's 1998 Employee Option Plan as amended to
increase the number of shares of the Company's common stock that may
be issued thereunder;
5. To ratify and approve the issuance of the Company's Series B
Convertible Preferred Stock and any future issuance of preferred
stock with identical terms to the Series B Convertible Preferred
Stock, the warrants to purchase common stock issued therewith and
the shares of common stock issuable upon conversion thereof;
6. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999; and
7. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on May 14, 1999 as the
record date for the determination of stockholders entitled to notice of and
to vote at the Annual Meeting. Only holders of common stock of record at the
close of business on that date will be entitled to notice of and to vote at
the Annual Meeting or any adjournments thereof. A list of the Company's
stockholders entitled to vote at the Annual Meeting will be open to the
examination of any stockholder for any purpose germane to the meeting during
ordinary business hours for a period of ten days before the Annual Meeting at
the Company's offices. All stockholders are cordially invited to attend the
Annual Meeting.
By Order of the Board of Directors
/s/ CHRISTOPHER J. MELCHER
Christopher J. Melcher
Corporate Secretary
Denver, Colorado
May 25, 1999
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES. YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT
ANY TIME PRIOR TO THE TIME IT IS VOTED.
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
999 EIGHTEENTH STREET, SUITE 2201
DENVER, COLORADO 80202
----------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 24, 1999
----------------------
This proxy statement contains information related to the annual meeting
of stockholders of Rocky Mountain Internet, Inc. to be held on Thursday, June
24, 1999, beginning at 12:00 noon (local time) at Embassy Suites Hotel, 1881
Curtis Street, Denver, Colorado 80202 and at any postponements or
adjournments thereof.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At our annual meeting, stockholders will act upon the matters outlined
in the accompanying notice of meeting. In addition, the Company's management
will report on the performance of the Company during fiscal 1998 and respond
to questions from stockholders.
WHO IS ENTITLED TO VOTE?
Only stockholders of record at the close of business on the record date,
May 14, 1999, are entitled to receive notice of the annual meeting and to
vote the shares of common stock that they held on that date at the meeting,
or any postponement or adjournment of the meeting. Each outstanding share
entitles its holder to cast one vote on each matter to be voted upon.
WHO CAN ATTEND THE MEETING?
All stockholders as of the record date (May 14, 1999), or their duly
appointed proxies, may attend the meeting, and each may be accompanied by one
guest. Seating, however, is limited. Admission to the meeting will be on a
first-come, first-served basis. Registration and seating will begin at 9:00
a.m. Each stockholder may be asked to present valid picture identification,
such as a driver's license or passport. Cameras, recording devices and other
electronic devices will not be permitted at the meeting. Parking is available
at local garages at fees ranging from $5 to $10.
Many of you hold your shares in "street name," that is, through a broker
or other nominee. If you hold your shares in street name, you will need to
bring a copy of a brokerage statement reflecting your stock ownership as of
the record date and check in at the registration desk at the meeting.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on the record date will
constitute a quorum, permitting the meeting to conduct its business. As of
the record date, __________________ shares of common stock of the Company
were outstanding. Proxies received but marked as abstention and broker
non-votes will be included in the calculation of the number of shares
considered to be present at the meeting.
1
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HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and return
it to the Company, it will be voted as you direct. If you are a registered
stockholder and attend the meeting, you may deliver your completed proxy card
in person. "Street name" stockholders who wish to vote at the meeting will
need to obtain a proxy form from the institution that holds their shares.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy, you may change your vote
at any time before the proxy is exercised by filing with the Secretary of the
Company either a notice of revocation or a duly executed proxy bearing a
later date. The powers of the proxy holders will be suspended if you attend
the meeting in person and so request, although attendance at the meeting will
not by itself revoke a previously granted proxy.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
----------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF THE NOMINATED
SLATE OF DIRECTORS AND FOR EACH OF THE PROPOSALS IN THIS PROXY STATEMENT.
----------------------
The Board's recommendation is also set forth together with the
description of each item in this proxy statement. Unless you give other
instructions on your proxy card, the persons named as proxy holders on the
proxy card will vote in accordance with the recommendations of the Board of
Directors.
With respect to any other matter that properly comes before the meeting,
the proxy holders will vote as recommended by the Board of Directors or, if
no recommendation is given, in their own discretion.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
For each item, the affirmative vote of the holders of a majority of the
shares represented in person or by proxy and entitled to vote on the matter
is required for approval, except that approval of Proposals 2 and 3 require
the vote of a majority of the outstanding shares of the Company's common
stock. A properly executed proxy marked:
* "WITHHOLD AUTHORITY" with respect to the election of one or more
directors; or
* "ABSTAIN" with respect to any other matters
will not be voted, although it will be counted for purposes of determining
whether there is a quorum. Accordingly, such a proxy will have the effect of
a negative vote. A properly executed, but UNMARKED proxy will be voted FOR
the election of the nominated slate of five directors and FOR each of the
proposals.
WHAT ARE "BROKER NON-VOTES" AND HOW WILL THEY BE COUNTED?
"Broker non-votes occur when you hold your shares in "street name"
through a broker of other nominee, and you do not give your broker or nominee
specific instructions on your proxy card. If you fail to complete your proxy
card:
* your broker or nominee may not be permitted to exercise voting
discretion with respect to some of the matters to be acted upon; and
* your shares may not be voted on those matters and will not be counted
in determining the number of shares necessary for approval.
Broker non-votes will have the effect of a negative vote. Shares represented
by such "broker non-votes" will, however, be counted in determining whether
there is a quorum.
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WHO WILL BEAR THE COST OF SOLICITING PROXIES?
The Company will bear the cost of soliciting proxies, including expenses
in connection with preparing and mailing this Proxy Statement. In addition,
the Company will reimburse brokerage firms and other persons representing you
for their expenses in forwarding proxy material to you. The Company's
directors, officers and employees may also solicit you by telephone and other
means, but they will not receive any additional compensation for the
solicitation.
STOCK OWNERSHIP
HOW MUCH STOCK DO THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS OWN AND HOW
DO THEY INTEND TO VOTE?
The following table shows the amount of common stock of the Company
beneficially owned (unless otherwise indicated) by the directors and
executive officers of the Company named in the Summary Compensation Table
below and the directors and executive officers of the Company as a group.
The officers and directors have indicated that they intend to vote FOR
election of the nominated slate of directors and FOR each of the proposals in
this proxy statement. Except as otherwise indicated, all information is as of
March 31, 1999.
<TABLE>
<CAPTION>
AGGREGATE NUMBER OF PERCENT OF
SHARES BENEFICIALLY SHARES
NAME OWNED (1) OUTSTANDING
---- ------------------- -----------
<S> <C> <C>
Douglas H. Hanson 6,665,140 (2) 46.6%
D. D. Hock 10,000 (3) *
Robert W. Grabowski 14,800 (4) *
Lewis H. Silverberg 15,000 (5) *
Mary Beth Vitale 10,000 (6) *
Michael R. Mara 110,500 (7) 1.1%
All Directors and Executive
Officers as a Group (12
persons) 7,093,140 (8) 49.0%
</TABLE>
* Less than one percent.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
person is deemed to be the beneficial owner, for purposes of this table, of
any shares of common stock if such person has or shares voting power or
investment power with respect to such security, or has the right to acquire
beneficial ownership at any time within 60 days from March 31, 1999. For
purposes of this table, "voting power" is the power to vote or direct the
voting of shares and "investment power" is the power to dispose or direct
the disposition of shares.
(2) Includes 1,913,615 shares of common stock directly owned by Mr. Hanson,
3,925,000 shares of common stock that Mr. Hanson has the right to acquire
within 60 days of March 31,1999 pursuant to warrants, 191,385 shares of
common stock that Mr. Hanson has the right to acquire within 60 days of
March 31, 1999 pursuant to incentive stock options, and 635,140 shares of
common stock owned by Christopher K. Phillips (170,000 shares), Jim D.
Welch (86,340 shares), and Kevin R. Loud (378,800 shares), as to which Mr.
Hanson acquired voting power pursuant to a voting rights agreement and
irrevocable proxy.
(3) Includes 10,000 shares of common stock that Mr. Hock has the right to
acquire within 60 days of March 31, 1999 pursuant to options.
(4) Includes 4,800 shares of common stock and 10,000 shares of common stock
that Mr. Grabowski has the right to acquire within 60 days of March 31,
1999 pursuant to options.
(5) Includes 5,000 shares of Common Stock and 10,000 shares of common stock
that Mr. Silverberg has the right to acquire within 60 days of March 31,
1999 pursuant to options.
(6) Includes 10,000 shares of common stock that Ms. Vitale has the right to
acquire within 60 days of March 31, 1999 pursuant to options.
3
<PAGE>
(7) Includes 65,833 shares of common stock that Mr. Mara has the right to
acquire within 60 days of March 31, 1999 pursuant to options.
(8) Includes 271,318 shares of common stock that such persons have the right to
acquire within 60 days of March 31, 1999 pursuant to warrants and options.
WHO ARE THE LARGEST OWNERS OF THE COMPANY'S STOCK?
As of March 31, 1999, the Company is not aware of any persons or entities
that beneficially own more than five percent of the Company's common stock
other than Douglas H. Hanson.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors is currently made up of five directors. Each
director is elected for a one-year term that expires at the 1999 annual
meeting. The Board of Directors proposes that the nominees described below,
all of whom are currently serving as directors, be re-elected for a new term
of one year and until their successors are duly elected and qualified.
Each of the nominees has consented to serve a one-year term. If any of
them should become unavailable to serve as a director, the Board may
designate a substitute nominee. In that case, the persons named as proxies
will vote for the substitute nominee designated by the Board.
DIRECTORS STANDING FOR ELECTION
The directors standing for election are:
DOUGLAS H. HANSON Director since 1998
Mr. Hanson, 54, has been the Chief Executive Officer and Chairman of the
board of directors of the Company since October 1997. Mr. Hanson also
served as the Company's President from October 1997 until January, 1999.
From 1987 to 1997, Mr. Hanson was the President and Chief Executive Officer
and a director of Qwest Communications, Inc., a Colorado-based
telecommunications company, as well as founder of Qwest's predecessor, SP
Telecom. Before founding SP Telecom, Mr. Hanson was Vice President of
FiberTrak, a telecommunications joint venture among Santa Fe, Norfolk and
SP railroads. He also held various positions at Southern Pacific
Transportation Co. Mr. Hanson currently sits on the board of directors of
the Competitive Telecommunications Association, The Metropolitan State
College Foundation Board, and the Board of Trustees of the Salvation Army,
Intermountain Division, and is engaged in other civic activities.
MARY BETH VITALE Director since 1998
Ms. Vitale, 44, has been a director of the Company since January 1998. In
January 1999, Ms. Vitale accepted an offer to become the President and
Chief Operating Officer of the Company . From 1994 to October 1997, she
was an executive of AT&T Corporation, including President -- Western States
from January to October 1997 in Denver, Colorado. Prior to joining AT&T,
Ms. Vitale was Vice President of marketing for US WEST Communications, Inc.
(1994), Region Executive Director for US WEST Cellular (1991 to 1993) and
Region General Manager for US WEST Cellular (1989 to 1991). She holds a
Bachelor of Arts degree from Hillsdale College, a Master of Science degree
from the University of Colorado and an Advanced Management degree from the
Wharton School of Business.
ROBERT W. GRABOWSKI Director since 1998
Mr. Grabowski, 57, has been a director of the Company since January, 1998.
He has been the Vice President, Finance and Administration, Sunny Side,
Inc./Temp Side, a private employment service, since 1988. He has been a
certified public accountant since 1968 and holds a Bachelor of Science
degree from De Paul University.
D.D. HOCK Director since 1998
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<PAGE>
Mr. Hock, 63, has been a director of the Company since October, 1997.
Prior to becoming a director, Mr. Hock was an executive with Public Service
Company of Colorado, including the President, Chief Executive Officer and
Chairman of the Board of Directors from February 1989 to July 1994,
Chairman and Chief Executive Officer from July 1994 to January 1996 and
Chairman from January 1996 to February 1997, when he retired.
LEWIS H. SILVERBERG Director since 1998
Mr. Silverberg, 63, has been a director of the Company since January, 1998.
Mr. Silverberg has been a business consultant since January 1994, advising
privately held businesses on their formation, sale and financing. In
September 1990, Mr. Silverberg joined Liquor Barn, Inc., which operated a
chain of retail stores and was in a bankruptcy reorganization proceeding at
that time. Mr. Silverberg was the Executive Vice President and a director
of Liquor Barn, Inc. until December 1993. The business was liquidated
after Mr. Silverberg's departure in 1993. Mr. Silverberg is an attorney
and has been a member of the California bar since 1959.
Unless otherwise instructed on the proxy, properly executed proxies will be
voted for the election of the five director nominees. The affirmative vote
of a majority of the outstanding shares of common stock is required to elect
the directors.
----------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE ELECTION OF THE NOMINATED SLATE OF DIRECTORS.
----------------------
CORPORATE GOVERNANCE AND OTHER MATTERS
The Board of Directors conducts its business through meetings and
through its committees. The Board of Directors acts as a nominating committee
for selecting candidates to stand for election as directors.
HOW OFTEN DID THE BOARD MEET IN 1998?
During the year ended December 31, 1998, the Board of Directors held
eight meetings. During the fiscal year ended December 31, 1998, no
director attended fewer than 75% of the total number of all meetings of the
Board of Directors and any committee on which the director served.
WHAT COMMITTEES HAS THE BOARD ESTABLISHED?
The Board of Directors currently has three committees: the Audit
Committee, the Compensation Committee, and the 16b Committee.
AUDIT COMMITTEE. The Audit Committee, among other things, recommends
the firm to be appointed as independent accountants to audit the Company's
financial statements, discusses the scope and results of the audit with the
independent accountants, reviews with management and the independent
accountants the Company's interim and year-end operating results, considers
the adequacy of the internal accounting controls and audit procedures of the
Company and reviews the non-audit services to be performed by the independent
accountants. The Audit Committee is comprised of three directors, a majority
of whom are non-employee directors. The current members of the Audit
Committee are Messrs. Grabowski, Hock and Hanson. The Audit Review Committee
met two times in 1998.
COMPENSATION COMMITTEE. The Compensation Committee reviews the salaries,
benefits and other compensation of our officers and key employees. The
Compensation Committee's responsibilities include employment contracts,
pensions, performance and incentive-based compensation and stock option
plans, except with respect to matters entrusted the Section 16b Committee as
described below. The Compensation Committee then makes recommendations to
the Board of Directors based on its review. The current members of the
Compensation Committee are Messrs. Hock, Grabowski and Hanson. Ms. Vitale
served as a member of the Compensation Committee until
5
<PAGE>
January of 1999, when Ms. Vitale became an officer of the Company. Mr.
Hanson does not vote on any matters affecting his personal compensation. Mr
Hanson and the other members of the Compensation Committee review and
establish the salaries, benefits and other compensation of all other
employees. The Compensation Committee met two times in 1998.
16b COMMITTEE. The 16b Committee reviews managements' recommendations
regarding various compensation issues, including issuance of stock options to
officers and directors who are subject to stock ownership reporting
obligations under Section 16 of the Securities Exchange Act of 1934, as
amended. The 16b Committee is comprised of two non-employee directors: D.D.
Hock and Robert W. Grabowski. Ms. Vitale served as a member of the 16b
Committee until January of 1999, when Ms. Vitale became an officer of the
Company. The 16b Committee met two times in 1998.
HOW ARE DIRECTORS COMPENSATED?
BASE COMPENSATION. Each non-employee director receives an annual
retainer based on a prorated rate of $12,000 per year. Directors who are
also employees receive no additional compensation for service as directors.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. Under the 1996
Non-Employee Directors' Stock Option Plan, each non-employee director
receives an option to purchase 1,500 shares of common stock upon appointment
or election to the Board of Directors. Thereafter, on the first, second and
third anniversary of appointment or election, each non-employee director
receives an automatic grant of options to purchase 1,500 shares of common
stock, up to a maximum of 6,000 shares. For fiscal 1998, Ms. Vitale and
Messrs. Grabowski, Hock and Silverberg received grants under this plan. Each
option grant, vesting six months after the date of grant and having a
five-year term, permits the holder to purchase shares at their fair market
value on the date of grant. To date, options to purchase the following
amounts of common stock have been issued:
<TABLE>
<CAPTION>
Number of Shares Issuable
Non-Employee Director Upon Exercise
--------------------- --------------------------
<S> <C>
Robert Grabowski 1,500
D.D. Hock 1,500
Lewis Silverberg 1,500
Mary Beth Vitale 1,500
-----
Total 6,000
-----
-----
</TABLE>
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. Under the 1998
Non-Employee Directors' Stock Option Plan, each person who was serving as a
non-employee director in January 1998 received an option to purchase 8,500
shares of common stock. Ms. Vitale and Messrs. Grabowski, Hock and
Silverberg received grants under this plan. The options are exercisable at
$2.625 per share, the fair market value of the underlying common stock on the
date of grant. The options expire five years from the date of grant, unless
the Compensation Committee or the Board of Directors (in the absence of the
Compensation Committee) terminates the options earlier. The options vest
based on the non-employee director's continued service at the following rate:
(1) 1,500 on December 31, 1998; (2) 3,500 on December 31, 1999; and (3) 3,500
on December 31, 2000. Notwithstanding the foregoing, in the event of a
change in control (as defined in the 1998 Directors' Plan), each outstanding
option vests immediately.
In the event of a change in control, as defined in the 1998 Non-Employee
Directors' Stock Option Plan, the Compensation Committee (or the board of
directors in the absence of such a committee) may:
* grant a cash bonus award to any optionee in an amount equal to the
exercise price of all or any portion of the options then held by the
optionee;
* pay cash to any or all optionees in exchange for the cancellation of
their outstanding options in an amount equal to the difference between
the exercise price and the greater of the tender offer price for
6
<PAGE>
the common stock underlying such options (in the event of a tender
offer for the securities of the Company) or the fair market value of
the stock on the date of cancellation; and
* make any other adjustments or amendments to the outstanding options.
A total of 68,000 shares of common stock have been reserved for issuance over
the three-year term of the 1998 Non-Employee Directors' Stock Option Plan.
To date, the following options have been granted under this plan:
<TABLE>
<CAPTION>
Number of Shares
Non-Employee Director Issuable Upon Exercise
--------------------- ----------------------
<S> <C>
Robert Grabowski 8,500
D.D. Hock 8,500
Lewis Silverberg 8,500
Mary Beth Vitale 8,500
------
Total 34,000
------
------
</TABLE>
EXECUTIVE OFFICERS AND KEY EMPLOYEES
Other than Douglas H. Hanson and Mary Beth Vitale whose biographies
appear above under the caption "Directors Standing for Election," the
following individuals are executive officers of Rocky Mountain Internet.
MICHAEL D. DINGMAN, Jr., 45, joined the Company in March 1999 as
Treasurer. From March of 1994 until joining the Company, Michael worked as a
financial consultant and registered investment advisor. From February of 1989
to March of 1994, he operated his own financial consulting firm specializing
in debt restructuring and private placements of capital. Prior to entering
his consulting practice, from August 1985 to February 1989, Michael worked as
an Associate in Mergers & Acquisitions for Lazard Freres & Company in New
York City. Mr. Dingman received his Bachelor of Science degree from Indiana
University in 1981 and a Masters in Business Administration from the Amos
Tuck School of Business Administration in 1983.
PETER J. KUSHAR, 43, has served as Chief Financial Officer, Secretary
and Treasurer since joining the Company in April 1998. From June 1997 to
April 1998 he operated his own consulting practice advising customers in
specialized economic and telecommunication requirements such as competitive
local exchange company network economics and operations. Prior to entering
his consulting practice, Mr. Kushar spent 14 years with US WEST
Communications in the following positions: Executive Director -- Carrier
Division from 1993 to 1997; Executive Director -- Network Operations from
1991 to 1993; Chief Financial Officer -Federal Services from 1988 to 1991;
and Manager, Director and Chief Financial Officer for US WEST Information
Systems from 1983 to 1988. Mr. Kushar received his Bachelor of Science
degree in 1977 and Master of Business Administration Degree in 1979 from the
University of Montana.
ROBERT LAUGHLIN, 54, is Chief Technology Officer. Mr. Laughlin brings
over 25 years of technical experience to this position, including working as
a senior design engineer for IBM and a senior scientist for Digital Systems
Corp. From 1994 to December 1998, Mr. Laughlin and two partners founded
DataXchange Network, which they built into a nationwide Internet backbone
provider. He is frequent lecturer and speaker at many professional
conferences, such as Telecom Business and ISPCON. Mr. Laughlin received a
Bachelor of Arts degree in math and physics from Ursinus College in 1968, and
a Bachelor of Arts in Electrical Engineering in 1969 from the University of
Pennsylvania.
KEVIN R. LOUD, 45, is Vice President -- Strategic Acquisitions. Before
joining the Company in July 1995, he served as Vice President of Marketing
for SP Telecom, a national long distance company from 1994 to 1995. In 1992,
he formed Loud & Associates, where he consulted with regional and national
communication organizations on market development and operations efficiencies
until 1994. While operating Loud & Associates, Mr. Loud undertook a
year-long project for Automated Communications, Inc., during which he was
treated as a statutory employee. From 1984 until 1992, he was employed by
Houston Network, Inc. and held positions ranging from Director of Finance,
Vice President of Operations and Carrier Sales, Vice President of Sales and
President. The primary business of that organization was switched long
distance communication Services. Mr. Loud holds a Master of Business
Administration
7
<PAGE>
degree from the College of William and Mary and a Bachelor of Arts in
Economics from the University of California at Los Angeles.
CHRISTOPHER J. MELCHER, 40, is General Counsel and Vice President for
Legal and Legislative Affairs. Mr. Melcher served as Assistant General
Counsel for KN Energy, Inc. from September 1997 to December 1998, providing
legal services on regulated and unregulated market activities and directing
corporate strategy in federal and state proceedings across the company's 15
state territory. Prior to KN Energy, he was a senior corporate counsel with
Southern California Edison, a subsidiary of Edison International, Inc. From
January 1995 to July 1996, Mr. Melcher represented corporate clients with the
firm of Brownstein Hyatt & Farber, P.C. From March 1990 to December 1994, he
served as Associate Independent Counsel with the Office of Independent
Counsel (Adams) in Washington, D.C. Mr. Melcher practiced law with the firm
of Wilmer Cutler & Pickering from September 1987 to March 1990. Mr. Melcher
received his Bachelor of Arts degree from Carelton College and his Juris
Doctor degree from Yale Law School.
MICHAEL R. MARA, 38, is Vice President -- Internet Services of the
Company. Prior to joining the Company in November 1995, Mr. Mara was
employed by ITC, a privately held international audio and video conferencing
service provider, from June 1992 until October 1995.
RONALD M. STEVENSON, 43, is President -- Application Methods. Mr.
Stevenson was the President and founder of Application Methods from 1986
until July 1998, when it was acquired by the Company. During 1988-1989, Mr.
Stevenson was product manager for Software Products International. Prior to
1988, Mr. Stevenson acted as a consultant to IBM.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the
compensation paid during the periods indicated to the Chief Executive Officer
of the Company and to each of the four other most highly-compensated
executive officers of the Company during the fiscal year ended December 31,
1998 (the "Named Executive officers").
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Awards
------------------------------------------------- ------------
Securities
Bonus Other Annual Underlying
Name and Principal Positions Year Salary (1) Compensation Options
---------------------------- ---- ------ ----- ------------ -----------
<S> <C> <C> <C> <C> <C>
Douglas H. Hanson (2) 1998 $120,000 - $536,000 -
Chairman and Chief Executive 1997 $ 30,000 - - 600,000
Officer 1996 - - - -
Michael R. Mara 1998 $ 96,767 - $ 27,701 10,000
Vice President - Internet 1997 $ 99,887 $9,540 $ 22,945 58,500
Services 1996 $ 78,741 - - 19,000
</TABLE>
(1) A portion of the bonuses paid to Mr. Mara may be paid or awarded in the
first quarter of the fiscal year following the year in which the bonus was
earned.
(2) Mr. Hanson was granted options to purchase 600,000 shares of the Company's
common stock in October 1997 for services performed in 1997.
(3) Mr. Mara was granted options to purchase 10,000 shares of common stock in
March 1998 for services performed in 1998, options to purchase 58,500
shares of the Company's common stock in 1997 for services performed in
1997 and options to purchase 19,000 shares of the Company's common stock
in 1996 for services performed in 1996.
STOCK OPTION GRANTS IN FISCAL YEAR 1998. The following table sets
forth information with respect to grants of stock options to each of the
Named Executive Officers during the year ended December 31, 1998. All such
grants were made under the Company's 1998 Employees' Option Plan.
8
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS IN 1998
---------------------------------------------------------------------- Potential Realizable
Percent of Value at Assumed
Number of Total Options Annual Rate of Stock
Securities Granted to Price Appreciation
Underlying Employees for the Option Term
Options in Fiscal Exercise Grant Expiration ----------------------
Name Granted (1) Year Price Date Date 5% 10%
--- ----------- ------------- -------- ----- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas H. Hanson -- -- -- -- -- -- --
Michael R. Mara 10,000 5% $2.75 3/13/98 3/12/03 $ 17,295 $ 43,835
</TABLE>
- -------------------
(1) All options represent shares of common stock. These options become
exercisable as follows: (i) one-third of the options become exercisable
one year after the date of grant, (ii) an additional one-third of the
options become exercisable two years after the date of grant, and (iii) the
remaining one-third of the options become exercisable three years after the
date of grant.
OPTION EXERCISES AND FISCAL YEAR-END VALUES. The following table
sets forth information with respect to the Named Executive officers
concerning the exercise of options during the fiscal year ended December 31,
1998, the number of securities underlying unexercised options at 1998
year-end and the year-end value of all unexercised in-the-money options held
by such individuals.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at December 31, 1998 at December 31, 1998 (2)(3)
Acquired on Value ----------------------------- -----------------------------
Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas H. Hanson 408,000 $ 536,000 191,385 [--] $ 1,916,242 --
Michael R. Mara -- -- 65,833 6,667 $ 743,476 $ 65,837
</TABLE>
- -------------------
(1) Represents the difference between the exercise price and the closing price
of the common stock on the Nasdaq SmallCap Market or the Nasdaq National
Market upon the date of exercise.
(2) Represents the difference between the exercise price and the closing price
of the common stock on the Nasdaq SmallCap Market at December 31, 1998.
(3) Based on a closing price per share of $12.625 on December 31, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for the year ended
December 31, 1998 were D.D. Hock, Mary Beth Vitale and Douglas H. Hanson.
Mary Beth Vitale resigned her position on the Compensation Committee in
January of 1999 when she accepted a position as President and Chief Operating
Officer of the Company. Robert W. Grabowski replaced Ms. Vitale on the
Compensation Committee. Mr. Hanson does not vote on any matters affecting
his personal compensation and Ms. Vitale did not vote on any matters
affecting her personal compensation.
9
<PAGE>
In March 1998, Douglas H. Hanson invested $508,000 by exercising
warrants to purchase 50,000 shares of the Company's common stock and options
to purchase 408,615 shares of the Company's common stock that were granted in
October 1997, when Mr. Hanson made his initial investment in the Company.
To provide working capital, Mr. Hanson loaned the Company $400,000
in August 1998, $400,000 in October 1998, and $200,000 in November 1998.
These loans were consolidated and were evidenced by one promissory note. The
principal amount of the promissory note, together with interest at the rate
of 11% per annum, was paid in full in December 1998.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has prepared
the following report on the Company's policies with respect to the
compensation of executive officers for 1998. Decisions on compensation of
the Company's executive officers generally are made by the Compensation
Committee. The Compensation Committee also administers the Company's 1998
Employees' Option Plan.
WHAT IS THE COMPANY'S PHILOSOPHY OF EXECUTIVE OFFICER COMPENSATION?
The Company's executive compensation policies are designed to:
* attract, motivate and retain experienced and qualified
executives;
* increase the overall performance of the Company;
* increase stockholder value; and
* enhance the performance of individual executives.
The Company seeks to pay competitive salaries based upon individual
performance combined with annual cash bonuses based on the Company's overall
performance relative to corporate objectives, taking into account individual
contributions and performance levels. The Compensation Committee believes
that the level of base salaries plus bonuses should generally fall between
the mid-range of executive compensation paid by comparable telecommunications
and internet service companies. In addition, it is the Company's policy to
grant stock options to executives upon commencement of their employment with
the Company and periodically thereafter as appropriate in order to strengthen
the alliance of interest between such executives and the Company's
stockholders.
The following describes in more specific terms the elements of
compensation that implement the Company's executive compensation policies,
with specific reference to compensation reported for 1998:
BASE SALARIES. Base salaries for executive officers are initially
determined by evaluating the responsibilities of the position, the experience
and knowledge of the individual, and the competitive marketplace for
executive talent, including a comparison to base salaries paid for similar
positions at other companies which are deemed appropriate comparisons for
compensation purposes. Base salaries for executive officers are reviewed
annually by the Compensation Committee and the Board of Directors.
Annual salary adjustments are recommended by the Chief Executive
Officer and the President after evaluating the previous year's performance
and considering the new responsibilities of each executive officer. The
non-employee members of the Compensation Committee (Messrs. Hock and
Grabowski) perform the same review of the Chief Executive Officer's
performance and the President's performance. Individual performance
evaluations take into account such factors as achievement of specific goals
that are driven by the Company's strategic plan and attainment of specific
individual objectives. The weight given to the various factors affecting an
executive officer's base salary level is determined by the Compensation
Committee on a case-by-case basis.
ANNUAL CASH BONUSES. The Company's annual cash bonuses to its
executive officers are based on both corporate and individual performance.
Corporate performance is measured by reference to factors that reflect
objective performance criteria over which management generally has the
ability to exert some degree of control. These corporate performance factors
consist of revenue and earnings targets established in the Company's
strategic plan. Bonuses for 1998 were based upon the achievement of such
financial objectives and certain operating objectives.
STOCK OPTION GRANTS. Pursuant to the Company's 1998 Employees'
Option Plan, executive officers and other employees are eligible to receive
compensation in the form of options to purchase shares of the Company's
common stock.
The Compensation Committee grants stock options to the Company's
executive officers in order to align their interests with the interests of
the stockholders. Stock options are considered by the Compensation Committee
to be an effective long-term incentive because the executives' gains are
linked to increases in the stock value, which in turn
10
<PAGE>
provides stockholder gains. The Compensation Committee generally grants
options to new executive officers and other key employees upon commencement
of their employment with the Company and periodically thereafter upon the
attainment of certain performance goals established by the Compensation
Committee. The options generally are granted at an exercise price equal to
the market price of the common stock on the date of grant (or 110% of the
market price in the case of an optionee beneficially owning more than 10% of
the outstanding common stock). Options granted to executive officers
generally vest over a period of three years following the date of grant. The
option term is five years. The greater the appreciation of the stock price
in future periods, the greater the benefit to the holder of the options, thus
providing an additional incentive to executive officers to create additional
value for the Company's stockholders. Management of the Company believes
that stock options have been helpful in attracting and retaining skilled
executive personnel.
In determining grants of options for executive officers, the
Compensation Committee has reviewed competitive data of long-term incentive
practices at other companies which are deemed appropriate comparisons for
compensation purposes.
OTHER COMPENSATION. The Company has adopted a contributory
retirement plan (the "401(k) Plan") for all of its employees (including
executive officers) with at least one year of service to the Company. The
401(k) Plan provides that each participant may contribute up to 15% of his or
her salary (not to exceed the annual statutory limit).
CHIEF EXECUTIVE OFFICER COMPENSATION. The executive compensation
policy described above is followed in setting Mr. Hanson's compensation. Mr.
Hanson generally participates in the same executive compensation plans and
arrangements available to the other senior executives. Accordingly, his
compensation consists of an annual base salary, an annual cash bonus and
long-term equity-linked compensation in the form of stock options. The
Compensation Committee's general approach in establishing Mr. Hanson's
compensation is to be competitive with peer companies, but to have a large
percentage of his target compensation based upon objective performance
criteria and targets established in the Company's strategic plan.
Mr. Hanson's compensation for the year ended December 31, 1998
consisted of a base salary of $120,000. Mr. Hanson did not receive a cash
bonus or a stock option grant for services performed in 1998. Mr. Hanson's
salary for 1998 were based on, among other factors, the Company's performance
and the compensation of chief executive officers of comparable companies,
although his compensation was not targeted to any particular group of these
companies.
COMPENSATION DEDUCTIBILITY POLICY. Under Section 162(m) of the
Internal Revenue Code of 1986, as amended, and applicable Treasury
regulations, no tax deduction is allowed for annual compensation in excess of
$1 million paid to any of the Company's five most highly compensated
executive officers. However, performance-based compensation that has been
approved by stockholders is excluded from the $1 million limit if, among
other requirements, the compensation is payable only upon attainment of
pre-established, objective performance goals and the board committee that
establishes such goals consists only of "outside directors" as defined for
purposes of Section 162(m). Thus, the two members of the Compensation
Committee who qualify as "outside directors" (Messrs. Hock and Grabowski) are
responsible for setting the objective performance goals used as the basis for
Mr. Hanson's performance-based compensation. The Compensation Committee
intends to maximize the extent of tax deductibility of executive compensation
under the provisions of Section 162(m) so long as doing so is compatible with
its determinations as to the most appropriate methods and approaches for the
design and delivery of compensation to the Company's executive officers.
Respectfully submitted,
Compensation Committee
Douglas H. Hanson
D.D. Hock
Mary Beth Vitale
STOCK PERFORMANCE GRAPH
The following indexed line graph indicates the Company's total
return to stockholders from September 6, 1996, the date on which the
Company's common stock began trading on the Nasdaq SmallCap Market, to
December 31, 1998, as compared to the total return for the Nasdaq Stock
Market--US Index, an index of 85 internet companies (including Amazon.com,
America Online, Earthlink Network, Inc., MindSpring Enterprises and Yahoo),
and an index of 375 telecommunications companies (including AT&T, MCI
WorldCom, and Sprint). The internet and telecommunications indices were
compiled by Media General Financial Services, Inc. The Company's common
stock traded on the Nasdaq SmallCap Market from September 6, 1996 through
March 4, 1999 and has traded on the Nasdaq National Market since
11
<PAGE>
March 5, 1999. The calculations in the graph assume that $100 was invested
on September 6, 1996, in each of the Company's common stock and each index
and also assume dividend reinvestment.
Comparison of 27 Month Cumulative Total Return Among (a) Rocky Mountain
Internet, Inc., (b) The Nasdaq Stock Market (U.S.) Index, (c) an 85 company
Internet Index and (d) a 375 company telecommunications index
(EDGAR Representation of Data Points Used in Printed Graphic)
<TABLE>
<CAPTION>
Rocky Mountain Nasdaq Stock Internet Telecommunications
Internet, Inc. Market (U.S.) Index Index
- --------------- --------------- --------------- ------------------
<S> <C> <C> <C>
9/5/96 $100 9/5/96 $100 9/5/96 $100 9/5/96 $100
12/31/96 $45 12/31/96 $112 12/31/96 $113 12/31/96 $110
12/31/97 $98 12/31/97 $137 12/31/97 $157 12/31/97 $142
12/31/98 $412 12/31/98 $193 12/31/98 $645 12/31/98 $208
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1998, the Company entered into a Software License and
Consulting Agreement (the "Novazen Agreement") with Novazen Inc. to provide
the Company with proprietary billing software tailored to its business. As
consideration for the consulting services provided by Novazen, the Company
paid $100,000 in cash and issued to Novazen 25,000 shares of its common
stock. Subsequent to the date of the Novazen Agreement, Kevin R. Loud, an
officer of the Company, purchased 38,000 shares of Novazen common stock for
$1.60 per share.
For a summary of certain transactions and relationships among the
Company and its associated entities, and among the directors, executive
officers and stockholders of the Company and its associated entities, see
"Compensation Committee Interlocks and Insider Participation."
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), requires the Company's directors, officers and persons
who beneficially own more than ten percent of a registered class of the
Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Directors, officers
and greater than ten percent beneficial owners are required by the SEC's
regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based upon a review of filings with the Securities and Exchange
Commission and written representations that no other reports were required,
the Company believes that all of the Company's directors and executive
officers complied during fiscal 1998 with the reporting requirements of
Section 16(a) of the Securities Exchange Act of 1934.
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO CHANGE THE
NAME OF THE COMPANY FROM ROCKY MOUNTAIN INTERNET, INC. TO "RMI.NET"
The Board of Directors has approved and recommends that the
stockholders approve an amendment to the Company's Certificate of
Incorporation to change the name of the Company from Rocky Mountain Internet,
Inc. to RMI.net. If the proposal is approved, the Company intends to file an
amendment to the Certificate of Incorporation shortly after the Annual
Meeting. The amendment to the Certificate of Incorporation will be effective
immediately upon acceptance of filing by the Secretary of the State of
Delaware. Since January of 1998, we have acquired eight companies, each in
different major geographical areas of the United States. Because we are no
longer a regional company, the Board of Directors believes that RMI.net
better reflects the nationwide scope of our business. Furthermore, we expect
to look for further growth opportunities and to expand into new markets. The
Board of Directors believes that RMI.net will allow the Company to:
* enhance its corporate identity and name recognition as a
nationwide company;
* be recognized as a leading e-commerce and web solutions company;
and
12
<PAGE>
* develop its reputation as a reliable, single-source network of
Internet and telecommunications solutions.
--------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
--------------------
PROPOSAL 3
APPROVAL OF AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has approved and recommends that the
stockholders approve an amendment to the Company's Certificate of
Incorporation to increase the authorized shares of the Company's common stock
from 25,000,000 shares to 100,000,000 shares. The Board of Directors
of the Company believes the increase in the authorized shares is necessary to
provide the Company with the flexibility to act in the future with respect to
financing programs, acquisitions, stock splits and other corporate purposes
without the delay and expense associated with obtaining special shareowner
approval each time an opportunity requiring the issuance of shares may arise.
On March 31, 1999, the Company had 9,962,794 shares of common
stock issued and outstanding. Also on that date, the Company had 11,857,650
shares of common stock reserved for issuance upon conversion of outstanding
preferred stock and upon exercise of outstanding options and warrants.
The lack of authorized common stock available for issuance would
unnecessarily limit the Company's ability to pursue opportunities for future
financings, acquisitions, mergers and other transactions. The Company would
also be limited in its ability to effectuate future stock splits or stock
dividends. The Board of Directors believes that the increase in the
authorized shares of common stock is necessary to provide the Company with
the flexibility to pursue these types of opportunities without added delay
and expense.
The availability of authorized but unissued shares of common stock
might be deemed to have the effect of preventing or discouraging an attempt
by another person to obtain control of the Company, because the additional
shares could be issued by the Board of Directors, which could dilute the
stock ownership of such person. The Company has no plans for such issuances
and this proposal is not being proposed in response to a known effort to
acquire control of the Company.
The authorization of additional shares of common stock pursuant to
this proposal will have no immediate dilutive effect upon the proportionate
voting power of the present stockholders of the Company. However, to the
extent that shares are subsequently issued to persons other than the present
stockholders and/or in proportions other than the proportion that presently
exists, such issuance could have a substantial dilutive effect on present
stockholders. If the proposal is approved, the Company intends to file an
amendment to the Certificate of Incorporation shortly after the Annual
Meeting. The amendment to the Certificate of Incorporation will be effective
immediately upon acceptance of filing by the Secretary of the State of
Delaware. The Board of Directors would be free to issue the additional
authorized shares of common stock without further action on the part of the
Stockholders.
--------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
--------------------
PROPOSAL 4
APPROVAL OF AMENDMENT TO THE COMPANY'S 1998 EMPLOYEES'
OPTION PLAN TO INCREASE THE NUMBER OF SHARES OF
COMMON STOCK THAT MAY BE ISSUED THEREUNDER
The Board of Directors has approved and recommends that the
stockholders approve an amendment to the Company's 1998 Employees' Option
Plan, subject to stockholder approval at the Annual Meeting, to increase the
number of shares of common stock that may be issued thereunder to 1,000,000
shares from 266,544 shares. The Board
13
<PAGE>
of Directors further directed that the entire 1998 Employees' Option Plan, as
so amended, be submitted to the stockholders for approval in order for awards
under the plan to qualify under the exception to Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), as "qualified
performance-based compensation" if the requirements of the exception are
otherwise satisfied. At the Annual Meeting, the stockholders of the Company
will be asked to consider and vote to approve the 1998 Employees' Option Plan
as so amended. Unless otherwise instructed on the proxy, properly executed
proxies will be voted in favor of approving the 1998 Employees' Option Plan
as amended.
The purpose of the 1998 Employees' Option Plan is to advance the
interests of the Company by providing eligible individuals an opportunity to
acquire or increase a proprietary interest in the Company, which thereby will
create a stronger incentive to expend maximum effort for the growth and
success of the Company and will encourage such eligible individuals to remain
in the employ of the Company. The Board of Directors believes that stock
options are important to attract and to encourage the continued employment
and service of officers and other key employees by facilitating their
purchase of a stock interest in the Company and that approval of the 1998
Employees' Option Plan as amended to increase the aggregate number of stock
options available thereunder will afford the Company additional flexibility
in making awards deemed necessary in the future.
Section 162(m) of the Code generally provides that no federal
income tax business expense deduction is allowed for annual compensation in
excess of $1 million paid by a publicly-traded corporation to its chief
executive officer and the four other most highly compensated officers.
However, there is no limitation under the Code on the deductibility of
"qualified performance-based compensation." To satisfy this definition, (1)
the compensation must be paid solely on account of the attainment of one or
more preestablished, objective performance goals; (2) the performance goal
under which compensation is paid must be established by a compensation
committee comprised solely of two or more directors who qualify as "outside
directors" for purposes of the exception; (3) the material terms under which
the compensation is to be paid must be disclosed to and subsequently approved
by stockholders of the corporation before payment is made; and (4) the
compensation committee must certify in writing before payment of the
compensation that the performance goals and any other material terms were in
fact satisfied.
In the case of compensation attributable to stock options, the
performance goal requirement is deemed satisfied, and the certification
requirement is inapplicable, if (1) the grant or award is made by the
compensation committee; (2) the plan under which the option is granted states
the maximum number of shares with respect to which options may be granted to
an employee during a specified period; and (3) under the terms of the option,
the amount of compensation is based solely on an increase in the value of the
stock after the date of grant. Under the Code, a director is an "outside
director" if he or she is not a current employee of the corporation; is not a
former employee who receives compensation for prior services (other than
under a qualified retirement plan); has not been an officer of the
corporation; and does not receive, directly or indirectly (including amounts
paid to an entity that employs the director or in which the director has at
least a 5% ownership interest), remuneration from the corporation in any
capacity other than as a director. The regulations provide that the material
terms of a performance goal will be approved by stockholders for purposes of
the foregoing rules if, in a separate vote, affirmative votes are cast by a
majority of the voting shares.
The following is a summary description of the material provisions
of the 1998 Employees' Option Plan, as amended, which was originally approved
by the stockholders of the Company effective March 12, 1998. THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY THE COMPLETE TEXT OF THE 1998 EMPLOYEES' OPTION
PLAN, WHICH IS INCLUDED AS AN ATTACHMENT TO THIS PROXY STATEMENT.
DESCRIPTION OF THE 1998 EMPLOYEES' OPTION PLAN
Under the Company's 1998 Employees' Option Plan, 266,544 shares of
common stock are reserved and authorized for issuance upon the exercise of
options issued pursuant to the plan. All employees of the Company are
eligible to receive options under the 1998 Employees' Option Plan, which is
administered by the Compensation Committee of the Board of Directors.
Options granted under the 1998 Employees' Option Plan are intended to qualify
as incentive stock options under Section 422 of the Code, unless they exceed
certain limitations or are specifically designated otherwise. As of April
25, 1999, options to purchase 186,000 shares of common stock had been granted
(net of forfeitures) under the 1998 Employees' Option Plan, at exercise
prices ranging from $2.75 to $7.625 per share.
The option exercise price for incentive stock options granted under
the 1998 Employees' Option Plan may not be less than 100% of the fair market
value of the common stock on the date of grant of the option (or 110% in the
case of an incentive stock option granted to an optionee beneficially owning
more than 10% of the outstanding common stock). In the case of an option not
intended to constitute an incentive stock option, the option price shall be
not less than the par value of the stock covered by the option. The maximum
option term is 10 years (or five years in the case of an incentive stock
option granted to an optionee beneficially owning more than 10% of the
outstanding common stock).
14
<PAGE>
The aggregate fair market value (as defined in the 1998 Employees'
Option Plan) of any incentive stock option plus any incentive options granted
under any other Company plan that are first exercisable by any participant
during any calendar year may not exceed $100,000. The Compensation Committee
may, in its discretion, impose a vesting schedule or vesting provision for
any options granted under the 1998 Employees' Option Plan. Options generally
become exercisable as follows: (i) one-third of the options become
exercisable one year after the date of grant, or in certain cases, the
commencement date of the holder's employment; (ii) an additional one-third of
the options become exercisable two years after the date of grant, or in
certain cases, the commencement date of the holder's employment; and (iii)
the remaining one-third of the options become exercisable three years after
the date of grant, or in certain cases, the commencement date of the holder's
employment. Notwithstanding the foregoing, in the event of a change of
control of the Company (as defined in the 1998 Employees' Option Plan),
unless the applicable agreement with respect to any option provides
otherwise, each outstanding option under the 1998 Employees' Option Plan
vests immediately, regardless of any vesting schedule in the particular
agreement.
Payment for shares purchased under the 1998 Employees' Option Plan
may be made either in cash or, if permitted by the particular option
agreement, by exchanging shares of common stock of the Company with a fair
market value equal to the total option exercise price plus cash for any
difference. Options may, if permitted by the particular option agreement, be
exercised by directing that certificates for the shares purchased be
delivered to a licensed broker as agent for the optionee, provided that the
broker tenders to the Company cash or cash equivalents equal to the option
exercise price.
The Board of Directors may terminate or suspend the 1998 Employees'
Option Plan at any time. Unless previously terminated, the 1998 Employees'
Option Plan will terminate automatically on March 12, 2008, the tenth
anniversary of the date of adoption of the 1998 Employees' Option Plan by the
Board of Directors.
FEDERAL INCOME TAX CONSEQUENCES
The grant of an option is not a taxable event for the optionee or
the Company.
INCENTIVE STOCK OPTIONS. An optionee will not recognize taxable
income upon exercise of an incentive stock option (except that the
alternative minimum tax may apply), and any gain realized upon a disposition
of shares of common stock received pursuant to the exercise of an incentive
stock option will be taxed as long-term capital gain if the optionee holds
the shares of common stock for at least two years after the date of grant and
for one year after the date of exercise (the "holding period requirement").
The Company will not be entitled to any business expense deduction with
respect to the exercise of an incentive stock option, except as discussed
below.
For the exercise of an incentive stock option to qualify for the
foregoing tax treatment, the optionee generally must be an employee of the
Company from the date the option is granted through a date within three
months before the date of exercise of the option. In the case of an optionee
who is disabled, the three-month period is extended to one year. In the case
of an employee who dies, the three-month period and the holding period
requirement for shares of common stock received pursuant to the exercise of
the option are waived.
If all of the requirements for incentive option treatment are met
except for the holding period requirement, the optionee will recognize
ordinary income upon the disposition of shares of common stock received
pursuant to the exercise of an incentive stock option in an amount equal to
the excess of the fair market value of the shares of common stock at the time
the option was exercised over the exercise price. The balance of the
realized gain, if any, will be taxed at applicable capital gain tax rates.
The Company will be allowed a business expense deduction to the extent the
optionee recognizes ordinary income, subject to Section 162(m) of the Code as
summarized below.
If an optionee exercises an incentive stock option by tendering
shares of common stock with a fair market value equal to part or all of the
option exercise price, the exchange of shares will be treated as a nontaxable
exchange (except that this treatment would not apply if the optionee had
acquired the shares being transferred pursuant to the exercise of an
incentive stock option and had not satisfied the holding period requirement
summarized above). If the exercise is treated as a tax-free exchange, the
optionee would have no taxable income from the exchange and exercise (other
than alternative minimum taxable income as noted above) and the tax basis of
the shares of common stock exchanged would be treated as the substituted
basis for the shares of common stock received. If the optionee used shares
received pursuant to the exercise of an incentive stock option (or another
statutory option) as to which the optionee had not satisfied the holding
period requirement, the exchange would be treated as a taxable disqualifying
disposition of the exchanged shares, and the excess of the fair market value
of the shares tendered over the optionee's basis in the shares would be
taxable.
NON-QUALIFIED OPTIONS. Upon exercising an option that is not an
incentive stock option, an optionee will recognize ordinary income in an
amount equal to the difference between the exercise price and the fair market
value of the shares of common stock on the date of exercise. Upon a
subsequent sale or exchange of shares of common stock
15
<PAGE>
acquired pursuant to the exercise of a non-qualified stock option, the
optionee will have taxable gain or loss, measured by the difference between
the amount realized on the disposition and the tax basis of the shares of
common stock (generally, the amount paid for the shares of common stock plus
the amount treated as ordinary income at the time the option was exercised).
If the Company complies with applicable reporting requirements and
with the restrictions of Section 162(m) of the Code, it will be entitled to a
business expense deduction in the same amount and generally at the same time
as the optionee recognizes ordinary income. Under Section 162(m) of the
Code, if the optionee is one of certain specified executive officers, then,
unless certain exceptions apply, the Company is not entitled to deduct
compensation with respect to the optionee, including compensation related to
the exercise of stock options, to the extent such compensation in the
aggregate exceeds $1,000,000 for the taxable year. The options are intended
to comply with the exception to Section 162(m) for "qualified
performance-based compensation."
If the optionee surrenders shares of common stock in payment of part or
all of the exercise price for non-qualified stock options, no gain or loss
will be recognized with respect to the shares of common stock surrendered
(regardless of whether the shares were acquired pursuant to the exercise of
an incentive stock option) and the optionee will be treated as receiving an
equivalent number of shares of common stock pursuant to the exercise of the
option in a nontaxable exchange. The basis of the shares of common stock
surrendered will be treated as the substituted tax basis for an equivalent
number of option shares received and the new shares will be treated as having
been held for the same holding period as had expired with respect to the
transferred shares. The difference between the aggregate option exercise
price and the aggregate fair market value of the shares of common stock
received pursuant to the exercise of the option will be taxed as ordinary
income. The optionee's basis in the additional shares of common stock will
be equal to the amount included in the optionee's income.
--------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 4.
--------------------
PROPOSAL 5
RATIFICATION AND APPROVAL OF ISSUANCE OF SERIES B CONVERTIBLE
PREFERRED STOCK AND COMMON STOCK UPON CONVERSION THEREOF
PURSUANT TO DECEMBER 1998 PRIVATE PLACEMENT AND APPROVAL OF ISSUANCE OF
ADDITIONAL SHARES OF PREFERRED STOCK, WARRANTS TO PURCHASE COMMON STOCK
AND COMMON STOCK UPON CONVERSION THEREOF
In December, 1998, the Company sold in a private placement to two
institutional investors 8,000 shares of the Company's Series B Convertible
Preferred Stock (the "Series B Preferred Stock"), together with warrants to
purchase up to 155,000 shares of the Company's common stock for an aggregate
consideration of $8,000,000. The Company has reserved up to 1,600 additional
shares of Series B Preferred Stock payable as dividends according to the
terms of the Series B Preferred Stock. The Series B Preferred Stock is
convertible into shares of the Company's common stock based on the market
price of the common stock at the time of conversion. As of April 30, 1999,
there were 5,313 shares of Series B Preferred Stock outstanding, and 2,687
shares of Series B Preferred Stock have been converted into an aggregate
of 224,965 shares of the Company's common stock.
The majority of the proceeds from the sale of the Series B
Preferred Stock was used by the Company for general corporate purposes and
working capital. The terms of the Series B Preferred Stock are discussed in
Note 7 to the Company's Consolidated Financial Statements, which are included
in the Annual Report to Stockholders enclosed with this proxy statement.
Copies of the relevant documents for the issuance of the Series B Preferred
Stock were filed as exhibits to the Company's Current Report on Form 8-K,
which was filed with the Securities and Exchange Commission on January 8,
1999, and the Company's a Post-Effective Amendment to the Company's
Registration Statement on Form S-1, which was filed with the Securities and
Exchange Commission on January 14, 1999. Copies of these documents may be
obtained free of charge by contacting Christopher J. Melcher, Vice President
and General Counsel, Rocky Mountain Internet, Inc. 999 Eighteenth Street,
Suite 2201, Denver, Colorado 80209, or through the Securities and Exchange
Commission EDGAR database located at http:/www.sec.gov on the worldwide web.
One of the institutional investors that purchased the Series B
Preferred Stock has agreed, subject to certain conditions, including
stockholder approval of this Proposal 5, to purchase up to an additional
$10,000,000 of preferred stock having identical terms to the Series B
Preferred Stock (the "Additional Preferred Shares"), together with warrants
to purchase additional shares of common stock. Although the Company has no
current plan to issue Additional Preferred Shares, it may issue some or all
of the Additional Preferred Shares at any time through April 7, 2000.
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NASDAQ SHAREHOLDER APPROVAL REQUIREMENT
Under the rules of the Nasdaq SmallCap Stock Market and the Nasdaq
National Market, listed companies are required to obtain stockholder approval
for the sale or issuance of a number of shares of common stock, or securities
convertible into or exchangeable for common stock (such as the Series B
Preferred Stock), equal to or in excess of 20% of the number of shares of
common stock outstanding prior to such issuance is for a purchase price that
is less than the greater of the book or market value of the common stock.
On the date the Series B Preferred Stock was issued, the Company
had 9,332,191 shares of common stock outstanding, and one share less than 20%
of that number is 1,866,438. If the 8,000 shares of Series B Preferred Stock
had been converted on April 15, 1999, the Company would have issued 673,200
shares of common stock. Because the conversion price is a floating price, the
conversion terms of the Series B Preferred Stock were structured so that at
any time a conversion would comply with the Nasdaq stockholder approval
requirements. Accordingly, prior to the receipt of stockholder approval of
this Proposal 5, if on any conversion date the conversion of shares of Series
B Preferred Stock would require the issuance of a number of shares of common
stock in excess of 20% of the number of outstanding shares of common stock on
the issue date of the Series B Preferred Stock, the Company is required to
redeem such shares of Series B Preferred Stock at a premium of at least 15%
instead of converting them to common stock. If the Company issues any shares
of Additional Preferred Shares and Nasdaq integrates that issuance with the
issuance of the Series B Preferred Stock for purposes of the 20% rule, the
conversion shares would be aggregated to determine if the redemption
obligation would apply.
REASONS FOR THE PROPOSAL
The Board of Directors believes that the right of the investors to
require the Company to redeem the non-convertible shares of Series B
Preferred Stock has the potential to severely diminish the Company's existing
working capital. Alternatively, if the Company does not obtain shareholder
approval necessary to issue the shares in excess of the Nasdaq limitation,
and the Company nevertheless issues such shares, the Company believes that it
would be delisted from the Nasdaq National Market. The Board of directors
believes that the potential adverse consequences of a failure of the
shareholders to approve this proposal far outweigh the possible dilutive
effect of approval of the proposal. therefore, in order to protect the
Company's working capital and preserve the liquidity of the investment of its
shareholders in the Company's common stock, the Board of Directors has
determined that approving and ratifying the issuance of the Series B
Preferred Stock, and any future issuance of Additional Preferred Shares with
identical terms to the Series B Preferred Stock, the warrants to purchase
common stock issued therewith and the shares of common stock issuable upon
conversion thereof is advisable and in the best interest of the Company. The
subscription agreements pursuant to which the Series B Preferred Stock was
sold require the Company to use its best efforts to seek stockholder approval
of this Proposal 5.
--------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 5.
--------------------
PROPOSAL 6
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP ("Ernst &
Young") as the Company's independent auditors for the fiscal year ending
December 31, 1999, subject to ratification by stockholders at the Annual
Meeting. Representatives of Ernst & Young will be present at the Annual
Meeting and will have the opportunity to make a statement if they so desire
and be available to respond to appropriate questions. Unless otherwise
instructed on the proxy, properly executed proxies will be voted in favor of
ratifying the appointment of Ernst & Young to audit the books and accounts of
the Company for the fiscal year ending December 31, 1999.
--------------------
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 6.
--------------------
STOCKHOLDER PROPOSALS FOR THE YEAR 2000 ANNUAL MEETING
Any proposal or proposals intended to be presented by any
stockholder at the 2000 Annual Meeting of Stockholders must be received by
the Company by December 15, 1999 to be considered for inclusion in the
Company's Proxy Statement and form of proxy relating to that meeting.
OTHER BUSINESS TO BE TRANSACTED
As of the date of this Proxy Statement, the Board of Directors
knows of no other business which may come before the Annual Meeting. If any
other business is properly brought before the Annual Meeting, it is the
intention of the proxy holders to vote or act in accordance with their best
judgment with respect to such matters.
ANNUAL AND QUARTERLY REPORT
The Company's 1998 Annual Report to Stockholders and Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999 (which are not part
of the Company's proxy solicitation material) are being mailed to the
Company's stockholders with this proxy statement.
By Order of the Board of Directors
/s/ CHRISTOPHER J. MELCHER
Christopher J. Melcher
Corporate Secretary
Denver, Colorado
May 25, 1999
A COPY OF THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1998 ACCOMPANIES THIS PROXY STATEMENT. THE COMPANY IS REQUIRED
TO FILE AN ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998
WITH THE SECURITIES AND EXCHANGE COMMISSION. STOCKHOLDERS MAY OBTAIN, FREE
OF CHARGE, A COPY OF THE COMPANY'S 1998 ANNUAL REPORT ON FORM 10-K (WITHOUT
EXHIBITS) BY WRITING TO ROCKY MOUNTAIN INTERNET, INC., ATTENTION:
CHRISTOPHER J. MELCHER, 999 EIGHTEENTH STREET, SUITE 2201, DENVER, COLORADO
80209. THE COMPANY WILL PROVIDE COPIES OF THE EXHIBITS TO THE FORM 10-K UPON
PAYMENT OF A REASONABLE FEE.
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Attachment
Rocky Mountain Internet, Inc.
1998 Employees' Stock Option Plan
SECTION 1
INTRODUCTION
1.1 ESTABLISHMENT. Rocky Mountain Internet, Inc., a Delaware
corporation, hereby establishes the Rocky Mountain Internet, Inc. 1998
Employees' Stock Option Plan (the "Plan") for certain key employees,
consultants and advisors of Rocky Mountain Internet, Inc. (together with its
affiliated corporations as defined in Section 2.1(a) below, the "Company").
1.2 PURPOSES. The purposes of the Plan are to provide Eligible Persons
(as defined in Section 2.1(f) below) selected for participation in the Plan
with added incentives to continue in the long-term service of the Company and
to create in such persons a more direct interest in the future success of the
operations of the Company by relating incentive compensation to increases in
stockholder value, so that the income of the Eligible Persons is more closely
aligned with the income of the Company's stockholders. The Plan also is
designed to attract key employees, consultants, and advisors and to retain
and motivate Eligible Persons by providing an opportunity for investment in
the Company.
SECTION 2
DEFINITIONS
2.1 DEFINITIONS. The following terms shall have the meanings set forth
below
(a) "AFFILIATED CORPORATION" means any corporation or other entity
(including, but not limited to, a partnership) which is affiliated with Rocky
Mountain Internet, Inc. through stock ownership or otherwise and is treated
as a common employer under the provisions of Code Sections 414(b) and (c).
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
(d) "DISABILITY" means a physical or mental condition which, in
the judgment of the Company, based on medical reports or other evidence
satisfactory to the Company, permanently prevents an employee from
satisfactorily performing his or her usual duties for the Company or the
duties of such other position or job which the Company makes available to him
or her and for which such employee is qualified by reason of his or her
training, education or experience.
(e) "EFFECTIVE DATE" means the effective date of the Plan, which
will be March 1, 1998 subject to the approval of the Plan by the Company's
stockholders.
(f) "ELIGIBLE PERSONS" means full-time key employees of the
Company or any Affiliated Corporation or any division thereof, whose
judgment, initiative and efforts are, or will be, important to the successful
conduct of its business; provided that no person who is a director of the
Company may be an Eligible Person. An employee will be considered a
"full-time" employee if such employee is employed by the Company on a minimum
basis of thirty hours of service a week. Eligible Persons also include
independent contractors, consultants and advisors of the Company or any
Affiliated Corporation or any division thereof; provided that such
independent contractors, consultants and advisors may not be granted
Incentive Stock Options under this Plan.
(g) "FAIR MARKET VALUE" means the officially quoted closing price
of the Stock on the Small Cap National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System
on a particular date, or if no such prices are reported on NASDAQ, then Fair
Market Value shall mean the average of the high and low sale prices for the
Stock (or if no sales prices are reported, the average of the high and low
bid prices) as reported by the principal regional stock exchange, or if not
so reported, as reported by a quotation system of general circulation to
brokers and dealers. If there are no Stock transactions on such date, the
Fair Market
<PAGE>
Value shall be determined as of the immediately preceding date on which there
were Stock transactions. If the Stock is not publicly traded, the Fair Market
Value of the Stock on any date shall be determined in good faith by the
Administrative Committee after such consultation with outside legal,
accounting and other experts as the Administrative Committee may deem
advisable.
(h) "ADMINISTRATIVE COMMITTEE" means a committee or committees,
each consisting of a member or members of the Board and/or such other person
or persons as may be appointed from time to time by the Board, or the entire
Board if no such Committee has been appointed. With respect to the
administration of a grant or grants under the Plan to Eligible Persons
subject to Rule 16b-3, such Administrative Committee shall be constituted so
as to comply with Rule 16b-3 and shall consist of (i) two non-employee
directors or (ii) the entire Board ("16b-3 Committee"); PROVIDED THAT if a
16b-3 Committee is not required for such grant or grants to meet the
exemption requirements under Rule 16b-3, then this sentence shall not be
applicable.
(i) "INCENTIVE STOCK OPTION" means any Option designated as such
and granted in accordance with the requirements of Code Section 422.
(j) "1934 ACT" means the Securities Exchange Act of 1934, as
amended.
(k) "NON-STATUTORY OPTION" means any Option other than an Incentive
Stock Option.
(l) "OPTION" means a right to purchase Stock at a stated price for
a specified period of time.
(m) "OPTION PRICE" means the price at which Shares of Stock subject
to an Option may be purchased, determined in accordance with Section 5.2(b).
(n) "OPTION HOLDER" means an Eligible Person of the Company
designated by the Administrative Committee from time to time during the term
of the Plan to receive one or more Options under the Plan.
(o) "OPTIONED SHARES" means the Shares subject to an Option.
(p) "PLAN YEAR" means each 12-month period beginning January 1 and
ending the following December 31, except that for the first year of the Plan,
the Plan Year shall begin on the Effective Date and extend to the first
December 31 following the Effective Date.
(q) "RULE 16b-3" means Rule 16b-3 promulgated under the 1934 Act or
any successor rule.
(r) "SHARE" or "SHARES" means a share or shares of Stock.
(s) "STOCK" means the common stock of the Company.
2.2 GENDER AND NUMBER. Except where otherwise indicated by the content,
the masculine gender also shall include the feminine gender, and the
definition of any term herein in the singular also shall include the plural.
SECTION 3
PLAN ADMINISTRATION
3.1 ADMINISTRATIVE COMMITTEE; POWERS. The Plan shall be administered by
the Administrative Committee. In accordance with the provisions of the Plan,
the Administrative Committee shall have full power and authority, in its sole
discretion, to administer the Plan, including authority to interpret and
construe any provision of the Plan and any Option granted hereunder, to
select the Eligible Persons to whom Options will be granted, the amount of
each Option, and any other terms and conditions of each Option as the
Administrative Committee may deem necessary or desirable and consistent with
the terms of the Plan. The Administrative Committee shall have full power and
authority to determine the form or forms of the agreements with Option
Holders, which shall evidence the particular provisions, terms, conditions,
rights and duties of the Company and the Option Holders with respect to
Options granted pursuant to the Plan, which provisions need not be identical
except as may be provided herein. The Administrative Committee
2
<PAGE>
in granting an Option may provide for the granting or issuance of additional,
replacement or alternative Options upon the occurrence of specified events,
including the exercise of the original Option.
3.2 ACTIONS OF ADMINISTRATIVE COMMITTEE. The Administrative Committee
may from time to time adopt such rules and regulations for administering the
Plan as it may deem necessary in order to comply with the requirements of the
Code or in order to conform to any regulation or to any change in law or
regulation applicable thereto, or as it may otherwise deem proper and in the
best interests of the Company. The Administrative Committee may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or in
any agreement entered into hereunder in the manner and to the extent it shall
deem expedient and it shall be the sole and final judge of such expediency.
No member of the Administrative Committee shall be liable for any action,
interpretation or determination made in good faith (including determinations
of Fair Market Value), and all members of the Administrative Committee shall,
in addition to their rights as directors, be fully protected by the Company
with respect to any such action, interpretation or determination. All actions
taken and all interpretations and determinations made by the Administrative
Committee pursuant to the provisions of the Plan shall be final, binding and
conclusive for all purposes and on Option Holders, the Company and all other
persons. Any determination reduced in writing and signed by all of the
members shall be fully effective as if it had been made by a majority vote at
a meeting duly called and held.
SECTION 4
STOCK RESERVED FOR THE PLAN
4.1 NUMBER OF SHARES. Subject to the provisions of Section 4.3 below,
266,544 Shares are authorized for issuance under the Plan in accordance with
the provisions of the Plan. Shares which may be issued upon the exercise of
Options shall be applied to reduce the maximum number of Shares remaining
available under the Plan. The 266,544 Shares reserved for issuance under the
Plan may be either authorized and unissued or held in the treasury of the
Company.
4.2 UNUSED AND FORFEITED STOCK. Any Shares that are subject to an
Option under this Plan which are not used because the terms and conditions of
the Option are not met, including any Shares that are subject to an Option
which expires or is terminated for any reason, any Shares which are used for
full or partial payment of the purchase price of Shares with respect to which
an Option is exercised and any Shares retained by the Company pursuant to
Section 5 or Section 11 automatically shall become available for use under
the Plan.
4.3 ADJUSTMENTS FOR STOCK SPLIT, STOCK DIVIDEND, ETC. If the Company
shall at any time increase or decrease the number of its outstanding Shares
of Stock, or change in any way the rights and privileges of such Shares by
means of the payment of a stock dividend or any other distribution upon such
Shares payable in Stock, or through a stock split, subdivision,
consolidation, combination, reclassification or recapitalization involving
the Stock, except in connection with an initial public offering, then in
relation to the Stock that is affected by one or more of the above events,
such that an adjustment is required in order to preserve the benefits or
potential benefits intended to be made available under this Plan, then the
Administrative Committee shall, in its sole discretion and in such manner as
the Administrative Committee may deem equitable and appropriate, make such
adjustments to any or all of (i) the number and kind of Shares which
thereafter may be made subject to the benefits contemplated by the Plan, (ii)
the number and kind of Shares subject to outstanding Options, and (iii) the
purchase or exercise price with respect to any of the foregoing, provided,
however, that the number of Shares subject to any Option shall always be a
whole number. The Administrative Committee may, if deemed appropriate,
provide for a cash payment to any Option Holder of an Option in connection
with any adjustment made pursuant to this Section.
4.4 GENERAL ADJUSTMENT RULES. If any adjustment or substitution provided
for in this Section 4 shall result in the creation of a fractional Share
under any Option, the Company shall, in lieu of issuing such fractional
Share, pay to the Option Holder a cash sum in an amount equal to the product
of such fraction multiplied by the Fair Market Value of a Share on the date
the fractional Share otherwise would have been issued.
SECTION 5
STOCK OPTIONS
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<PAGE>
5.1 GRANT OF OPTIONS. An Eligible Person may be granted one or more
Options. The Administrative Committee, in its sole discretion, shall
designate whether an Option is to be considered an Incentive Stock Option or
a Non-Statutory Option. The Administrative Committee may grant both an
Incentive Stock Option and a Non-Statutory Option to the same Eligible Person
at the same time or at different times. Incentive Stock Options and
Non-Statutory Options, whether granted at the same or different times, shall
be deemed to have been awarded in separate grants, shall be clearly
identified, and in no event shall the exercise of one Option affect the right
to exercise any other Option or affect the number of Shares for which any
other Option may be exercised.
5.2 OPTION AGREEMENTS. Each Option granted under the Plan shall be
evidenced by a written stock option agreement which shall be entered into by
the Company and the Option Holder, and which shall contain the following
terms and conditions, as well as such other terms and conditions not
inconsistent therewith, as the Administrative Committee may consider
appropriate in each case. In the event of any inconsistency between the
provisions of the Plan and any such agreement entered into hereunder, the
provisions of the Plan shall govern. Any such agreement may be supplemented
or amended from time to time as approved by the Administrative Committee as
contemplated herein.
(a) NUMBER OF SHARES. Each stock option agreement shall state that
it covers a specified number of Shares, as determined by the Administrative
Committee. Notwithstanding any other provision of the Plan, the aggregate
Fair Market Value of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by an Option Holder in any calendar year,
under the Plan and all other plans of the Company and its parent and
subsidiary companies, shall not exceed $100,000. For this purpose, the Fair
Market Value of the Shares shall be determined as of the time an Option is
granted.
(b) PRICE. The price at which each Optioned Share may be purchased
shall be determined by the Administrative Committee and set forth in the
stock option agreement. In no event shall the Option Price for each Share
covered by an Incentive Stock Option be less than the Fair Market Value of
the Stock on the date the Option is granted; provided, however, that the
Option Price for each Share covered by an Incentive Stock Option granted to
an Eligible Person who then owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company must be at least
110% of the Fair Market Value of the Stock subject to the Incentive Stock
Option on the date the Option is granted. The Option Price for each Share
covered by a Non-Statutory Option may be granted at any price equal to or
less than Fair Market Value, in the sole discretion of the Administrative
Committee.
(c) VESTING. The Administrative Committee in its discretion may
impose a vesting schedule or vesting provision with respect to any Options
granted hereunder which shall be specified in the stock option agreement
evidencing such Option.
(d) DURATION OF OPTIONS. Each stock option agreement shall state
the period of time, determined by the Administrative Committee, within which
the Option may be exercised by the Option Holder (the "Option Period"). The
Option Period must expire, in all cases, not more than ten years from the
date an Option is granted; provided, however, that the Option Period of an
Incentive Stock Option granted to an Eligible Person who then owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company must expire not more than five years from the date such
Option is granted. Notwithstanding any other provision of the Plan, any
Option Holder who is subject to Section 16 of the 1934 Act may not exercise
any portion of an Option during, the first six months following the grant of
such Option, except that this limitation shall not apply (i) if such Option
was granted by a 16b-3 Committee as defined in Section 2.1(h) above or (ii)
in the event of the Option Holder's death or Disability during such six-month
period.
(e) TERMINATION OF EMPLOYMENT, DEATH, DISABILITY, ETC. Except as
otherwise determined by the Administrative Committee, each stock option
agreement shall provide as follows with respect to the exercise of the Option
upon termination of the employment or the death of the Option Holder:
(i) If the employment of the Option Holder is terminated (or,
in the case of a consultant or advisor, if the services of the Option Holder
are terminated) within the Option Period for cause, as determined by the
Company, the Option thereafter shall be void for all purposes. As used in
this section,"cause" shall mean an act of fraud or dishonesty, moral
turpitude or a gross violation, as determined by the Company, of the
Company's established
4
<PAGE>
policies and procedures. The effect of this section shall be limited to
determining the consequences of a termination, and nothing in this section
shall restrict or otherwise interfere with the Company's discretion with
respect to the termination of any employee, consultant or advisor.
(ii) If the Option Holder dies, or if the Option Holder
becomes Disabled during the Option Period while still employed (or, in the
case of a consultant or advisor, while the Option Holder is performing
services), or within the three-month period referred to in (iii) below, the
Option may be exercised by those entitled to do so under the Option Holder's
will or by the laws of descent and distribution within twelve months
following the Option Holder's death or Disability, but not thereafter. In any
such case, the Option may be exercised only as to the Shares as to which the
Option had become exercisable on or before the date of the Option Holder's
death or Disability
(iii) If the employment of the Option Holder by the Company
is terminated (which for this purpose means that the Option Holder is no
longer employed by the Company or by an Affiliated Corporation and which, in
the case of a consultant or advisor, means that the Option Holder is no
longer performing services for the Company or an Affiliated Corporation)
within the Option Period for any reason other than cause, Disability, or the
Option Holder's death, the Option may be exercised by the Option Holder
within three months following the date of such termination (provided that
such exercise must occur within the Option Period), but not thereafter. In
any such case, the Option may be exercised only as to the Shares as to which
the Option had become exercisable on or before the date of termination of
employment or termination of services.
(f) TRANSFERABILITY. Each stock option agreement shall provide
that the Option granted therein is not transferable by the Option Holder
except by will or pursuant to the laws of descent and distribution, and that
such Option is exercisable during the Option Holder's lifetime only by him or
her, or in the event of Disability or incapacity, by his or her guardian or
legal representative.
(g) EXERCISE, PAYMENTS, ETC.
(i) Each stock option agreement shall provide that the method
for exercising the Option granted therein shall be by delivery to the Company
of written notice specifying the particular Option (or portion thereof) which
is being exercised, the number of Shares with respect to which such Option is
exercised and including payment of the Option Price. Such notice shall be in
a form satisfactory to the Administrative Committee. An Option for the
purchase of Shares granted hereunder may be exercised either in whole at any
time, or from time to time in part in lots of no less than 100 Shares or, in
the event any balance as to which the Option remains unexercised shall be
less than 100 Shares, in a lot equal to such balance. The exercise of the
Option shall be deemed effective upon receipt of such notice by the Company
and payment to the Company of the Option Price. The purchase of such Stock
shall take place at the principal offices of the Company upon delivery of
such notice, at which time the purchase price of the Stock shall be paid in
full by any of the methods or any combination of the methods set forth in
(ii) below. A properly executed certificate or certificates representing the
Stock shall be issued by the Company and delivered to the Option Holder.
(ii) The method or methods of payment of the Option Price for
the Shares to be purchased upon exercise of an Option shall be determined by
the Administrative Committee and may consist of any of the following methods
or any combination of the following methods:
(A) in cash;
(B) by cashier's check payable to the order of the Company;
(C) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that number of
Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised;
(D) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise
price;
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<PAGE>
(E) by delivery to the Company of certificates
representing the number of Shares then owned by the Option Holder, the Fair
Market Value of which equals the purchase price of the Stock purchased
pursuant to the Option, properly endorsed for transfer to the Company;
provided however, that Shares used for this purpose must have been held by
the Option Holder for such minimum period of time as may be established from
time to time by the Administrative Committee. The Fair Market Value of any
Shares delivered in payment of the purchase price upon exercise of the Option
shall be the Fair Market Value as of the exercise date and the exercise date
shall be the day of the delivery of the Certificates for the Stock used as
payment of the Option Price.
(h) DATE OF GRANT. An Option shall be considered as having been
granted on the date specified in the grant resolution of the Administrative
Committee.
5.3 STOCKHOLDER PRIVILEGES. Prior to the exercise of the Option and the
transfer of Shares to the Option Holder, an Option Holder shall have no
rights as a stockholder with respect to any Shares subject to any Option
granted to such person under this Plan, and until the Option Holder becomes
the holder of record of such Stock, no adjustments shall be made for
dividends or other distributions or other rights as to which there is a
record date preceding the date such Option Holder becomes the holder of
record of such Stock, except as provided in Section 4.
SECTION 6
CHANGE IN CONTROL
6.1 CHANGE IN CONTROL. In the event of a change in control of the
Company, as defined in Section 6.2, notwithstanding any contrary vesting
schedules unless the applicable stock option agreement provides otherwise,
each outstanding Option shall become exercisable in full in respect of the
aggregate number of Shares covered thereby, upon the occurrence of the events
described in clause (a) and (b) of Section 6.2 or immediately prior to the
consummation of the events described in clause (c) of Section 6.2, and the
Administrative Committee, in its sole discretion, without obtaining
stockholder approval, to the extent permitted in Section 10, may take any or
all of the following actions: (a) grant a cash bonus award to any Option
Holder in an amount necessary to pay the Option Price of all or any portion
of the Options then held by such Option Holder; (b) pay cash to any or all
Option Holders in exchange for the cancellation of their outstanding Options
in an amount equal to the difference between the Option Price of such Options
and the greater of the tender offer price for the underlying Stock or the
Fair Market Value of the Stock on the date of the cancellation of the
Options; and (c) make any other adjustments or amendments to the outstanding
Options. Notwithstanding the foregoing, unless otherwise provided in the
applicable stock option agreement, the Administrative Committee may, in its
discretion, determine that any or all outstanding Options granted pursuant to
the Plan will not vest or become exercisable on an accelerated basis in
connection with an event described in clause (c) of Section 6.2 and/or will
not terminate if not exercised prior to consummation of such event, if the
Board or the surviving or acquiring corporation, as the case may be, shall
have taken or made effective provision for the taking of, such action as in
the opinion of the Administrative Committee is equitable and appropriate to
substitute a new Option for such Option or to assume such Option and in order
to make such new or assumed Option, as nearly as may be practicable,
equivalent to the old Option (before giving effect to any acceleration of the
vesting or exercisability thereof), taking into account, to the extent
applicable, the kind and amount of securities, cash or other assets into or
for which the Stock may be changed, converted or exchanged in connection with
such event.
6.2 DEFINITION. A "change in control" shall be deemed to have occurred
if (a) any "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2)of the 1934 Act), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or
indirectly, of more than 50% of the then outstanding voting stock of the
Company; or (b) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the stockholders approve a plan or
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets; or (c) a tender offer or exchange offer to acquire securities of the
Company (other than such an offer made by the Company or any subsidiary),
whether or not such offer is approved or
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opposed by the Board is made to acquire securities of the Company entitling
the holders thereof to 50%or more of the voting power in the election of
directors of the Company.
6.3 GOLDEN PARACHUTE PAYMENTS. IF the provisions of this Section would
result in the receipt by any Option Holder of a payment within the meaning of
Code Section 280G and the regulations thereunder and if the receipt of such
payment would result in the imposition of any excise tax under Code Sections
280G and 4999, then the amount of such payment will be reduced to the extent
required, in the opinion of independent tax counsel, to prevent the
imposition of such excise tax; provided, however, that the Administrative
Committee, in its sole discretion, may authorize the payment of all or any
portion of the amount of such reduction to the Option Holder. In such event,
the Company will have no obligation or liability with respect to the Option
Holder for the amount of any excise tax imposed on the Option Holder under
Code Sections 280G and 4999.
SECTION 7
RIGHTS OF EMPLOYEES AND OPTION HOLDERS
7.1 EMPLOYMENT. Nothing contained in the Plan or in any Option shall
confer upon any Eligible Person any right with respect to the continuation of
his or her employment by the Company (or, in the case of an advisor or
consultant, to the continuation of the performance of services for the
Company),or interfere in any way with the right of the Company, subject to
the terms of any separate employment agreement to the contrary, at any time
to terminate such employment or services or to increase or decrease the
compensation of such Eligible Person from the rate in existence at the time
of the grant of an Option. Whether an authorized leave of absence, or absence
in military or government service, shall constitute a termination of
employment or a termination of services shall be determined by the
Administrative Committee at the time.
7.2 NONTRANSFERABILITY. No right or interest of any Option Holder in an
Option granted pursuant to the Plan shall be assignable or transferable
during the lifetime of the Option Holder, either voluntarily or
involuntarily, or be subjected to any lien, directly or indirectly, by
operation of law, or otherwise, including execution, levy, garnishment,
attachment, pledge or bankruptcy. In the event or an Option Holder's death,
an Option Holder's rights and interests in Options shall, to the extent
provided in Section 5, be transferable by testamentary will or the laws of
decent and distribution. In the opinion of the Administrative Committee, if
an Option Holder is disabled from caring for his affairs because of mental
condition, physical condition or age, such Option Holder's Options shall be
exercised by such person's guardian, conservator or other legal personal
representative upon furnishing the Administrative Committee with evidence
satisfactory to the Administrative Committee of such status.
SECTION 8
GENERAL RESTRICTIONS
8.1 INVESTMENT REPRESENTATIONS. The Company may require any Option
Holder, as a condition of exercising such Option or receiving Stock under the
Option, to give written assurances, in the substance and form satisfactory to
the Company and its counsel, to the effect that such person is acquiring the
Stock subject to the Option for his own account for investment and not with
any present intention of selling or otherwise distributing the same, and to
such other effects as the Company deems necessary or appropriate in order to
comply with federal and applicable state securities laws. Legends evidencing
such restrictions may be placed on the certificates evidencing the Stock.
8.2 COMPLIANCE WITH SECURITIES LAWS. Each Option shall be subject to the
requirement that, if at any time counsel to the Company shall determine that
the listing, registration or qualification of the Shares subject to such
Option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is necessary as a
condition of, or in connection with, the issuance or purchase of Shares
thereunder, such Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained on conditions acceptable to the Administrative
Committee. Nothing herein shall be deemed to require the Company to apply for
or to obtain such listing, registration or qualification.
8.3 STOCK RESTRICTION AGREEMENT. The Administrative Committee may
provide that Shares of Stock issuable upon the exercise of an Option shall,
under certain conditions, be subject to restrictions whereby the
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Company has a right of first refusal with respect to such Shares or a right
or obligation to repurchase all or a portion of such Shares, which
restrictions may survive an Option Holder's term of employment or term of
service with the Company.
8.4 RESTRICTION ON DISPOSITION To preserve tax treatment under Section
422 of the Code upon the disposition of any Optioned Shares acquired pursuant
to any Incentive Stock Option granted under this Plan, an Option Holder may
not dispose of any such Optioned Shares within two years from the date of the
grant of such Option nor within one year of the exercise of such Option.
SECTION 9
OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by an Option Holder
asa result of the exercise of an Option shall not constitute "earnings" with
respect to which any other employee benefits of such Option Holder are
determined, including without limitation benefits under any pension,
profitsharing, life insurance or salary continuation plan.
SECTION 10
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time-to-time may amend or
modify, the Plan; provided, however, that no amendment or modification may
become effective without approval of the amendment or modification by the
stockholders if stockholder approval is required to enable the Plan to
satisfy any applicable statutory or regulatory requirements, or if the
Company, on the advice of counsel, determines that stockholder approval
otherwise is necessary or desirable. No amendment, modification or
termination of the Plan shall in any manner adversely affect any Options
theretofore granted under the Plan without the consent of the Option Holder
holding such Options.
SECTION 11
WITHHOLDING
11.1 WITHHOLDING REQUIREMENT. The Company's obligation to deliver Shares
upon the exercise of an Option shall be subject to the satisfaction of all
applicable federal, state and local income and other tax withholding
requirements.
11.2 WITHHOLDING WITH STOCK. At the time an Option is exercised by the
Option Holder, the Administrative Committee, in its sole discretion, may
permit the Option Holder to pay all such amounts of tax withholding, or any
part thereof, by transferring to the Company, or directing the Company to
withhold from Shares otherwise issuable to such Option Holder, Shares having
a value equal to the amount required to be withheld or such lesser amount as
may be determined by the Administrative Committee at such time. The value of
Shares to be withheld shall be based on the Fair Market Value of the Stock on
the date that the amount of tax to be withheld is to be determined.
SECTION 12
NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of the
Plan to stockholders of the Company for approval shall be construed as
creating any limitations on the power or authority of the Board to adopt such
other or additional incentive or other compensation arrangements of whatever
nature as the Board may deem necessary or desirable or preclude or limit the
continuation of any other plan, practice or arrangement for the payment of
compensation or fringe benefits to employees generally, or to any class or
group of employees, which the Company or any Affiliated Corporation now has
lawfully put into effect, including, without limitation, any retirement,
pension, savings and stock purchase plan, insurance, death and disability
benefits and executive short-term incentive plans.
SECTION 13
REQUIREMENTS OF LAW
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13.1 REQUIREMENTS OF LAW. The issuance of Stock and the payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.
13.2 FEDERAL SECURITIES LAW REQUIREMENTS. With respect to Eligible
Persons subject to Section 16 of the 1934 Act, transactions under this Plan
are intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the 1934 Act. To the extent any provision of the Plan or
action by the Administrative Committee fails to so comply, it shall be deemed
null and void with respect to such Eligible Persons, to the extent permitted
bylaw and deemed advisable by the Administrative Committee.
13.3 GOVERNING LAW. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of
Colorado.
SECTION 14
DURATION OF THE PLAN
The Plan shall terminate at such time as may be determined by the Board,
and no Option shall be granted after such termination. If not sooner
terminated under the preceding sentence, the Plan shall fully cease and
expire at midnight on the date that is ten years from the Effective Date of
the Plan. Options outstanding at the time of the Plan termination may
continue to be exercised in accordance with their terms.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly authorized officers and its seal to be affixed hereto, effective,
except as specified to the contrary herein, as of March 1, 1998.
ROCKY MOUNTAIN INTERNET, INC.
By:
-----------------------------
Name:
-----------------------------
Title: PRESIDENT
-----------------------------
ATTEST/WITNESS:
By:
-----------------------------
Name:
-----------------------------
Title: SECRETARY
-----------------------------
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ROCKY MOUNTAIN INTERNET, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 24, 1999
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Rocky Mountain Internet, Inc. (the
"Company") hereby appoints Douglas H. Hanson and Mary Beth Vitale, or any of
them, with full power of substitution, as proxies to cast all votes, as
designated below, which the undersigned stockholder is entitled to cast at
the 1999 Annual Meeting of Stockholders (the "Annual Meeting") to be held on
Thursday, June 24, 1999 at 12:00 noon (local time) at the Embassy Suites
Hotel, 1881 Curtis Street, Denver, Colorado 80202, upon the following matters
and any other matters and any other matter as may properly come before the
Annual Meeting or any adjournments thereof.
1. Election of the five nominees to serve on the Board of Directors (or if
any nominee is not available for election, such substitute as the Board of
Directors may designate), namely: Douglas H. Hanson, D.D. Hock, Robert W.
Grabowski, Lewis H. Silverberg, and Mary Beth Vitale,
[ ] FOR all nominees listed above (except as marked to the contrary
below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above.
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
"FOR" above and write the name of the nominee or nominees as to which you
wish to withhold authority in the space below.
2. Proposal to approve the amendment to Article 1 of the Company's Amended
and Restated Certificate of Incorporation, as amended, to change the name of
the Company from Rocky Mountain Internet, Inc. to "RMI.NET."
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the amendment to Article 4 of the Company's Amended
and Restated Certificate of Incorporation, as amended, to increase the number
of authorized shares of the Company's common stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve the Company's 1998 Employees' Option Plan as amended
to increase the number of shares of the Company's common stock that may be
issued thereunder.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Proposal to ratify and approve the issuance of the Series B Preferred
Stock, and any future issuance of preferred stock with identical terms to the
Series B Preferred Stock, the warrants to purchase common stock issued
therewith and the shares of common stock issuable upon conversion thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. Proposal to ratify the appointment of Ernst & Young LLP as the
independent auditors of the Company for the fiscal year ending December 31,
1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be dated and signed on reverse side.)
<PAGE>
(continued from other side)
This proxy, when properly executed, will be voted as directed by
the undersigned stockholder and in accordance with the best judgment of the
proxies as to other matters. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED "FOR" THE NOMINEES LISTED IN PROPOSAL 1, "FOR" PROPOSALS 2, 3, 4, 5,
and 6 AND IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXIES AS TO OTHER
MATTERS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED IN
PROPOSAL 1, AND "FOR" PROPOSALS 2, 3, 4, 5, and 6.
The undersigned hereby acknowledges prior receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement dated May 14, 1999 and the
1999 Annual Report to Stockholders, and hereby revokes any proxy or proxies
heretofore given. This Proxy may be revoked at any time before it is voted
by delivering to the Secretary of the Company either a written revocation or
proxy or a duly executed proxy bearing a later date, or by appearing at the
Annual Meeting and voting in person.
If you receive more than one proxy card, please sign and return all
cards in the accompanying envelope.
Date: , 1999
-------------------
--------------------------------
Signature of Stockholder or Authorized Representative
Please date and sign exactly as name appears hereon.
Each executor, administrator, trustee, guardian,
attorney-in-fact and other fiduciary should sign and
indicate his or her full title. In the case of
stock ownership in the name of two or more persons, all
persons should sign.
[ ] I PLAN TO ATTEND THE JUNE 24, 1999 ANNUAL STOCKHOLDERS MEETING
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY TO ENSURE A
QUORUM AT THE MEETING. IT IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES.
DELAY IN RETURNING YOUR PROXY MAY SUBJECT THE COMPANY TO ADDITIONAL EXPENSE.
