<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Rhythms NetConnections 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 appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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 statement
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:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
RHYTHMS NETCONNECTIONS INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 5, 2000
To the Stockholders of Rhythms NetConnections Inc.:
Notice is Hereby Given that the Annual Meeting of Stockholders of Rhythms
NetConnections Inc., a Delaware corporation (the "Company"), will be held on
May 5, 2000, at 10:00 a.m. Mountain Daylight Time at Embassy Suites, 10250
East Costilla Avenue, Englewood, Colorado, 80112, for the following purposes,
as more fully described in the Proxy Statement accompanying this Notice:
1. To elect two directors to serve for a three-year term ending in the
year 2003 or until their successors are duly elected and qualified;
2. To approve an amendment to the Company's certificate of incorporation
to increase the number of shares of Preferred Stock authorized for issuance
thereunder by an additional 5,000,000 shares to a total of 10,000,000
shares of Preferred Stock;
3. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending December 31, 2000; and
4. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on March 31, 2000, are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books of the Company will remain open between the record date and the date of
the meeting. A list of stockholders entitled to vote at the Annual Meeting
will be available for inspection at the executive offices of the Company.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed Proxy
as promptly as possible in the envelope enclosed for your convenience. Should
you receive more than one Proxy because your shares are registered in
different names and addresses, each Proxy should be signed and returned to
assure that all your shares will be voted. You may revoke your Proxy at any
time prior to the Annual Meeting. If you vote by ballot at the Annual Meeting,
your Proxy will be revoked automatically and only your vote at the Annual
Meeting will be counted.
Sincerely,
/s/ Catherine M. Hapka
Catherine M. Hapka
Chief Executive Officer and
Chairman of the Board of Directors
Englewood, Colorado
April 6, 2000
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE
ENCLOSED ENVELOPE.
<PAGE>
RHYTHMS NETCONNECTIONS INC.
6933 South Revere Parkway
Englewood, Colorado 80112
----------------
PROXY STATEMENT
----------------
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 5, 2000
General
The enclosed Proxy ("Proxy") is solicited on behalf of the Board of
Directors of Rhythms NetConnections Inc., a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders to be held on May 5,
2000 (the "Annual Meeting"). The Annual Meeting will be held at Embassy
Suites, 10250 East Costilla Avenue, Englewood, Colorado, 80112. These Proxy
solicitation materials were mailed on or about April 6, 2000, to all
stockholders entitled to vote at the Annual Meeting.
Voting
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice and are described in more detail in
this Proxy Statement. On March 31, 2000, the record date for determination of
stockholders entitled to notice of and to vote at the Annual Meeting,
78,449,631 shares of the Company's Common Stock, par value $0.001 ("Common
Stock"), were issued and outstanding, 250,000 shares of the Company's 8.25%
Series E Convertible Preferred Stock due 2015, par value $0.001, were
outstanding, 3,000,000 shares of the Company's 6 3/4% Series F Cumulative
Convertible Preferred Stock, par value $0.001, were outstanding; and no shares
of the Company's Series 1 Junior Participating Preferred Stock were
outstanding. Each stockholder is entitled to one vote for each share of Common
Stock held by such stockholder on March 31, 2000. Stockholders may not
cumulate votes in the election of directors.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
as present for purposes of determining the presence or absence of a quorum for
the transaction of business. Abstentions will be counted toward the
tabulations of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes, whereas broker non-votes will not be
counted for purposes of determining whether a proposal has been approved.
Proxies
If the enclosed form of Proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the Proxy does not specify how the shares
represented thereby are to be voted, the Proxy will be voted FOR the election
of the directors proposed by the Board unless the authority to vote for the
election of such directors is withheld and, if no contrary instructions are
given, the Proxy will be voted FOR the approval of Proposals 1, 2, and 3
described in the accompanying Notice and Proxy Statement. You may revoke or
change your Proxy at any time before the Annual Meeting by filing with the
Chief Financial Officer of the Company at the Company's principal executive
offices at 6933 South Revere Parkway, Englewood, Colorado 80112, a notice of
revocation or another signed Proxy with a later date. You may also revoke your
Proxy by attending the Annual Meeting and voting in person.
Solicitation
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to the stockholders.
Copies of solicitation materials will be furnished to brokerage houses,
fiduciaries and custodians holding shares in their names that are beneficially
owned by others so that they may forward this solicitation material to such
1
<PAGE>
beneficial owners. In addition, the Company may reimburse such persons for
their costs in forwarding the solicitation materials to such beneficial
owners. The original solicitation of Proxies by mail may be supplemented by a
solicitation by telephone, telegram or other means by directors, officers or
employees of the Company. No additional compensation will be paid to these
individuals for any such services. Except as described above, the Company does
not currently intend to solicit Proxies other than by mail.
Deadline for Receipt of Stockholder Proposals
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 2001 Annual Meeting must be received no
later than December 15, 2000, in order that they may be included in the Proxy
statement and form of Proxy relating to that meeting. In addition, the Proxy
solicited by the Board of Directors for the 2001 Annual Meeting will confer
discretionary authority to vote on any stockholder proposal presented at that
meeting, unless the Company receives notice of such proposal not later than
December 15, 2000.
2
<PAGE>
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE: ELECTION OF DIRECTORS
General
The Company's Certificate of Incorporation provides for a classified Board
of Directors consisting of three classes of directors with staggered three-
year terms, with each class consisting, as nearly as possible, of one-third of
the total number of directors. The Board currently consists of eight persons.
The class whose term of office expires at the Annual Meeting currently
consists of two directors. The directors elected to this class will serve for
a term of three years, expiring at the 2003 Annual Meeting of Stockholders or
until their successors have been duly elected and qualified. The nominees
listed below are currently directors of the Company. If this proposal is
approved, the Board will consist of eight persons, with two classes consisting
of two directors each, a third class consisting of three directors, and one
Series E director.
The nominees for election have agreed to serve if elected, and management
has no reason to believe that such nominees will be unavailable to serve. In
the event either of the nominees is unable or declines to serve as a director
at the time of the Annual Meeting, the Proxies will be voted for any nominee
who may be designated by the present Board of Directors to fill the vacancy.
Unless otherwise instructed, the Proxy holders will vote the Proxies received
by them FOR the nominee named below.
Nominees for Term Ending Upon the 2003 Annual Meeting of Stockholders
Keith B. Geeslin, 46, has served as a director of the Company since July
1997. Since 1988, Mr. Geeslin has served as a general partner of The Sprout
Group, a venture capital investment firm. Mr. Geeslin is a director of Actel
Corporation, Quintus Corporation, GlobeSpan Corporation, SDL, Inc. and
Paradyne Corporation, a DSL equipment manufacturer and supplier to the
Company, and is also a director of several privately held companies. Mr.
Geeslin was elected a director as the nominee of The Sprout Group, under the
terms of a voting agreement, which has subsequently been terminated.
Edward J. Zander, 53, has served as a director of the Company since March
1999. Since 1987, Mr. Zander has held various management positions at Sun
Microsystems, Inc., where he currently serves as President and Chief Operating
Officer, a position he has held since February 1998. Mr. Zander is a director
of Documentum, Inc. and one privately held company.
Continuing Directors for Term Ending Upon the 2001 Annual Meeting of
Stockholders
Susan Mayer, 50, has been a director since March 1999. Ms. Mayer is the
President of the MCI WorldCom Venture Fund and a Senior Vice President of MCI
WorldCom. Previously, she was Senior Vice President of MCI Communications
Corporation from 1994 to 1998. From 1996 to 1997, Ms. Mayer was also President
and Chief Operating Officer of Sky MCI.
William R. Stensrud, 49, has been a director since the Company's inception
in February 1997 and also served as President and Chief Executive Officer from
February 1997 to June 1997. Mr. Stensrud has been a general partner at the
venture capital investment firm of Enterprise Partners since January 1997.
From June 1996 through December 1996, Mr. Stensrud served as President of
Paradyne Corporation. Previously, from February 1992 to March 1996, Mr.
Stensrud served as President and Chief Executive Officer of Primary Access
Corporation. Mr. Stensrud is a director of Juniper Networks and of Paradyne
Corporation, a DSL equipment manufacturer and supplier to the Company, and of
several privately held companies. Mr. Stensrud was elected a director as the
nominee of Enterprise Partners, under the terms of a voting agreement, which
has subsequently been terminated.
John L. Walecka, 40, has been a director since July 1997. Mr. Walecka is a
founding partner of Redpoint Ventures, formed in October 1999. Redpoint is a
technology-focused venture capital investment firm. Since 1984, Mr. Walecka
has been a General Partner of Brentwood Venture Capital, a venture capital
investment
3
<PAGE>
firm. Mr. Walecka is a director of several privately held companies. Mr.
Walecka was elected a director as the nominee of Brentwood Venture Capital,
under the terms of a voting agreement, which has subsequently been terminated.
Continuing Directors for Term Ending Upon the 2002 Annual Meeting of
Stockholders
Catherine M. Hapka, 45, has been our Chief Executive Officer and a director
since June 1997. She was elected Chairman of the Board of Directors in June
1999. Prior to joining the Company, Ms. Hapka served as President of NETS,
Inc., an electronic commerce software company, from March 1997 to May 1997.
NETS, Inc. filed a bankruptcy petition in May 1997. Prior to joining NETS,
Inc., Ms. Hapka served as Executive Vice President, Markets, for U S WEST
Communications, Inc. from January 1995 to October 1996. In this capacity, Ms.
Hapka led business and consumer telecommunications units responsible for the
voice, data, wireless, video and long distance businesses. From 1991 to 1994,
Ms. Hapka served as founder, President and Chief Operating Officer of the
!NTERPRISE Networking Services Unit of U S WEST. Prior to joining U S WEST,
Ms. Hapka held general management positions with General Electric and McKinsey
& Co., Inc.
Kevin R. Compton, 41, has been a director since July 1997. Since 1990, Mr.
Compton has served as a general partner of Kleiner Perkins Caufield & Byers, a
venture capital investment firm. Mr. Compton is a director of Citrix Systems,
Inc., Global Village Communication, Inc., OneWorld Systems, Inc., Verisign,
Inc. and Corsair Communications, Inc., and is also a director of several
privately held companies. Mr. Compton was elected a director as the nominee of
Kleiner Perkins Caufield & Byers, under the terms of a voting agreement, which
has subsequently been terminated.
The Series E Director
In March 2000, affiliates of Hicks, Muse, Tate & Furst Incorporated and
certain related parties ("Hicks Muse") had the right to elect one director
(the "Series E Director") to the Company's Board of Directors so long as they
hold 40% or more of the Series E Preferred Stock. The Series E Director will
serve at the pleasure of Hicks Muse. Hicks Muse has exercised its right to
elect the Series E Director. Hicks Muse has elected Michael J. Levitt to fill
this position.
Michael J. Levitt, 41, is a partner of Hicks Muse. Mr. Levitt is involved in
originating, structuring and monitoring Hicks Muse's investments and in
building relationships with investment banks and commercial banking firms
worldwide. Mr. Levitt serves as a director of AMFM Corp., AMFMi Corp.,
Awards.com, El Sitio, Inc., G.H. Mumm/Perrier Jouet & Cie., Globix
Corporation, i.Party Corp., Ibero American Media Partners, L.P., International
Home Foods, Inc., PeopleLink, Inc., RCN Corporation, RealPulse.com, and STC
Broadcasting, Inc.
Board Committees and Meetings
The Board of Directors held 12 meetings during the fiscal year ended
December 31, 1999 ("1999") and acted by unanimous written consent 21 times
during 1999. The Board of Directors has an Audit Committee and a Compensation
Committee. Each director attended or participated in 91% or more of the
aggregate of (i) the total number of meetings of the Board of Directors and
(ii) the total number of meetings held by all committees of the Board on which
such director served during 1999.
The Audit Committee currently consists of three directors, Ms. Mayer and
Messrs. Compton and Geeslin, and is primarily responsible for approving the
services performed by the Company's independent auditors and reviewing their
reports regarding the Company's accounting practices and systems of internal
accounting controls. The Audit Committee held 1 meeting during 1999.
The Compensation Committee currently consists of three directors, Messrs.
Stensrud, Walecka and Zander, and is primarily responsible for reviewing and
approving the Company's general compensation policies and setting compensation
levels for the Company's executive officers. The Compensation Committee is
also
4
<PAGE>
responsible for granting stock awards, stock options and stock appreciation
rights and other awards to be made under our existing incentive compensation
plans. The Compensation Committee held 3 meetings and did not act by unanimous
written consent during 1999.
Director Compensation
Directors who are not employees of the Company are not compensated for
services provided as a director or for participation on any committee of the
Board of Directors. All directors are reimbursed for their out-of-pocket
expenses in serving on the Board of Directors or any of the Board's
committees. There is currently no automatic option grant program in effect for
non-employee directors.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote FOR the
election of the nominees listed above.
5
<PAGE>
PROPOSAL TWO: APPROVAL OF AMENDMENT AND RESTATEMENT OF
THE RESTATED CERTIFICATE OF INCORPORATION
The present capital structure of the Company authorizes 250,000,000 shares
of Common Stock, 1,000,000 shares of Series 1 Junior Participation Preferred
Stock, 250,000 shares of 8.25% Series E Convertible Preferred Stock due 2015,
3,000,000 shares of 6 3/4% Series F Cumulative Convertible Preferred Stock,
and 750,000 shares of Preferred Stock, the rights, privileges and preferences
of which may be set by the board of directors each having a par value of $.001
per share. The Company has issued 3,250,000 shares of Preferred Stock in the
past 12 months to meet its financing needs. As a result, the Board of
Directors believes it is appropriate to add additional shares of Preferred
Stock to the Company's capital structure. Therefore, the Board of Directors
has unanimously approved the amendment and restatement of the Company's
Restated Certificate of Incorporation to increase the authorized number of
shares of Preferred Stock from 5,000,000 shares to 10,000,000 shares. The
Board believes this capital structure more appropriately reflects the present
and future needs of the Company and recommends such amendment and restatement
to the Company's stockholders for adoption. The undesignated Preferred Stock
may be issued from time to time in one or more series with such rights,
preferences and privileges as may be determined by the Board of Directors. On
March 31, 2000, 78,449,631 shares of Common Stock were outstanding, no shares
of Series 1 Junior Participating Preferred Stock were outstanding, 250,000
shares of 8.25% Series E Convertible Preferred Stock due 2015 were
outstanding, and 3,000,000 6 3/4% Series F Cumulative Convertible Preferred
Stock were outstanding.
Purpose of Authorizing Additional Preferred Stock
Authorizing an additional 5,000,000 shares of Preferred Stock would give the
Board of Directors the express authority, without further action of the
stockholders, to issue such Preferred Stock from time to time as the Board of
Directors deems necessary. The Board of Directors believes it is necessary to
have the ability to issue such additional shares of Preferred Stock for
general corporate purposes. Potential uses of the additional authorized shares
may include acquisition transactions, equity financings and stock dividends or
distributions without further action by the stockholders, unless such action
were specifically required by applicable law or rules of any stock exchange on
which the Company's securities may then be listed. The Company has no current
plans to issue any shares of Preferred Stock.
The proposed increase in the authorized number of shares of Preferred Stock
could have a number of effects on the Company's stockholders, depending upon
the exact nature and circumstances of any actual issuances of authorized but
unissued shares. The increase could have an anti-takeover effect, in that
additional shares could be issued (within the limits imposed by applicable
law) in one or more transactions that could make a change in control or
takeover of the Company more difficult. For example, additional shares could
be issued by the Company so as to dilute the stock ownership or voting rights
of persons seeking to obtain control of the Company. Similarly, the issuance
of additional shares to certain persons allied with the Company's management
could have the effect of making it more difficult to remove the Company's
current management by diluting the stock ownership or voting rights of persons
seeking to cause such removal. In addition, an issuance of additional shares
by the Company could have an effect on the potential realizable value of a
stockholder's investment. In the absence of a proportionate increase in the
Company's earnings and book value, an increase in the aggregate number of
outstanding shares of the Company caused by the issuance of the additional
shares would dilute the earnings per share and book value per share of all
outstanding shares of the Company's Common Stock. If such factors were
reflected in the price per share of Common Stock, the potential realizable
value of a stockholder's investment could be adversely affected. The Common
Stock carries no preemptive rights to purchase additional shares.
The Board of Directors of the Company would have the authority to issue the
additional shares of Preferred Stock in one or more series and to fix the
rights, priorities, preferences, qualifications, limitations and restrictions,
including dividend rights, conversion rights, voting rights, terms of
redemption, terms of sinking funds, liquidation preferences and the number of
shares constituting any series or the designation of such series, which
6
<PAGE>
could decrease the amount of earnings and assets available for distribution to
holders of Common Stock or adversely affect the rights and powers, including
voting rights, of the holders of the Common Stock.
The proposed amendment and restatement of the Company's Certificate of
Incorporation was approved by unanimous written consent of the directors of
the Company in April 2000.
Stockholder Approval
The affirmative vote of a majority of the Company's outstanding voting
shares is required for approval of the amendment and restatement of the
Company's Certificate of Incorporation authorizing 5,000,000 additional shares
of Preferred Stock.
Recommendation of the Board of Directors
The Board of Directors recommends a vote FOR the amendment and restatement
of the Company's Certificate of Incorporation authorizing 5,000,000 additional
shares of Preferred Stock.
7
<PAGE>
PROPOSAL THREE: RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of PricewaterhouseCoopers LLP,
independent public accountants for the Company during the 1999 Fiscal Year, to
serve in the same capacity for the year ending December 31, 2000, and is
asking the stockholders to ratify this appointment. The affirmative vote of a
majority of the shares represented and voting at the Annual Meeting is
required to ratify the selection of PricewaterhouseCoopers LLP.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified,
the Board of Directors in its discretion may direct the appointment of a
different independent auditing firm at any time during the year if the Board
of Directors believes that such a change would be in the best interests of the
Company and its stockholders.
A representative of PricewaterhouseCoopers LLP is expected to be present at
the Annual Meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of PricewaterhouseCoopers LLP to serve as the
Company's independent auditors for the fiscal year ending December 31, 2000.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed Proxy.
8
<PAGE>
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock as of
December 31, 1999, by (i) all persons who are beneficial owners of five
percent (5%) or more of the Company's Common Stock, (ii) each director and
nominee for director, (iii) the Named Officers listed in the Summary
Compensation Table of the Executive Compensation and Related Information
section of this Proxy Statement and (iv) all current directors and executive
officers as a group. Unless otherwise indicated, each of the stockholders has
sole voting and investment power with respect to the shares beneficially
owned, subject to community property laws, where applicable.
<TABLE>
<CAPTION>
Number of
Shares Percentage
Beneficially Beneficially
Beneficial Owner(1) Owned Owned(1)
- ------------------- ------------ ------------
<S> <C> <C>
Five Percent Stockholders:
Brentwood Entities(2)............................... 4,678,651 6.0%
KPCB Entities(3).................................... 6,208,988 8.0%
MCI WorldCom Venture Fund(4)........................ 5,334,692 6.9%
Enron Entities(5)................................... 5,393,258 7.0%
Microsoft Corporation(6)............................ 5,197,691 6.7%
Directors and Named Executive Officers:
Catherine M. Hapka(7)............................... 4,421,131 5.7%
Steve Stringer...................................... 29,300 *
Michael S. Lanier................................... -- --
David J. Shimp(8)................................... 300,000 *
Scott C. Chandler(9)................................ 480,000 *
Kevin R. Compton(10)................................ 83,800 *
Keith B. Geeslin(11)................................ 90,700 *
Susan Mayer(12)..................................... -- --
William R. Stensrud(13)............................. 235,586 *
John L. Walecka(14)................................. 151,700 *
Edward J. Zander(15)................................ 60,000 *
All current directors and executive officers as a
group (15 persons)(16)............................. 6,560,400 8.4%
</TABLE>
- --------
* Represents beneficial ownership of less than one percent of the
outstanding shares of our Common Stock.
(1) Except as indicated by footnote, the persons named in the table above
have sole voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where
applicable.
(2) Consists of 187,145 shares held by Brentwood Affiliates Fund, L.P. and
4,491,506 shares held by Brentwood Associates VII, L.P., of which
Brentwood VII Ventures, L.P. is the general partner (collectively, the
"Brentwood Entities"). The address for each of the Brentwood Entities is
3000 Sand Hill Road, Building 1, Suite 260, Menlo Park, California 94025.
(3) Consists of 5,650,391 shares held by Kleiner Perkins Caufield & Byers
VIII, L.P., 441,631 shares held by KPCB VIII Founders Fund, L.P. and
116,966 shares held by KPCB VIII Information Sciences Zaibatsu Fund II,
L.P. (collectively, the "KPCB Entities"). The address for each of the
KPCB Entities is 2750 Sand Hill Road, Menlo Park, California 94025.
(4) Includes 856,996 shares issuable upon exercise of warrants exercisable
within 60 days of December 31, 1999. The address for MCI WorldCom Venture
Fund is c/o MCI WorldCom, Inc., 1801 Pennsylvania Avenue, Washington,
D.C. 20006.
(5) Consists of shares beneficially owned by G-Past, L.L.C., of which Enron
Communications Investments Corp. is the managing member and a wholly-
owned subsidiary of Enron Broadband Services, Inc., a wholly-owned
subsidiary of Enron Corp. (collectively, the "Enron Entities"). The
address for each of the Enron Entities is 210 Southwest Morrison Street,
Suite 400, Portland, Oregon 97204.
9
<PAGE>
(6) Includes 720,000 shares issuable upon exercise of a warrant exercisable
within 60 days of December 31, 1999. The address for Microsoft
Corporation is One Microsoft Way, Redmond, Washington 98052.
(7) Includes shares held by Ms. Hapka's children, Christopher H. Safaya and
Catherine A. Safaya, in the amount of 5,333 shares each and shares held
by Christopher H. Safaya 1999 Trust and Catherine A. Safaya 1999 Trust in
the amount of 132,480 shares each. Also includes 1,338,291 shares from
option exercises subject to repurchase by the Company.
(8) Includes 200,000 shares from option exercises subject to repurchase by
the Company.
(9) Includes 276,000 shares from option exercises subject to repurchase by
the Company.
(10) Excludes shares held by the KPCB Entities. Mr. Compton, as a General
Partner of KPCB, may be deemed to have voting and investment power over
the shares held by the KPCB Entities. Mr. Compton disclaims beneficial
interest in such shares, except to the extent of his pecuniary interest
therein.
(11) Excludes shares beneficially owned by DLJ Capital Corporation, DLJ First
ESC L.L.C., Sprout Capital VII, L.P. and The Sprout CEO Fund, L.P.
(collectively, the "Sprout Entities"). Mr. Geeslin, as a General Partner
of The Sprout Group, may be deemed to have voting and investment power
over the shares held by the Sprout Entities. Mr. Geeslin disclaims
beneficial interest in such shares, except to the extent of his pecuniary
interest therein.
(12) Excludes shares held by MCI WorldCom Venture Fund ("MCI WorldCom"). Ms.
Mayer, as President of MCI WorldCom, may be deemed to have voting and
investment power over the shares held by such fund. Ms. Mayer disclaims
beneficial interest of such shares, except to the extent of her pecuniary
interest therein.
(13) Includes 200,015 shares held by Blue Goose, Ltd., of which the Stensrud
Family Trust UTA 9-16-93 (the "Stensrud Trust") is a General and Limited
Partner. Also includes 35,571 shares held by the Stensrud Trust. Mr.
Stensrud is a trustee and one of the beneficiaries of the Stensrud Trust.
Mr. Stensrud disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest therein.
(14) Excludes shares held by the Brentwood Entities. Mr. Walecka, as a General
Partner of Brentwood Venture Capital, may be deemed to have voting and
investment power over the shares held by the Brentwood Entities. Mr.
Walecka disclaims beneficial interest in such shares, except to the
extent of his pecuniary interest therein. Includes 31,905 shares held in
trust, of which Mr. Walecka is the trustee and beneficiary. Mr. Walecka
disclaims beneficial ownership of these shares except to the extent of
his pecuniary interest therein.
(15) Consists of shares issuable upon exercise of an option exercisable within
60 days of December 31, 1999.
(16) Includes 79,270 shares issuable upon exercise of options or warrants
exercisable within 60 days of December 31, 1999 and 2,114,768 shares from
option exercises subject to repurchase by us. Excludes shares held by the
Brentwood Entities, the KPCB Entities, MCI WorldCom Venture Fund, the
Enron Entities and Microsoft Corporation.
10
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning the
compensation earned, by the Company's Chief Executive Officer and each of the
four other most highly compensated executive officers of the Company whose
salary and bonus for the 1999 fiscal year was in excess of $100,000, for
services rendered in all capacities to the Company and its subsidiaries for
the fiscal years ended December 31, 1997, 1998 and 1999. The listed
individuals shall be hereinafter referred to as the "Named Officers."
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------- ------------
Securities All Other
Underlying Compensation
Name and Principal Position(s) Year Salary ($) Bonus ($) Options (#) ($)
- ------------------------------ ---- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Catherine M. Hapka(1)... 1999 350,000 178,838 240,000(2) --
Chairman and Chief Ex-
ecutive Officer 1998 339,583 134,584 -- --
1997 163,654 50,000 4,381,131(3) --
Steve Stringer(4)....... 1999 157,690 150,000 720,252(5) 65,654(6)
President and Chief Op-
erating Officer 1998 -- -- -- --
1997 -- -- -- --
Michael S. Lanier(7).... 1999 186,538 99,433(8) 300,000(5) --
Chief Information Offi-
cer 1998 -- -- -- --
1997 -- -- -- --
David J. Shimp(9)....... 1999 175,935 46,375 -- 62,428(6)
Senior Vice President,
Human Resources 1998 33,205 36,902 300,000(2) --
1997 -- -- -- --
Scott C. Chandler(10)... 1999 180,962 44,509 96,000(2) 55,299(6)
Chief Financial Officer 1998 129,577 28,746 384,000(2) --
1997 -- -- -- --
</TABLE>
- --------
(1) Ms. Hapka has been employed since June 1997, and the amount listed sets
forth her compensation since such date.
(2) Represents the number of shares of Common Stock issued upon the exercise
of options.
(3) Represents 3,504,905 shares of Common Stock issued upon the exercise of
options and 876,226 shares of Common Stock issued upon the automatic
conversion at the initial public offering of 365,094 shares of Series A
Preferred Stock purchased by Ms. Hapka in 1998.
(4) Mr. Stringer has been employed since May 1999, and the amount listed sets
forth his compensation since such date.
(5) Represents the number of shares of Common Stock that may be issued upon
the exercise of options.
(6) Represents actual costs related to living expenses and/or relocation.
(7) Mr. Lanier has been employed since May 1999, and the amount listed sets
forth his compensation since such date.
(8) Includes an initial signing bonus of $50,000.
(9) Mr. Shimp has been employed since October 1998, and the amount listed
sets forth his compensation since such date.
(10) Mr. Chandler has been employed since April 1998, and the amount listed
sets forth his compensation since such date.
11
<PAGE>
Stock Options and Stock Appreciation Rights
The following table contains information concerning the stock options
granted to the Named Officers during the 1999 fiscal year. All the grants were
made under the Company's 1999 Stock Incentive Plan. No stock appreciation
rights were granted to the Named Officers during 1999.
Option Grants in 1999
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Appreciation for
Individual Grants Option Term(2)
-------------------------------------------------------------- ------------------------------
Number of
Securities % of Total
Underlying Options Granted Exercise Price
Options to Employees in Per Share
Name Granted (#) 1999 ($/Sh)(3) Expiration Date(4) 5% 10%
- ---- ----------- --------------- -------------- ------------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Catherine M. Hapka...... 240,000 3.0% 3.33 January 20, 2009 $ 503,000 $ 1,274,000
Steve Stringer.......... 350,000(1) 4.5% 56.94 June 9, 2009 12,533,000 31,762,000
70,252 .9% 14.23 June 9, 2009 629,000 1,593,000
300,000 3.8% 26.69 November 2, 2009 5,036,000 12,761,000
Michael S. Lanier....... 300,000 3.8% 16.00 April 5, 2009 3,019,000 7,650,000
David J. Shimp.......... -- -- -- -- -- --
Scott C. Chandler....... 96,000 1.2% 3.33 January 20, 2009 201,000 509,000
</TABLE>
- --------
(1) These options were granted to Mr. Stringer pursuant to an option agreement
outside the 1999 Stock Incentive Plan. The market price of the shares of
Common Stock underlying these options was $56.94 on the date of grant.
(2) There can be no assurance provided to any Named Officer or other holder of
the Company's securities that the actual stock price appreciation over the
ten-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock
appreciates over the option term, no value will be realized from those
option grants which were made to the Named Officers with an exercise price
equal to the fair market value of the option shares on the grant date.
(3) The exercise price may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date. Alternatively, the option may
be exercised through a cashless exercise procedure pursuant to which the
optionee provides irrevocable instructions to a brokerage firm to sell the
purchased shares and to remit to the Company, out of the sale proceeds, an
amount equal to the exercise price plus all applicable withholding taxes.
The Compensation Committee may also assist an optionee in the exercise of
an option by (i) authorizing a loan from the Company in a principal amount
not to exceed the aggregate exercise price plus any tax liability incurred
in connection with the exercise or (ii) permitting the optionee to pay the
option price in installments over a period of years upon terms established
by the Compensation Committee.
(4) The option will become exercisable for 25% of the shares upon the
optionee's completion of one year of service measured from the grant date
and will become exercisable for the balance of the shares in 36 successive
equal monthly installments upon his or her completion of each additional
month of service thereafter. The option will become exercisable on an
accelerated basis upon a liquidation or dissolution of the Company or a
merger or consolidation in which there is a change in ownership of
securities possessing more than 50% of the total combined voting power of
the Company's outstanding securities, unless the option is assumed by the
surviving entity. In addition, the Compensation Committee of the Board of
Directors may accelerate the vesting of the option in the event (i) there
is a change in the composition of the Board of Directors over a period of
two years or less such that those individuals serving as Board members at
the beginning of the period cease to represent a majority of the Board or
(ii) change of ownership of securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities
pursuant to a hostile tender offer.
12
<PAGE>
1999 Option Values
The following table provides information, with respect to the Named
Officers, concerning the exercise of options during 1999 and unexercised
options held by them at of the end of 1999. None of the Named Officers
exercised any stock appreciation rights during 1999, and no stock appreciation
rights were held by the Named Officers at the end of 1999.
1999 Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 1999 (#) December 31, 1999 ($)(1)
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Catherine M. Hapka...... 240,000 728,000 -- -- -- --
Steve Stringer.......... -- -- 23,416 696,836 726,000 10,752,000
Michael S. Lanier....... -- -- -- 300,000 -- 9,300,000
David J. Shimp.......... 300,000 1,410,000 -- -- -- --
Scott C. Chandler....... 480,000 2,074,000 -- -- -- --
</TABLE>
- --------
(1) Based upon the market price of the purchased shares on the exercise date
less the option exercise price paid for those shares.
(2) Based upon the market price of $31.00 per share, determined on the basis
of the closing selling price per share of Common Stock on the Nasdaq
National Market on the last day of 1999, less the option exercise price
payable per share.
Employment Contracts, Termination of Employment and Change in Control
Arrangements
None of the Company's executives are employed for a specified term, and each
executive's employment with the Company is subject to termination at any time
by either party for any reason, with or without cause.
Ms. Hapka's employment agreement provides for a salary of $350,000 per year,
subject to periodic increases by the Board of Directors at its discretion. In
addition, she will be entitled to bonuses as approved by the Board of
Directors at its discretion. In connection with her employment in June 1997,
Ms. Hapka was granted an option to purchase 3,504,905 shares of Common Stock
at an exercise price of $0.04 per share under the 1997 Stock Option/Stock
Issuance Plan, which was succeeded by the 1999 Stock Incentive Plan. In
connection with her employment, Ms. Hapka was also given the right to purchase
up to 365,094 shares of Series A Preferred Stock at $0.80 per share, which
converted into 876,226 shares of our Common Stock at the date of our initial
public offering. In the event Ms. Hapka's employment is terminated
involuntarily and without cause, Ms. Hapka will be entitled to receive a lump
sum payment in an amount equal to her then current annual salary.
Mr. Stringer's employment agreement provides for a salary of $300,000 per
year, payable in accordance with the Company's regular pay period practices,
and subject to periodic increases by the Board of Directors at its discretion.
It also provides for guaranteed bonus compensation during the first year of
employment of $200,000, payable in quarterly installments. For any future
years of performance, Mr. Stringer's bonus will be consistent with the bonus
plan applicable to other members of the Company's management team, as approved
by the Board of Directors. In connection with his employment, Mr. Stringer was
granted options to purchase 350,000 shares of Common Stock at an exercise
price equal to the Common Stock's fair market value on the date of the grant
under the 1999 Stock Incentive Plan. In addition, Mr. Stringer was also
granted outside of the plan an option to purchase 70,252 shares of Common
Stock at an exercise price of $14.23 per share. In November 1999, Mr. Stringer
was granted options to purchase 300,000 shares of Common Stock at an exercise
price equal to the fair market price of the Common Stock on the date of the
grant under the 1999 Stock Incentive Plan. In the event Mr. Stringer's
employment is terminated without cause, he will be eligible to receive monthly
13
<PAGE>
payments at his then applicable monthly base salary for a period of 12 months
from the date of termination of his employment.
Mr. Lanier's employment agreement provides for a salary of $250,000 per
year, subject to periodic increases by the Board of Directors at its
discretion. In addition, the agreement provides for an annual bonus of up to
25% of his annual salary. Mr. Lanier also received, as part of the acceptance
of his employment, a hiring bonus of $50,000. In connection with his
employment, Mr. Lanier was granted options to purchase 300,000 shares of
Common Stock at an exercise price equal to the fair market price of the Common
Stock on the date of the grant under the 1999 Stock Incentive Plan.
Mr. Shimp's employment provides for a salary of $175,000 per year. In
addition, the agreement provides for an annual bonus of up to 25% of his
annual salary. In connection with his employment, Mr. Shimp was granted
options to purchase 300,000 shares of Common Stock at an exercise price of
$1.67 per share under the 1997 Stock Option/Stock Issuance Plan, which was
succeeded by the 1999 Stock Incentive Plan.
Mr. Chandler's employment provides for a salary of $180,000 per year. In
addition, the agreement provides for an annual bonus of up to 40% of his
annual salary. Mr. Chandler was also eligible to receive up to $85,000 in
relocation expenses. In connection with his employment, Mr. Chandler was
granted options to purchase 384,000 shares of Common Stock at an exercise
price of $0.21 per share under the 1997 Stock Option/Stock Incentive Plan,
which was succeeded by the 1999 Stock Incentive Plan.
Compensation Committee Interlocks and Insider Participation
The Board of Directors currently has a compensation committee that reviews
and approves the compensation and benefits to be provided to the Company's
executive officers and other key employees. In addition, the compensation
committee administers the 1999 Stock Incentive Plan. The compensation
committee currently consists of Messrs. Stensrud, Walecka and Zander.
Board Compensation Committee Report on Executive Compensation
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act or the Exchange Act that might
incorporate future filings, including this Proxy statement, in whole or in
part, the report presented shall not be incorporated by reference into any
such filings.
14
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors (the
"Compensation Committee") approves and oversees the Company's compensation
policy, approves salaries and annual bonuses for executive management of the
Company, including the Named Officers, and administers the 1999 Stock
Incentive Plan (the "1999 Plan"), predecessor option plans and the Employee
Stock Purchase Plan. In fulfilling its responsibilities, the Compensation
Committee receives significant input from the Company's Chief Executive
Officer and other members of senior management.
Compensation Policy
Components of Compensation. The Company's compensation policy for executive
management is designed to recruit, motivate and retain highly qualified
individuals by (i) rewarding individual achievements, (ii) enabling
individuals to share in the risks and rewards of the Company's overall
performance and (iii) paying compensation that is competitive with industry
compensation levels. The Company's compensation policy is based, in part, on
certain recommendations made by an independent compensation consultant
previously retained by the Company. The key components of the Company's
current compensation policy, which is designed to balance short-term and long-
term considerations, are competitive salaries, annual cash performance bonuses
and long-term equity incentives. With respect to 1999 compensation, the
Compensation Committee did not use a specific formula to evaluate individual
performance, determine the specific amount of compensation payable to any
individual or allocate each individual's total compensation among salary,
bonus and stock options; however, the Compensation Committee believes that the
compensation paid by the Company to its executive management is commensurate
with the services they rendered to the Company.
1999 Compensation
Annual Salaries. Catherine M. Hapka, the Chairman of the Board and Chief
Executive Officer of the Company, has authority to hire all members of
executive management of the Company, subject to the Compensation Committee's
approval of the compensation to be paid to such executives. Subject to the
approval of the Compensation Committee, Ms. Hapka also determines the
compensation payable to persons offered executive level employment with the
Company and annual salary increases for members of the Company's executive
management. The Compensation Committee determines annual adjustments to Ms.
Hapka's salary and bonus compensation, which is subject to the terms of Ms.
Hapka's employment agreement. In determining and approving the amount of
annual salary and salary increases for executive management, Ms. Hapka and the
Compensation Committee consider factors such as the executive's contribution
to the Company's overall operating effectiveness, strategic success and
profitability; the executive's role in developing and maintaining key client
relationships; the level of responsibility, scope and complexity of such
executive's position relative to other executive management; and the
executive's leadership growth of management development over the past year.
Performance Bonuses. Cash performance bonuses are determined and approved
annually by the Compensation Committee based on an objective evaluation of the
Company's performance relative to predetermined performance goals. The
performance goals are based upon factors over which each executive has
significant control. These factors in 1999 were the numbers of central offices
built, the order backlog, the number of installed customer lines and
performance against specific new product/service innovation objectives. An
objective evaluation of the results was used to determine the size of a
corporate bonus pool compared to a 100 percent target at full realization of
all objectives. Accordingly, if the Company exceeded or did not meet its
performance objectives, the pool percentage would have been more or less than
the 100 percent target amount. The realized pool percentage was then used to
determine individual awards by multiplying the pool percentage realized by a
target bonus level for each job. All executives participated in the bonus
pool. The Compensation Committee is of the view that such a system aligned all
employees around common goals and promoted teamwork to meet corporate wide
objectives.
Long-Term Incentives. Stock-based compensation is also an important element
of the Company's compensation policy. Stock options are offered to induce
executive management and all employees to accept
15
<PAGE>
employment with the Company. The Compensation Committee believes that stock
options which vest over time and are subject to forfeiture, align the
interests of employees with the interests of the Company's stockholders. The
Compensation Committee also believes that substantial equity ownership by
individuals in leadership positions within the Company ensures that such
individuals will remain focused on building stockholder value. Initial stock
option awards given at the time of employment are based on a series of
guidelines for each job, designed to provide a material incentive to each
executive over and above his/her salary and annual bonus. Additional stock
option awards are recommended on an annual basis to adjust stock option award
levels. All stock option grants are approved by the Compensation Committee of
the Board of Directors based on a resolution from the full Board of Directors
delegating authority to the Compensation Committee to do so.
Compensation of the Chief Executive Officer. The compensation paid to
Catherine Hapka, the Company's Chairman of the Board of Directors and Chief
Executive Officer is set specifically by the Board. Ms. Hapka is entitled to
receive an annual base salary of $350,000 and also is eligible to receive an
annual performance bonus of up to 50 percent of that figure, pro-rated based
on the size of the bonus pool as disclosed above if the Company achieves
certain predetermined performance goals established each year by the
Compensation Committee.
Limitations on the Deductibility of Compensation. Provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), disallow the deductibility of
certain compensation in excess of $1 million paid to a public company's Chief
Executive Officer and certain other highly paid executive officers. The
deductibility limitation does not apply to performance-based compensation, as
defined in Code, provided certain stockholder approval and other requirements
are met. The Compensation Committee anticipates that the Company's
compensation policy for executive officers will continue to consist primarily
of performance-based compensation and also will be designed to satisfy the
requirements of Section 162(m). Given the level of Ms. Hapka's salary and
bonus, the Compensation Committee anticipates no issues in meeting the
requirements for deductibility.
March 31, 1999
Submitted by the 1999 Compensation
Committee of the Board of Directors
William R. Stensrud
John L. Walecka
Edward J. Zander
16
<PAGE>
Stock Performance Graph
COMPARISON OF 9 MONTH CUMULATIVE TOTAL RETURN /(1)/
AMONG RHYTHMS NETCONNECTIONS INC.
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ TELECOMMUNICATIONS INDEX
RHYTHMS NETCONNECTIONS INC. 100.00 147.62
NASDAQ STOCK MARKET (U.S.) 100.00 155.99
NASDAQ TELECOMMUNICATIONS 100.00 135.89
* $100 INVESTED ON 4/7/99 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
- --------
(1) The graph covers the period from April 7, 1999, the commencement date of
the Company's initial public offering of shares of its Common Stock, to
December 31, 1999.
(2) The graph assumes that $100 was invested in the Company on April 7, 1999,
in the Company's Common Stock and in each index, and that all dividends
were reinvested. No cash dividends have been declared on the Company's
Common Stock.
(3) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings made under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by the Company under those statutes, neither the preceding Stock
Performance Graph nor the Compensation Committee Report is to be incorporated
by reference into any such prior filings, nor shall such graph or report be
incorporated by reference into any future filings made by the Company under
those statutes.
17
<PAGE>
CERTAIN TRANSACTIONS
In addition to the indemnification provisions contained in the Company's
Restated Certificate of Incorporation and Bylaws, the Company has entered into
separate indemnification agreements with each of its directors and officers.
These agreements require the Company, among other things, to indemnify such
director or officer against expenses (including attorneys' fees), judgments,
fines and settlements (collectively, "Liabilities") paid by such individual in
connection with any action, suit or proceeding arising out of such
individual's status or service as a director or officer of the Company (other
than Liabilities arising from willful misconduct or conduct that is knowingly
fraudulent or deliberately dishonest) and to advance expenses incurred by such
individual in connection with any proceeding against such individual with
respect to which such individual may be entitled to indemnification by the
Company.
All future transactions between the Company and its officers, directors,
principal stockholders and affiliates will be approved by a majority of the
independent and disinterested members of the Board of Directors, and will be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the Board of Directors, the executive officers of the Company
and persons who hold more than 10% of the Company's outstanding Common Stock
are subject to the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934, which require them to file reports with respect to their
ownership of the Common Stock and their transactions in such Common Stock.
Based upon (i) the copies of Section 16(a) reports that the Company received
from such persons for their 1999 transactions in the Common Stock and their
Common Stock holdings and (ii) the written representations received from one
or more of such persons that no annual Form 5 reports were required to be
filed by them for 1999, the Company believes that all reporting requirements
under Section 16(a) for such fiscal year were met in a timely manner by its
directors, executive officers and greater than ten percent beneficial owners
except as set forth below.
Messrs. Geeslin and Stensrud each did not timely file a Form 4 for the
months of November and December. Mr. Walecka did not timely file a Form 4 for
the month of November. Enterprise Partners and The Sprout Group each did not
timely file a Form 4 for the months of November and December. Brentwood
Venture Capital did not timely file a Form 4 for the month of November.
ANNUAL REPORT
A copy of the Annual Report of the Company for 1999 has been mailed
concurrently with this Proxy Statement to all stockholders entitled to notice
of and to vote at the Annual Meeting. The Annual Report is not incorporated
into this Proxy Statement and is not considered Proxy solicitation material.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the Securities and
Exchange Commission on or about March 30, 2000. Stockholders may obtain a copy
of this report, without charge, by writing to Investor Relations at the
Company's principal executive offices located at 6933 South Revere Parkway,
Englewood, Colorado 80112.
The Board of Directors of
Rhythms NetConnections Inc.
Dated: April 6, 2000
18
<PAGE>
RHYTHMS NETCONNECTIONS INC.
PROXY
Annual Meeting of Stockholders, May 5, 2000
This Proxy is Solicited on Behalf of the Board of Directors of
Rhythms NetConnections Inc.
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders to be held May 5, 2000 and the
Proxy Statement and appoints Catherine M. Hapka and Scott C. Chandler, and each
of them, the Proxy of the undersigned, with full power of substitution, to vote
all shares of Common Stock or Preferred Stock of Rhythms NetConnections Inc.
(the "Company") which the undersigned is entitled to vote, either on his or her
own behalf or on behalf of any entity or entities, at the Annual Meeting of
Stockholders of the Company to be held at Embassy Suites, 10250 East Costilla
Avenue, Englewood, Colorado, 80112 on May 5, 2000 at 10:00 a.m. Mountain
Daylight Time (the "Annual Meeting"), and at any adjournment or postponement
thereof, with the same force and effect as the undersigned might or could do if
personally present thereat. The shares represented by this Proxy shall be voted
in the manner set forth on the reverse side.
<TABLE>
<CAPTION>
1. To elect two directors to serve for three-year terms ending in the year 2003 or until their successors are duly elected
and qualified;
Nominees: Keith B. Geeslin, Edward J. Zander
FOR ALL AGAINST ALL EXCEPT: WITHHOLD AUTHORITY TO VOTE
------------------- --------------------------
<C> <C> <C> <S>
2. FOR AGAINST ABSTAIN To approve an amendment to the Company's certificate of incorporation to
increase the number of shares of Preferred Stock authorized for issuance
thereunder by an additional 5,000,000 shares to a total of 10,000,000
shares;
3. FOR AGAINST ABSTAIN To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending December 31, 2000.
4. In accordance with the discretion of the proxy holders, to act upon all
matters incident to the conduct of the meeting and upon other matters as
may properly come before the meeting.
</TABLE>
The Board of Directors recommends a vote IN FAVOR OF the directors listed
above and a vote IN FAVOR OF each of the listed proposals. This Proxy, when
properly executed, will be voted as specified above. If no specification is
made, this Proxy will be voted IN FAVOR OF the election of the directors listed
above and IN FAVOR OF the other proposals.
<TABLE>
<CAPTION>
<S> <C>
Please print the name(s) appearing on each share
certificate(s) over which you have voting authority: ______________________________________
(Print name(s) on certificate)
Please sign your name: __________________________________________________________________ Date: __________________________
(Authorized Signature(s))
</TABLE>
1
