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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:
[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 (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:
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(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:
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(5) Total fee paid:
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[_] 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.:
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(3) Filing Party:
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(4) Date Filed:
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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,
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, __________ 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 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 towards 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 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
<PAGE>
additional compensation will be paid to these individuals for any
such services. Except as described above, the Company does not presently 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 seven 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 seven persons, with two classes consisting of two directors each
and the third class consisting of three directors.
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 its 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 Inc. 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. From 1984 through 1999, Mr.
Walecka served as General Partner of Brentwood Venture Capital, a venture
capital investment 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.
3.
<PAGE>
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.
In addition, affiliates of Hicks, Muse, Tate & Furst Incorporated and
certain related parties ("HMTF") have 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 HTMF. HTMF has not yet exercised its right to elect the
Series E Director. HTMF has indicated that it will elect Michael Levitt to fill
this position.
Michael J. Levitt, 41, is a partner of Ilicks, Muse, Tate & Furst
Incorporated. 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 (the "1999 Fiscal Year") 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
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 acted by unanimous
written consent no times 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.
4.
<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 (the "Certificate") 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, _____________
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 authorization of
additional blank check preferred stock may discourage, delay or prevent a
merger, or acquisition of the Company at a premium price.
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 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.
5.
<PAGE>
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.
6.
<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.
7.
<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 Percentage
Shares Beneficially
Beneficially Owned (1)
Beneficial Owner (1) Owned
- ------------------------------------------------------------------------- -------------- -------------
<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, Inc. (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).............................................. 235,588 *
John L. Walecka (14).................................................. 151,700 *
Edward J. Zander (15)................................................. 60,000 *
All current directors and executive officers as a group (15 6,560,400 8.4%
persons)(16).........................................................
- -------------
</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, Inc. is c/o MCI WorldCom, Inc., 1801 Pennsylvania Avenue, Washington,
D.C. 20006.
8.
<PAGE>
(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.
(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 us.
(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, Inc. ("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, Inc, the
Enron Entities and Microsoft Corporation.
and the Sprout
Entities.
9.
<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 $100,000, for
services rendered in all capacities to the Company and its subsidiaries for the
fiscal years ended December 31, 1997, 1998 and 1999. The listed individuals
shall be hereinafter referred to as the "Named Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
Annual Compensation
----------------------
Securities All Other
Underlying Compensation
Name and Principal Position(s) Year Salary ($) Bonus ($) Options (#) ($)
- ------------------------------------- ----- --------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Catherine M. Hapka (1)............... 1999 350,000 178,838 240,000(2) --
Chairman and Chief Executive 1998 339,583 134,58 -- --
Officer 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 Operating 1998 -- -- -- --
Officer 1997 -- -- -- --
Michael S. Lanier (7)................ 1999 186,538 99,433(8) 300,000(5) --
Chief Information Officer 1998 -- -- -- --
1997 -- -- -- --
David J. Shimp (9)................... 1999 175,935 46,375 -- 62,428(6)
Senior Vice President, Human 1998 33,205 36,902 300,000(2) --
Resources 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.
10.
<PAGE>
(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 $50,000.
(9) Mr. Shimp has been employed since October 1998, and the amount listed sets
forth his compensation since such date.
(10) Mr. Chandler has been employed since April 1998, and the amount listed sets
forth his compensation since such date.
11.
<PAGE>
Stock Options & Stock Appreciation Rights
The following table contains information concerning the stock options
granted to the Named Officers during the 1999 fiscal year. All the grants were
made under the Company's 1999 Stock Incentive Plan. No stock appreciation
rights were granted to the Named Officers during such fiscal year.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------------
Potential Realizable Value at
Number of Assumed Annual Rates of Stock
Securities % of Total Appreciation for Option
Underlying Options Granted Exercise Price Term(2)
Options to Employees in Per Share
Name Granted (#) 1999 ($/Sh)(3) Expiration Date(4) 5% 10%
- ----------------------- -------------- --- --------------- ------------- ------------------- ------------- ----------
<S> <C> <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
12.
<PAGE>
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.
13.
<PAGE>
Fiscal Year-End 1999 Option Values
The following table provides information, with respect to the Named
Officers, concerning the exercise of options during the 1999 fiscal year and
unexercised options held by them at of the end of that fiscal year. None of the
Named Officers exercised any stock appreciation rights during the 1999 fiscal
year, and no stock appreciation rights were held by the Named Officers at the
end of such year.
Fiscal Year-End 1999 Option Values
<TABLE>
<CAPTION>
Name Shares Acquired on Value Realized ($)(1) Number of Securities Underlying Unexercised
Exercise (#) Options at December 31, 1999 (#)
- ----------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable
<S> <C> <C> <C> <C>
Catherine M. Hapka......... 240,000 728,000 -- --
Steve Stringer............. -- -- 23,416 696,836
Michael S. Lanier.......... -- -- -- 300,000
David J. Shimp............. 300,000 1,410,000 -- --
Scott C. Chandler.......... 480,000 2,074,000 -- --
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Name Value of Unexercised In-the-Money
Options at December 31, 1999 ($)(1)
- ------------------------------------------------------------------
Exercisable Unexercisable
<S> <C> <C>
Catherine M. Hapka......... -- --
Steve Stringer............. 726,000 10,752,000
Michael S. Lanier.......... -- 9,300,000
David J. Shimp............. -- --
Scott C. Chandler.......... -- --
===================================================================
</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 the 1999 fiscal year, less the option exercise
price payable per share.
14.
<PAGE>
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 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. Shimps' 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.
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 offer of employment.
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 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 by senior management on
an annual basis to adjust stock option award levels based on promotion and
performance. All stock option grants are recommended by executive management
and 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
15.
<PAGE>
Stock Performance Graph
[STOCK PERFORMANCE GRAPH APPEARS HERE]
\
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
(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.
16.
<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 Fiscal Year 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 the 1999 Fiscal Year, 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.
ANNUAL REPORT
A copy of the Annual Report of the Company for the 1999 Fiscal Year 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 80112.1
THE BOARD OF DIRECTORS OF RHYTHMS NETCONNECTIONS INC.
Dated: April 6, 2000
17.
<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
