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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 17, 2000
REGISTRATION NO. 333-38334
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
RHYTHMS NETCONNECTIONS INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 4813 33-0747515
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employee
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
9100 EAST MINERAL CIRCLE
ENGLEWOOD, COLORADO 80112
(303) 476-4200
(Name, address, including zip code and telephone number, including area code, of
agent for service)
CATHERINE HAPKA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RHYTHMS NETCONNECTIONS INC.
9100 EAST MINERAL CIRCLE
ENGLEWOOD, COLORADO 80112
(303) 476-4200
(Name, address, including zip code and telephone number, including area code, of
agent for service)
COPIES TO:
JOHN L. RUPPERT
J. DAVID HERSHBERGER
BROWNSTEIN HYATT & FARBER, P.C.
410 SEVENTEENTH STREET, SUITE 2200
DENVER, CO 80202
(303) 223-1100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practiable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registation statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
THE REGISTRATION HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FUTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
Explanatory Note: This post-effective amendment has been filed for the
purpose of identifying selling stockholders.
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The information in this prospectus is not complete and may be changed. Although
we are permitted by US Federal securities laws to offer these securities, using
this prospectus, we may not sell them or accept your offer to buy them until the
documentation filed with the SEC relating these securities has been declared
effective by the SEC. This prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted or legal.
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PROSPECTUS
SUBJECT TO COMPLETION, DATED AUGUST 17, 2000
[LOGO]
RHYTHMS NETCONNECTIONS INC.
3,000,000 SHARES
6 3/4% CUMULATIVE CONVERTIBLE PREFERRED STOCK
AND 7,050,000 SHARES OF COMMON STOCK
ISSUABLE ON CONVERSION OF THE
6 3/4% CUMULATIVE CONVERTIBLE PREFERRED STOCK
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The selling stockholders listed under "Selling Stockholders" in this
prospectus intend to offer and sell from time to time, up to 3,000,000 shares of
our Series F 6 3/4% cumulative convertible preferred stock and 7,050,000 shares
of our common stock.
Each share of Series F preferred stock has a liquidation preference of
$100.00 and is convertible into 2.35 shares of our common stock, based on a
conversion price of $42.56. The conversion price will be adjusted in a number of
circumstances described in this prospectus.
Our common stock trades on the Nasdaq National Market under the symbol
"RTHM". On August 16, 2000, the last reported sale price for our common stock on
the Nasdaq National Market was $10.1875 per share.
Dividends on the Series F preferred stock are cumulative from the date of
issue and are payable, when, as and if declared, on March 3, June 3,
September 3 and December 3 of each year, beginning on June 3, 2000, at the
annual rate of 6 3/4%.
We may redeem all or any shares of Series F preferred stock at any time on
or after March 6, 2003 and, under specified circumstances, before that date. The
Series F preferred stock is subject to mandatory redemption by us on March 3,
2012.
INVESTING IN THE PREFERRED STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 1 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is August , 2000.
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OUR COMPANY
We are a leading provider of broadband local access communication services
to businesses and consumers. Our principal executive office is located at
9100 East Mineral Circle, Englewood, Colorado 80112, and our telephone number is
(303) 476-4200 or (800) RHYTHMS.
RISK FACTORS
AN INVESTMENT IN OUR PREFERRED STOCK OR COMMON STOCK INVOLVES A HIGH DEGREE
OF RISK. YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED
BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO PURCHASE
OUR SERIES F PREFERRED STOCK OR OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES
DESCRIBED BELOW ARE NOT THE ONLY ONES FACING OUR COMPANY.
WE CANNOT PREDICT OUR SUCCESS BECAUSE WE HAVE A SHORT OPERATING HISTORY
We formed our company in February 1997, and we have a short operating
history for you to review in evaluating our business. We have limited historical
financial and operating data upon which you can evaluate our business and
prospects. We entered into our first interconnection agreement with an incumbent
carrier in July 1997 and began to offer commercial services in our first market
in April 1998. We have limited commercial operations and have recognized limited
revenues since our inception. In addition, our senior management team and our
other employees have worked together at our company for only a short period of
time.
BECAUSE OUR MARKET IS NEW AND EVOLVING, WE CANNOT PREDICT ITS FUTURE GROWTH OR
ULTIMATE SIZE, AND WE MAY BE UNABLE TO COMPETE EFFECTIVELY
We provide broadband local access primarily using digital subscribed line
technology, known as DSL. The market for broadband local access DSL
communication services using copper telephone lines is in the early stages of
development. Since this market is new and evolving and because our current and
future competitors are likely to introduce competing services, we cannot
accurately predict the rate at which this market will grow, if at all, or
whether new or increased competition will result in market saturation. Various
providers of broadband local access DSL communication services are testing
products from various suppliers for various applications. Certain critical
issues concerning commercial use of DSL for Internet and private network access,
including security, reliability, ease and cost of access and quality of service,
remain unresolved and may impact the growth of these services. If the markets
for our services fail to develop, grow more slowly than anticipated or become
saturated with competitors, these events could materially and adversely affect
our business, prospects, operating results and financial condition.
Our success will depend on the development of this new and rapidly evolving
market and our ability to compete effectively in this market. To address these
risks, we must, among other things:
- rapidly expand the geographic coverage of our network services;
- raise additional capital;
- enter into interconnection agreements and working arrangements with
additional incumbent carriers, substantially all of which we expect to be
our competitors;
- deploy an effective network infrastructure;
- attract and retain customers;
- successfully develop and maintain relationships and activities with our
broadband service providers, including WorldCom, Microsoft, Qwest, Level 3
Communications and Cisco;
- continue to attract, retain and motivate qualified personnel;
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- accurately assess potential markets and effectively respond to competitive
developments;
- continue to develop and integrate our operational support system and other
back office systems;
- obtain any required governmental authorizations;
- comply with evolving governmental regulatory requirements;
- increase awareness of our services;
- rapidly scale our operations and the systems that support those
operations;
- continue to upgrade our technologies; and
- effectively manage our expanding operations.
We may not be successful in addressing these and other risks, and our
failure to address risks would materially and adversely affect our business,
prospects, operating results and financial condition.
OUR SUBSTANTIAL DEBT CREATES FINANCIAL AND OPERATING RISK
We are highly leveraged, and we intend to seek additional debt funding in
the future. As of June 30, 2000, we had approximately $818.8 million of
outstanding debt and our debt made up 67.7% of our capitalization. We are not
generating sufficient revenue to fund our operations or to repay our debt. Our
substantial leverage poses the risks that:
- we may be unable to pay dividends on our preferred stock, including our
Series F preferred stock, or to repay our debt due to one or more events
discussed in "Risk Factors;"
- we may be unable to obtain additional financing;
- we must dedicate a substantial portion of our cash flow from operations to
servicing our debt once our debt requires us to make cash interest
payments, and any remaining cash flow may not be adequate to fund our
planned operations; and
- we may be more vulnerable during economic downturns, less able to
withstand competitive pressures and less flexible in responding to
changing business and economic conditions.
WE WILL NEED SIGNIFICANT ADDITIONAL FUNDS, WHICH WE MAY NOT BE ABLE TO OBTAIN
The expansion and development of our business will require significant
additional capital. We intend to seek substantial additional financing in the
future to fund the growth of our operations, including funding the significant
capital expenditures and working capital requirements necessary for us to
provide service in our targeted markets. We believe that our current capital
resources will be sufficient to fund our aggregate capital expenditures and
working capital requirements, including operating losses, through approximately
December 2001. Although we expect that our initial build-out will be complete by
this date, we anticipate that we will continue building our network beyond our
initial build-out plans and will need significant additional capital, whether or
not our estimate on how long current capital resources will last is accurate. In
addition, our actual funding requirements may differ materially if our
assumptions underlying this estimate turn out to be incorrect. Therefore, you
should consider our estimate in light of the following facts:
- we have no meaningful history of operations or revenues;
- our estimated funding requirements do not reflect any contingency amounts
and may increase, perhaps substantially, if we are unable to generate
revenues in the amount and within the time frame we expect or if we have
unexpected cost increases; and
- we face many challenges and risks, including those discussed elsewhere in
"Risk Factors."
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We may be unable to obtain any future equity or debt financing on acceptable
terms or at all. Recently the financial markets have experienced extreme price
fluctuations. A market downturn or general market uncertainty may adversely
affect our ability to secure additional financing. The indentures that govern
the 1998 senior discount notes, the 1999 senior notes and the 2000 senior notes
restrict our ability to obtain additional debt financing. Any future borrowing
instruments, such as credit facilities and lease agreements, are likely to
contain similar or more restrictive covenants and could require us to pledge
assets as security for the borrowings. If we are unable to obtain additional
capital or are required to obtain it on terms less satisfactory than what we
desire, we will need to delay deployment of our network services or take other
actions that could adversely affect our business, prospects, operating results
and financial condition. If we are unable to generate sufficient cash flow or
obtain funds necessary to meet required payments of our debt, then we will be in
default on our debt instruments. To date, our cash flow from operations has been
insufficient to cover our expenses and capital needs.
WE MAY BE UNABLE TO SATISFY, OR MAY BE ADVERSELY CONSTRAINED BY, THE COVENANTS
IN OUR DEBT SECURITIES
The indentures governing our 1998 senior discount notes, our 1999 senior
notes and our 2000 senior notes impose significant restrictions on how we can
conduct our business. For example, the restrictions prohibit or limit our
ability to make dividend payments, incur additional debt and engage in certain
business activities. The restrictions may materially and adversely affect our
ability to finance future operations or capital needs or conduct additional
business activities. Any future senior debt that we may incur will likely impose
additional restrictions on us. If we fail to comply with any existing or future
restrictions, we could default under the terms of the applicable debt and be
unable to meet our debt obligations. If we default, the holders of the
applicable debt could demand that we repay the debt, including interest,
immediately. We may be unable to make the required payments or raise sufficient
funds from alternative sources to make the payments. Even if additional
financing is available in the event that we default, it may not be on acceptable
terms.
THE SERIES F PREFERRED STOCK RANKS JUNIOR TO ALL OUR EXISTING INDEBTEDNESS
The Series F preferred stock will rank junior in right of payment to all our
existing and future liabilities and obligations (whether or not for borrowed
money). By reason of such subordination, in the event of a liquidation,
dissolution or other winding up of the company, holders of our 1998 senior
discount notes, our 1999 senior notes and our 2000 senior notes will have to be
paid the amounts to which such holders are entitled before we make payment in
respect of the preferred stock. Accordingly, there may be insufficient assets
remaining after such payments to pay amounts due on the Series F preferred
stock. In addition, we may incur additional indebtedness which will rank senior
to the Series F preferred stock.
WE MAY NOT HAVE SUFFICIENT FUNDS TO PURCHASE ANY SHARES OF SERIES F PREFERRED
STOCK UPON A CHANGE IN CONTROL
If there is a change in control of our company, each holder of shares of
Series F preferred stock will have the right to require us to purchase all or
any part of that holder's shares of Series F preferred stock at a purchase price
in cash equal to 100% of the liquidation preference of those shares, plus all
accumulated and unpaid dividends on those shares to the date of purchase.
This right of holders is subject to our obligations to purchase all of our
1998 senior discount notes, 1999 senior notes and 2000 senior notes that have
been tendered for purchase in connection with a change of control. In addition,
this right of holders is subject to the repurchase or repayment of our future
indebtedness which we are required to repurchase or repay in connection with a
change in control.
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OUR ABILITY TO ISSUE SENIOR PREFERRED STOCK IN THE FUTURE COULD ADVERSELY AFFECT
THE RIGHTS OF HOLDERS OF SERIES F PREFERRED STOCK AND OUR COMMON STOCK
We are authorized to issue additional preferred stock in one or more series
on terms that may be determined at the time of issuance by our board of
directors. In some instances, a series of preferred stock could include voting
rights, preferences as to dividends and liquidation, conversion and redemption
rights that will rank senior to the Series F preferred stock, and in all
instances, senior to our common stock. The future issuance of preferred stock
could effectively diminish or supersede the dividends and liquidation
preferences of the Series F preferred stock and adversely affect our common
stock.
WE CANNOT PREDICT OUR SUCCESS BECAUSE OUR BUSINESS MODEL IS UNPROVEN
We have not validated our business model and strategy in the market. We
believe that the combination of our unproven business model and the highly
competitive and fast changing market in which we compete makes it impossible to
predict the extent to which our network services will achieve market acceptance
and our overall success. To be successful, we must develop and market network
services that are widely accepted at profitable prices. We may never be able to
deploy our network as planned, achieve significant market acceptance, favorable
operating results or profitability or generate sufficient cash flow to repay our
debt. Of the approximately 31,000 lines that are in service, we installed
approximately 57% to only five customers, with approximately 23% of these total
lines to Cisco. None of our large business customers, with the exception of
Cisco, has rolled out our services broadly to its employees and none of our
broadband service provider customers has rolled out our services broadly to its
end-users, and we cannot be certain when or if these rollouts will occur. We
will not receive significant revenue from our large customers unless these
rollouts occur. Any continued or ongoing failure for any reason of large
customers to roll out our services, failure to validate our business model in
the market, including failure to build-out our network, achieve widespread
market acceptance or sustain desired pricing would materially and adversely
affect our business, prospects, operating results and financial condition.
WE EXPECT OUR LOSSES TO CONTINUE
We have incurred losses and experienced negative operating cash flow for
each month since our formation. As of June 30, 2000, we had an accumulated
deficit of approximately $520.4 million. We intend to rapidly and substantially
increase our expenditures and operating expenses in an effort to expand our
network services. We expect to have annual interest and amortization expense
relating to our 1998 senior discount notes, our 1999 senior notes and our 2000
senior notes of approximately $89.0 million in 2000 and increasing to
$123.0 million in 2003. In addition, we may incur more debt in the future. In
addition, dividends on the Series E preferred stock of approximately
$126.0 million will accrue through February 2005 and quarterly dividends on the
Series F Preferred Stock of approximately $5.1 million are payable when, as and
if declared. We have the option to deliver shares of our common stock to a third
party, which will resell those shares of common stock and use the proceeds to
pay cash dividends to the holders of the Series F preferred stock. No cash
dividends will be payable on the Series E Preferred Stock until 2005, and at our
option such dividends may continue to accrue as liquidation preference.
Dividends on the Series F preferred stock are cumulative from the date of
issuance in an annual amount of approximately $20.25 million. As a result of
these factors, we expect to incur substantial operating and net losses and
negative operating cash flow for the foreseeable future. We will need to obtain
additional financing to pay our expenses and to make payments on our debt. We
cannot give you any assurance about whether or when we will have sufficient
revenues to satisfy our funding requirements or pay our debt service and
preferred stock obligations.
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OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND MAY FAIL TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES
ANALYSTS OR INVESTORS
Our annual and quarterly operating results are likely to fluctuate
significantly in the future due to numerous factors, many of which are outside
of our control. These factors include:
- the rate of customer acquisition and turnover;
- the prices our customers are willing to pay which may decline due to
competitive factors;
- the amount and timing of expenditures relating to the expansion of our
services and infrastructure;
- the timing and availability of incumbent carrier central office
collocation facilities and transport facilities;
- our ability to effectively develop and market network features and
applications;
- the mix of our services that our customers purchase at different prices;
- our ability to scale our business to meet the demands of our customers;
- our ability to control our corporate overhead while rapidly growing our
business;
- the success of our relationships with our partners and distributors,
including WorldCom, Microsoft, Qwest and Cisco;
- our ability to deploy our network on a timely basis;
- introduction of new services or technologies by our competitors;
- price competition;
- the ability of our equipment and service suppliers to meet our needs;
- regulatory developments, including interpretations of the 1996
Telecommunications Act;
- technical difficulties or network downtime;
- the success of our strategic alliances; and
- the condition of the telecommunication and network service industries and
general economic conditions.
Because of these factors, our operating results in one or more future
periods could fail to meet or exceed the expectations of securities analysts or
investors. In that event, any trading price of our common stock would likely
decline.
WE DEPEND ON THIRD PARTIES FOR THE MARKETING AND SALES OF OUR SERVICES
We rely significantly on indirect sales channels for the marketing and sales
of our services. We will seek to continue to establish and maintain
relationships with numerous broadband service providers in order to gain access
to end users. Our agreements to date with these broadband service providers are
non-exclusive, and we anticipate that future agreements will also be on a
non-exclusive basis, allowing these broadband service providers to sell services
offered by our competitors. These agreements are generally short term, and can
be cancelled by the these broadband service providers without significant
financial consequence. We cannot control how these broadband service providers
perform and cannot be certain that their performance will be satisfactory to us
or our customers. Many of these companies have similar arrangements with our
competitors and also compete directly with us. If the number of customers we
obtain through indirect sales channels is significantly lower than our forecast
for any reason, or if these broadband service providers with which we have
contracted are unsuccessful in
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competing in their own intensely competitive markets, these events would have a
material and adverse effect on our business, prospects, operating results and
financial condition.
IF FORECASTED SALES FOR SERVICES SOLD DIRECTLY TO OUR BUSINESS CUSTOMERS FOR A
PARTICULAR PERIOD ARE NOT REALIZED IN THAT PERIOD DUE TO THE LENGTHY SALES CYCLE
OF OUR SERVICES, OUR OPERATING RESULTS FOR THAT PERIOD WILL BE HARMED
The sales cycle of our network services can be very lengthy, particularly
for large businesses. Our sales cycle for large businesses typically lasts at
least six months. During this lengthy sales cycle, we will incur significant
expenses in advance of the receipt of revenues. If sales that we forecast for a
particular period do not occur because of our lengthy sales cycle, this event
could materially and adversely affect our business, prospects, operating results
and financial condition, during that period.
WE DEPEND ON INCUMBENT CARRIERS FOR COLLOCATION AND TRANSMISSION FACILITIES
We must use copper telephone lines controlled by the incumbent carriers to
provide DSL connections to customers. We also depend on the incumbent carriers
for collocation and for a substantial portion of the transmission facilities we
use to connect our equipment in incumbent carrier central offices to our Metro
Service Centers. In addition, we depend on the incumbent carriers to test and
maintain the quality of the copper telephone lines that we use. In many cases,
we may be unable to obtain access to collocation and transmission facilities
from the incumbent carriers, or to gain access at acceptable rates, terms and
conditions, including timeliness. We have experienced, and expect to experience
in the future, lengthy periods between our request for and the actual provision
of the collocation space and copper telephone lines. An inability to obtain or
maintain adequate and timely access to collocation space or transmission
facilities on acceptable terms and conditions from incumbent carriers could have
a material and adverse effect on our business, prospects, operating results and
financial condition.
Because we compete with incumbent carriers in our markets, they may be
reluctant to cooperate with us. The incumbent carriers may experience, or claim
to experience, a shortage of collocation space or transmission capacity. If this
occurs, we may not have alternate means of connecting our DSL equipment with the
copper telephone lines or connecting our equipment in central offices to Metro
Service Centers. We have experienced rejections of some of our collocation
applications on the grounds that no space is available. We may receive
additional rejections in the future. The number of other competitive local
exchange carriers that request collocation space will also affect the
availability of collocation space and transmission capacity. If we are unable to
obtain physical collocation space or transmission capacity from our targeted
incumbent carriers, we may face delays, additional costs or an inability to
provide services in certain locations. Where we use virtual collocation in our
network, it reduces our control over our equipment, and therefore may reduce the
level of quality and service we provide to our customers. Delays in obtaining
access to collocation space and copper telephone lines or the rejection of our
applications for collocation could result in delays in, and increased expenses
associated with, the rollout of our services, which in turn could have a
material and adverse effect on our business, prospects, operating results and
financial condition.
WE ARE UNABLE TO CONTROL THE TERMS AND CONDITIONS UNDER WHICH WE GAIN ACCESS TO
INCUMBENT CARRIER COLLOCATION AND TRANSMISSION FACILITIES
We cannot control the terms under which we collocate our equipment, connect
to copper telephone lines or gain the use of an incumbent carrier's transmission
facilities. State tariffs, state public utility commissions, the Federal
Communications Commission and interconnection agreements with the incumbent
carriers determine the price, terms and conditions under which collocation space
is made available, and they make these administrative determinations in ongoing
hearings. Interconnection agreements and state public utility commissions also
determine the terms and
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conditions of access to copper telephone lines and other components of an
incumbent carrier's network. We may be unable to negotiate or enter into
interconnection agreements on acceptable terms or at all. In addition, we cannot
be sure that incumbent carriers will abide by their obligations under those
agreements. Delays in obtaining interconnection agreements would delay our entry
into certain markets. In addition, disputes may arise between us and the
incumbent carriers with respect to interconnection agreements, and we may be
unable to resolve disputes in our favor. If we are unable to enter into, or
experience a delay in obtaining, interconnection agreements, this inability or
delay could adversely affect our business, prospects, operating results and
financial condition. Further, the interconnection agreements are generally short
term, and we may be unable to renew the interconnection agreements on acceptable
terms or at all. The state commissions, the Federal Communications Commission
and the courts oversee, in varying degrees, interconnection arrangements as well
as the terms and conditions under which we gain access to incumbent carrier
copper telephone lines and transmission facilities. These government entities
may modify the terms or prices of our interconnection agreements and our access
to incumbent carrier copper telephone lines and transmission facilities in ways
that would be adverse to our business. The Federal Communications Commission and
state regulatory commissions establish the rates for DSL-capable copper
telephone lines as well as other rates, terms and conditions of our dealings
with the incumbent carriers in ongoing public hearings. Participation in these
hearings will involve significant management time and expense. Incumbent
carriers may from time to time propose new rates, and the outcomes of hearings
and rulings could have a material and adverse effect on our business, prospects,
operating results and financial condition.
THE MARKET IN WHICH WE OPERATE IS HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE TO
COMPETE EFFECTIVELY, ESPECIALLY AGAINST ESTABLISHED INDUSTRY COMPETITORS WITH
SIGNIFICANTLY GREATER FINANCIAL RESOURCES
We will face competition from many competitors with significantly greater
financial resources, well-established brand names and large, existing installed
customer bases. We expect the level of competition to intensify in the future.
We expect significant competition from incumbent local exchange carriers,
traditional and new interexchange carriers, other DSL providers, cable modem
service providers, Internet service providers, wireless and satellite data
service providers and other competitive carriers. Incumbent local exchange
carriers have existing metropolitan area networks and circuit-switched local
access networks. In addition, most incumbent local exchange carriers are
establishing their own Internet service provider businesses and are in some
stage of market trials and retail sales of DSL-based access services. Incumbent
local exchange carriers are aggressively marketing these services to their
residential customers at attractive prices. We believe that incumbent local
exchange carriers have the potential to quickly overcome many of the issues that
have delayed widespread deployment of DSL services in the past. It is possible
that present or future competitors may reduce prices for competitive services,
perhaps drastically. In addition, we may experience substantial customer
turnover in the future. Many providers of telecommunications and networking
services experience high rates of customer turnover.
Many of the leading traditional long distance carriers, including AT&T
Corporation, WorldCom and Sprint, are expanding their capabilities to support
high-speed, end-to-end networking services. The newer long distance carriers,
including Williams, Level 3 Communications and Qwest, are building and managing
high bandwidth, nationwide packet networks and partnering with Internet service
providers to offer services directly to the public. Cable modem service
providers, like Excite@Home Networks, are offering or preparing to offer
high-speed Internet access over hybrid fiber networks to consumers, and @Work
has positioned itself to do the same for businesses. Several new companies are
emerging as wireless, including satellite-based, data service providers.
Internet service providers, including some with significant and even nationwide
presences, provide Internet access to residential and business customers,
generally over the incumbent carriers' circuit switched networks, although some
offer competitive DSL-based access. Certain competitive carriers, including
Covad Communications Group,
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Inc. and NorthPoint Communications, Inc., offer competitive DSL-based access
services, and, like us, have attracted strategic equity investors, marketing
allies and product development partners. Others are likely to do the same in the
future. In addition, regional Internet service providers and competitive
carriers, including HarvardNet, Inc., Network Access Solutions Corp. and
DSL.net, Inc. offer competitive DSL-based services that compete with the
services we offer. As a result of increasing competition for our services, we
are experiencing substantial price competition, particularly with respect to
sales generated through our indirect sales channels.
Many of these competitors are offering, or may soon offer, technologies and
services that will directly compete with some or all of our service offerings.
Some of the technologies used by these competitors for local access connections
include ISDN, DSL, wireless data and cable modems. Some of the competitive
factors in our markets include transmission speed, reliability of service,
breadth of service availability, price, network security, ease of access and
use, content bundling, customer support, brand recognition, operating
experience, capital availability and exclusive contracts. We believe that we
compare unfavorably with many of our competitors with regard to, among other
things, brand recognition, existing relationships with end users, available
pricing discounts, central office access, capital availability and exclusive
contracts. Substantially all of our competitors and potential competitors have
substantially greater resources than us. We may not be able to compete
effectively in our target markets. Our failure to compete effectively would have
a material and adverse effect on our business, prospects, operating results and
financial condition.
OUR NETWORK SERVICES MAY NOT ACHIEVE SIGNIFICANT MARKET ACCEPTANCE BECAUSE OUR
PRICES ARE OFTEN HIGHER THAN THOSE CHARGED FOR COMPETING SERVICES
Our prices are in some cases higher than those that our competitors charge
for some of their services. Prices for digital communications services have
fallen historically, and we expect prices in the industry in general, and for
the services we offer now and plan to offer in the future, to continue to fall.
We may be required to reduce prices periodically to respond to competition and
to generate increased sales volume. Our prices may not permit our network
services to gain a desirable level of commercial acceptance, and we may be
unable to sustain any current or future pricing levels. Due to these factors, we
cannot accurately forecast our revenues or the rate at which we will add new
customers.
OUR SERVICES ARE SUBJECT TO GOVERNMENT REGULATION, AND CHANGES IN CURRENT OR
FUTURE LAWS OR REGULATIONS COULD RESTRICT THE WAY WE OPERATE OUR BUSINESS
A significant portion of the services that we offer through our subsidiaries
is subject to regulation at the federal, state and/or local levels. Future
federal or state regulations and legislation may be less favorable to us than
current regulation and legislation and therefore have an adverse impact on our
business, prospects, operating results and financial condition. In addition, we
may expend significant financial and managerial resources to participate in
rule-setting proceedings at either the federal or state level, without achieving
a favorable result. In particular, we believe that incumbent carriers will work
aggressively to modify or restrict the operation of many provisions of the 1996
Telecommunications Act. We expect incumbent carriers will pursue litigation in
courts, institute administrative proceedings with the Federal Communications
Commission and other regulatory agencies and lobby the United States Congress,
all in an effort to affect laws and regulations in a manner favorable to the
incumbent carriers and against the interest of competitive carriers such as us.
If the incumbent carriers succeed in any of their efforts, if these laws and
regulations change or if the administrative implementation of laws develops in
an adverse manner, these events could have a material and adverse effect on our
business, prospects, operating results and financial condition.
8
<PAGE>
OUR FAILURE TO MANAGE GROWTH COULD ADVERSELY AFFECT US
We have rapidly and significantly expanded our operations. We anticipate
further significant expansion of our operations and the systems supporting those
operations in an effort to achieve our network rollout and deployment
objectives. Our expansion to date has strained our management, financial
controls, operations systems, personnel and other resources. Any future rapid
expansion would increase these strains. If our marketing strategy is successful,
we may experience difficulties responding to customer demand for services and
technical support in a timely manner and in accordance with their expectations.
As a result, rapid growth of our business would make it difficult to implement
successfully our strategy to provide superior customer service. To manage any
growth of our operations, we must:
- improve existing and implement new operational, financial and management
information controls, operational support systems, reporting systems and
procedures;
- hire, train and manage additional qualified personnel;
- expand and upgrade our core technologies; and
- effectively manage multiple relationships with our customers, suppliers
and other third parties.
We may not be able to install operational support systems or management
information and control systems in an efficient and timely manner, and our
current or planned personnel, systems, procedures and controls may not be
adequate to support our future operations. Failure to manage our future growth
effectively could adversely affect the expansion of our customer base and
service offerings. Any failure to successfully address these issues could
materially and adversely affect our business, prospects, operating results and
financial condition.
FAILURE TO EFFECTIVELY DEVELOP AND MARKET NETWORK FEATURES AND APPLICATIONS
COULD LIMIT OUR REVENUE GROWTH
Our business model relies on network features and applications to increase
our revenues. We have only recently begun to develop these network features and
applications. In order to be successful, we must develop and effectively market
network features and applications that are widely accepted, at profitable
prices. We cannot assure you that we will be able to do so. Our failure to
develop and market these features and applications could materially and
adversely affect our business, prospects, operating results and financial
condition.
THE TELECOMMUNICATIONS INDUSTRY IS UNDERGOING RAPID TECHNOLOGICAL CHANGE, AND
NEW TECHNOLOGIES MAY BE SUPERIOR TO THE TECHNOLOGY WE USE
The telecommunications industry is subject to rapid and significant
technological changes, such as continuing developments in DSL technology and
alternative technologies for providing high-speed data communications. We cannot
predict the effect of technological changes on our business. We will rely in
part on third parties, including certain of our competitors and potential
competitors, for the development of and access to communications and networking
technology. We expect that new products and technologies applicable to our
market will emerge. New products and technologies may be superior to and/or
render obsolete the products and technologies that we currently use. Our future
success will depend, in part, on our ability to anticipate and adapt to
technological changes and evolving industry standards. We may be unable to
obtain access to new technology on acceptable terms or at all, and we may be
unable to adapt to new technologies and offer services in a competitive manner.
Our joint development projects with Cisco and WorldCom and our strategic
arrangement with Microsoft may not produce useful technologies or services for
us. Further, new technologies and products may not be compatible with our
technologies and business plan. In addition, many of the products and
technologies that we intend to use in our network services are relatively new
and unproven and may be unreliable.
9
<PAGE>
WE MAY BE UNABLE TO EFFECTIVELY EXPAND OUR NETWORK SERVICES AND PROVIDE HIGH
PERFORMANCE TO A SUBSTANTIAL NUMBER OF END USERS
Due to the limited deployment of our network services, we cannot guarantee
that our network will be able to connect and manage a substantial number of end
users at high transmission speeds. We may be unable to scale our network to
service a substantial number of end users while achieving high performance.
Further, our network may be unable to achieve and maintain competitive digital
transmission speeds. While digital transmission speeds of up to 7.1 Mbps are
possible on certain portions of our network, that speed is not available over a
majority of our network. Actual transmission speeds on our network will depend
on a variety of factors and many of these factors are beyond our control,
including the type of DSL technology deployed, the distance an end user is
located from a central office, the quality of the telephone lines, the presence
of interfering transmissions on nearby lines and other factors. As a result, we
may not be able to achieve and maintain digital transmission speeds that are
attractive in the market.
OUR SERVICES MAY SUFFER OR BE UNAVAILABLE BECAUSE THE COPPER TELEPHONE LINES WE
REQUIRE MAY BE UNAVAILABLE OR IN POOR CONDITION
Our ability to provide DSL-based services to potential customers depends on
the quality, physical condition, availability and maintenance of copper
telephone lines within the control of the incumbent carriers. We believe that
the current condition of copper telephone lines in many cases will be inadequate
to permit us to fully implement our network services. In addition, the incumbent
carriers may not maintain the copper telephone lines in a condition that will
allow us to implement our network effectively. The copper telephone lines may
not be of sufficient quality or the incumbent carriers may claim they are not of
sufficient quality to allow us to fully implement or operate our network
services. Further, some telephone services employ technologies other than copper
lines, and DSL might not be available over these telephone lines.
OUR SUCCESS DEPENDS ON OUR RETENTION OF CERTAIN KEY PERSONNEL AND ON THE
PERFORMANCE OF THOSE PERSONNEL
Our success depends on the performance of our officers and key employees,
especially our Chief Executive Officer and our President and Chief Operating
Officer. Members of our senior management team have worked together for only a
short period of time. We do not have "key person" life insurance policies on any
of our employees nor do we have employment agreements for fixed terms with any
of our employees. Any of our employees, including any member of our senior
management team, may terminate his or her employment with us at any time. Given
our early stage of development, we depend on our ability to retain and motivate
high quality personnel, especially our management. Our future success also
depends on our continuing ability to identify, hire, train and retain highly
qualified technical, sales, marketing and customer service personnel. Moreover,
the industry in which we compete has a high level of employee mobility and
aggressive recruiting of skilled personnel. We may be unable to continue to
employ our key personnel or to attract and retain qualified personnel in the
future. We face intense competition for qualified personnel, particularly in
software development, network engineering and product management.
WE DEPEND ON THIRD PARTIES FOR EQUIPMENT, INSTALLATION AND PROVISION OF FIELD
SERVICE
We currently plan to purchase all of our equipment from many vendors and
outsource the majority of the installation and field service of our networks to
third parties. Our reliance on third party vendors involves a number of risks,
including the absence of guaranteed capacity and reduced control over delivery
schedules, quality assurance, production yields and costs. If any of our
suppliers reduces or interrupts its supply, or if any significant installer or
field service provider interrupts its service to us, this reduction or
interruption could disrupt our business. Although multiple manufacturers
currently
10
<PAGE>
produce or are developing equipment that will meet our current and anticipated
requirements, our suppliers may be unable to manufacture and deliver the amount
of equipment we order, or the available supply may be insufficient to meet our
demand. Currently, almost all of the DSL modem and DSL multiplexing equipment we
use for a single connection over a copper telephone line must come from the same
vendor since there are no existing interoperability standards for the equipment
used in our higher speed services. If our suppliers or licensors enter into
competition with us, or if our competitors enter into exclusive or restrictive
arrangements with the suppliers or licensors, then these events may materially
and adversely affect the availability and pricing of the equipment we purchase
and the technology we license.
A SYSTEM FAILURE OR BREACH OF NETWORK SECURITY COULD CAUSE DELAYS OR
INTERRUPTIONS OF SERVICE TO OUR CUSTOMERS
Our operations depend on our ability to avoid damages from fires,
earthquakes, floods, power losses, excessive sustained or peak user demand,
telecommunications failures, network software flaws, transmission cable cuts and
similar events. A natural disaster or other unanticipated problem at our owned
or leased facilities could interrupt our services. Additionally, if an incumbent
carrier, competitive carrier or other service provider fails to provide the
communications capacity we require, as a result of a natural disaster,
operational disruption or any other reason, then this failure could interrupt
our services.
Despite the implementation of security measures, our network may be
vulnerable to unauthorized access, computer viruses and other disruptive
problems. Corporate networks and Internet service providers have in the past
experienced, and may in the future experience, interruptions in service as a
result of accidental or intentional actions of Internet users, current and
former employees and others. Unauthorized access could also potentially
jeopardize the security of confidential information stored in the computer
systems of our customers, which might cause us to be liable to our customers,
and also might deter potential customers. Eliminating computer viruses and
alleviating other security problems may require interruptions, delays or
cessation of service to our customers and our customers' end users.
INTERFERENCE OR CLAIMS OF INTERFERENCE COULD DELAY OUR ROLLOUT OR HARM OUR
SERVICES
All transport technologies deployed on copper telephone lines have the
potential to interfere with, or to be interfered with by, other transport
technologies on the copper telephone lines. We believe that our DSL
technologies, like other transport technologies, do not interfere with existing
voice services. We believe that a workable plan that takes into account all
technologies could be implemented in a scalable way across all incumbent
carriers using existing plant engineering principles. There are several
initiatives underway to establish national standards and principles for the
deployment of DSL technologies. We believe that our technologies can be deployed
consistently with these evolving standards. Nevertheless, incumbent carriers may
claim that the potential for interference permits them to restrict or delay our
deployment of DSL services. Interference could degrade the performance of our
services or make us unable to provide service on selected lines. The procedures
to resolve interference issues between competitive carriers and incumbent
carriers are still being developed, and these procedures may not be effective.
We may be unable to successfully negotiate interference resolution procedures
with incumbent carriers. Moreover, incumbent carriers may make claims regarding
interference or unilaterally take action to resolve interference issues to the
detriment of our services. State or federal regulators could also institute
responsive actions. Interference, or claims of interference, if widespread,
would adversely affect our speed of deployment, reputation, brand image, service
quality and customer satisfaction and retention.
11
<PAGE>
WE DEPEND ON THIRD PARTIES FOR FIBER OPTIC TRANSPORT FACILITIES
We depend on the availability of fiber optic transmission facilities from
third parties to connect our equipment within and between metropolitan areas.
These third party fiber optic carriers include long distance carriers, incumbent
carriers and other competitive carriers. Many of these entities are, or may
become, our competitors. This approach includes a number of risks. For instance,
we may be unable to negotiate and renew favorable supply agreements. Further, we
depend on the timeliness of these companies to process our orders for customers
who seek to use our services. We have in the past experienced supply problems
with certain of our fiber optic suppliers, and they may not be able to meet our
needs on a timely basis in the future. Moreover, the fiber optic transport
providers whose networks we lease may be unable to obtain or maintain permits
and rights-of-way necessary to develop and operate existing and future networks.
UNCERTAIN FEDERAL AND STATE TAX AND OTHER SURCHARGES ON OUR SERVICES MAY
INCREASE OUR PAYMENT OBLIGATIONS
Telecommunications providers pay a variety of surcharges and fees on their
gross revenues from interstate and intrastate services. The division of our
services between interstate and intrastate services is a matter of
interpretation, and in the future the Federal Communications Commission or
relevant state commission authorities may contest this division. A change in the
characterization of the jurisdiction of our services could cause our payment
obligations to increase. In addition, pursuant to periodic revisions by state
and federal regulators of the applicable surcharges, we may be subject to
increases in the surcharges and fees currently paid.
OUR INTELLECTUAL PROPERTY PROTECTION MAY BE INADEQUATE TO PROTECT OUR
PROPRIETARY RIGHTS, AND WE MAY BE SUBJECT TO INFRINGEMENT CLAIMS
We rely on a combination of licenses, confidentiality agreements and other
contracts to establish and protect our technology and other intellectual
property rights. We have applied for trademarks and servicemarks on certain
terms and symbols that we believe are important for our business. We currently
have no patents or patent applications pending. The steps we have taken may be
inadequate to protect our technology or other intellectual property. Moreover,
our competitors may independently develop technologies that are substantially
equivalent or superior to ours. Third parties may assert infringement claims
against us and, in the event of an unfavorable ruling on any claim, we may be
unable to obtain a license or similar agreement to use technology we rely upon
to conduct our business. We also rely on unpatented trade secrets and know-how
to maintain our competitive positions, which we seek to protect, in part, by
confidentiality agreements with employees, consultants and others. However,
these agreements may be breached or terminated, and we may not have adequate
remedies for any breach. In addition, our competitors may otherwise learn or
discover our trade secrets. Our management personnel were previously employees
of other telecommunications companies. In many cases, these individuals are
conducting activities for us in areas similar to those in which they were
involved prior to joining us. As a result, we or our employees could be subject
to allegations of violation of trade secrets and other similar claims.
RISKS ASSOCIATED WITH POTENTIAL GENERAL ECONOMIC DOWNTURN
In the last few years the general health of the economy, particularly the
economy of California where we have conducted a significant portion of our
operations to date, has been relatively strong and growing, a consequence of
which has been increasing capital spending by individuals and growing companies
to keep pace with rapid technological advances. To the extent the general
economic health of the United States or of California declines from recent
historically high levels, or to the extent individuals or companies fear a
decline is imminent, these individuals and companies may reduce expenditures
such as those for our services. Any decline or concern about an imminent decline
could
12
<PAGE>
delay decisions among certain of our customers to roll out our services or could
delay decisions by prospective customers to make initial evaluations of our
services. Any delays would have a material and adverse effect on our business,
prospects, operating results and financial condition.
OUR PRINCIPAL STOCKHOLDERS AND MANAGEMENT OWN A SIGNIFICANT PERCENTAGE OF OUR
COMPANY, HAVE INTERESTS THAT MAY CONFLICT WITH THE INTERESTS OF THE HOLDERS OF
PREFERRED STOCK AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER OUR
COMPANY
Our executive officers, directors and principal stockholders together
beneficially own 46.6% of the total voting power of our company. Accordingly,
these stockholders will effectively be able to determine the composition of our
board of directors, will retain the effective voting power to approve all
matters requiring stockholder approval and will continue to have significant
influence over our affairs. This concentration of ownership could have the
effect of delaying or preventing a change in our control or otherwise
discouraging a potential acquirer from attempting to obtain control of us, which
in turn could have a material and adverse effect on the market price of the
common stock or prevent our stockholders from realizing a premium over the
market price for their shares of common stock. See "Principal Stockholders" for
information about the ownership of common stock by our executive officers,
directors and principal stockholders. Holders of the preferred stock will have
no right to vote for directors or other matters submitted to a vote of the
holders of common stock, except as required by law and in other limited
circumstances. As such, certain decisions concerning our operations or financial
structure may present conflicts of interest between the stockholders and the
holders of preferred stock. The stockholders may wish to pursue acquisitions,
divestitures, financings or other transactions and business strategies that, in
their judgment, could enhance their investment in our company even though these
transactions might involve increased risks to the holders of Series F preferred
stock.
IF WE ARE REQUIRED TO REGISTER AS AN INVESTMENT COMPANY, WE WOULD BECOME SUBJECT
TO SUBSTANTIAL REGULATION WHICH WOULD INTERFERE WITH OUR ABILITY TO CONDUCT OUR
BUSINESS ACCORDING TO OUR BUSINESS PLAN
As a result of our previous financings, we have substantial cash, cash
equivalents and short-term investments. We plan to continue investing the excess
proceeds of these financings in short-term instruments consistent with prudent
cash management and not primarily for the purpose of achieving investment
returns. Investment in securities primarily for the purpose of achieving
investment returns could result in our being treated as an "investment company"
under the Investment Company Act of 1940. The Investment Company Act requires
the registration of companies that are primarily in the business of investing,
reinvesting or trading securities or that fail to meet certain statistical tests
regarding their composition of assets and sources of income even though they
consider themselves not to be primarily engaged in investing, reinvesting or
trading securities.
We believe that we are primarily engaged in a business other than investing
in or trading securities and, therefore, are not an investment company within
the meaning of the Investment Company Act. If the Investment Company Act
required us to register as an investment company, we would become subject to
substantial regulation with respect to our capital structure, management,
operations, transactions with affiliated persons and other matters. Application
of the provisions of the Investment Company Act to us would materially and
adversely affect our business, prospects, operating results and our financial
condition.
THERE IS NO PUBLIC MARKET FOR THE SERIES F PREFERRED STOCK
No trading market for the Series F preferred stock currently exists.
Although the Series F preferred stock is eligible for trading in the PORTAL
market, no liquid market may develop for the
13
<PAGE>
Series F preferred stock, and the holders might be unable to sell them. Future
trading prices of the Series F preferred stock will depend on many factors, such
as:
- prevailing interest rates;
- our operating results; and
- the market for similar securities.
The initial purchasers have advised us that they intend to make a market in
the Series F preferred stock. However, they are not obligated to do so, and they
may discontinue any market-making activities at any time without notice. We do
not intend to apply to list the Series F preferred stock on any securities
exchange or automated quotation system.
WE EXPECT OUR STOCK PRICE TO BE VOLATILE
The trading price of our common stock has been and is likely to continue to
be highly volatile. Our stock price could fluctuate widely in response to many
factors, including the following:
- our historical and anticipated quarterly and annual operating results;
- announcements of new products or services by us or our competitors or new
competing technologies;
- the addition or loss of business or service provider customers;
- variations between our actual results and analyst and investor
expectations;
- investor perceptions of our company and comparable public companies;
- conditions or trends in the telecommunications industry, including
regulatory developments;
- announcements by us of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
- additions or departures of key personnel;
- future equity or debt offerings or our announcements of such offerings;
and
- general market and economic conditions.
In addition, in recent years the stock market in general, and the Nasdaq
National Market and the market for Internet and technology companies in
particular, have experienced extreme price and volume fluctuations. These
fluctuations have often been unrelated or disproportionate to the operating
performance of these companies. These market and industry factors may materially
and adversely affect our stock price, regardless of our operating performance.
WE HAVE NOT PAID AND DO NOT INTEND TO PAY DIVIDENDS
We have not paid any dividends on our common stock, and we do not intend to
pay cash dividends on our common stock in the foreseeable future. Our current
financing documents contain provisions which restrict our ability to pay
dividends.
WE MAY BE PRECLUDED FROM PAYING CASH DIVIDENDS ON THE SERIES F PREFERRED STOCK
Our ability to pay any dividends is subject to applicable provisions of
state law. Our ability to pay cash dividends on the Series F preferred stock
will be subject to the terms of the indentures governing our 2000 senior notes,
1999 senior notes and 1998 senior discount notes, and any other debt of ours
which is outstanding. Under these indentures, we are restricted from paying cash
dividends unless, among other things, we meet certain financial criteria. We
currently do not meet these criteria and will
14
<PAGE>
not be able to pay cash dividends. However, the certificate of designations for
the Series F preferred stock allows us, at our option, to pay dividends on the
Series F preferred stock by delivering to a third party a sufficient number of
shares of common stock that, upon resale by a third party, will result in net
cash proceeds to a third party to make the quarterly dividend payments in cash
to the holders of the Series F preferred stock.
ANTI-TAKEOVER PROVISIONS COULD NEGATIVELY IMPACT OUR STOCKHOLDERS
Our Board of Directors has adopted a stockholder rights plan. Our
stockholder rights plan would cause substantial dilution to any person or group
that attempts to acquire our company on terms not approved in advance by our
Board of Directors. In addition, some of the provisions that may be included in
our certificate of incorporation and bylaws may discourage, delay or prevent a
merger or acquisition at a premium price. These provisions include:
- authorizing the issuance of "blank check" preferred stock;
- providing for a classified Board of Directors with staggered, three-year
terms;
- eliminating the ability of stockholders to call a special meeting of
stockholders;
- limiting the removal of directors by the stockholders to removal for
cause; and
- requiring a super-majority stockholder vote to effect certain amendments.
In addition, certain provisions of the Delaware General Corporation Law and
our stockholder rights plan may deter someone from acquiring or merging with us,
including a transaction that results in stockholders receiving a premium over
the market price for the shares of common stock held by them. Section 203 of the
Delaware General Corporation Law also imposes certain restrictions on mergers
and other business combinations between us and any holder of more than 15% and
less than 85% of our common stock.
The indentures governing our 1998 senior discount notes, 1999 senior notes
and 2000 senior notes require us to offer to repurchase all such notes for 101%
of their accreted value or principal amount, as the case may be, plus any
accrued interest and liquidated damages, within 30 days after a change of
control. We might not have sufficient funds available at the time of any change
of control to make any required payment, as well as any payment that may be
required pursuant to any other outstanding indebtedness at the time, including
our indebtedness to equipment financing lenders, or outstanding preferred stock.
These covenants may also deter third parties from entering into a change of
control transaction with us.
THE PRICE OF OUR COMMON STOCK MAY DECLINE DUE TO SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market following
this offering, or the appearance that a large number of shares is available for
sale, including shares offered under this prospectus, could adversely affect the
market price for the common stock. In addition to the adverse effect a price
decline could have on holders of common stock, that decline would likely impede
our ability to raise capital through the issuance of additional shares of common
stock or other equity securities.
15
<PAGE>
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
FEBRUARY 27, 1997 YEARS ENDED DECEMBER 31, SIX MONTHS YEAR ENDED SIX MONTHS
(INCEPTION) TO ------------------------ ENDED DECEMBER 31, ENDED
DECEMBER 31, 1997 1998 1999 JUNE 30, 2000 1999 JUNE 30, 2000
------------------ -------- --------- ------------- ------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Deficiency of earnings to
cover combined fixed
charges and preferred stock
dividends.................. $(2,422) $(36,334) $(218,880) $(271,792) $(307,899) $(286,014)
</TABLE>
We issued $300 million of 14% senior notes due 2010 on February 23, 2000. In
addition, our Series E preferred stock and Series F preferred stock were issued
in March 2000. Accordingly, the interest on the 14% senior notes and the
dividends related to the Series E preferred stock and Series F preferred stock
are not included in the historical information for the period from February 27,
1997 (inception) to December 31, 1997 or for the years ended December 31, 1998
and 1999. The interest on the 14% senior notes and the preferred stock dividends
are included in the historical information for the three months ended March 31,
2000 from their respective issuance dates. The pro forma amounts are calculated
assuming that the 14% senior notes and the Series E preferred stock and
Series F preferred stock were outstanding since the beginning of each of the
periods presented.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of securities. The
securities are being sold by the stockholders described in "Selling
Stockholders." We will pay for all expenses necessary to register the securities
offered under this prospectus, except for selling commissions and underwriting
discounts, if any.
DIVIDEND POLICY
We have not paid any dividends on our common stock since our inception and
do not intend to pay any dividends on our common stock in the foreseeable
future. In addition, the terms of the indentures relating to our 1998 senior
discount notes, our 1999 senior notes and our 2000 senior notes restrict our
ability to pay dividends on our common stock and preferred stock. Dividends on
the Series F preferred stock are payable when, as and if declared, in cash. We
have the option to pay all or any part of a dividend on the Series F preferred
stock by delivering shares of our common stock to a third party. In this event,
we must deliver to the third party a number of shares of our common stock which,
when resold by the third party, will result in net cash proceeds sufficient to
pay the applicable dividend in cash to the holders of the Series F preferred
stock.
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<PAGE>
SELLING STOCKHOLDERS
We issued and sold 3,000,000 shares of Series F preferred stock to Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith Barney as initial
purchasers on March 3, 2000 at a purchase price of $100 per share. The initial
purchasers sold our Series F preferred stock in transactions exempt from the
registration requirements of the Securities Act, to persons that the initial
purchasers reasonably believed to be "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act).
The registration statement of which this prospectus is a part has been filed
under Rule 415 under the Securities Act to afford the holders of the Series F
preferred stock or the underlying common stock the opportunity to sell their
securities in public transactions rather than under an exemption from the
registration and prospectus delivery requirements of the Securities Act. In
order to take advantage of that opportunity, a holder of the Series F preferred
stock or the underlying common stock must notify us of its intention to sell
securities and provide other information about itself and the securities it is
selling as required by the Securities Act.
No holder may offer or sell securities under this prospectus until we have
been notified and until any supplement for the prospectus has been filed or an
amendment to the registration statement has become effective. Additional holders
of Series F preferred stock or the underlying common stock will be added to the
prospectus at their request and after they have provided us with any information
we have requested. We will from time to time supplement and amend the prospectus
to the registration statement, as applicable, to add additional holders of
Series F preferred stock or the underlying common stock and to reflect the
required information.
The following table describes the holders of Series F preferred stock or the
underlying common stock which have requested to be included in this prospectus.
To our knowledge no holder of Series F preferred stock or the underlying common
stock has held any position, office or had any other material relationship with
us or any of our affiliates during the past three years. All of the shares of
Series F preferred stock are registered in the name of "Cede & Co." on the books
of the transfer agent for the Series F preferred stock.
PREFERRED STOCK
<TABLE>
<CAPTION>
SHARES SHARES OWNED
SHARES OWNED OFFERED AFTER THIS
BEFORE THE OFFERING FOR SALE OFFERING
------------------- -------- ------------
<S> <C> <C> <C>
Augusta Partners, L.P.................................. 75,000 75,000 -0-
Bear, Stearns & Co. Inc................................ 20,000 20,000 -0-
BNP Arbitrage SNC...................................... 44,531 44,531 -0-
BNP Copper Neff Convertible Strategies Fund, L.P....... 2,969 2,969 -0-
American Variable Insurance Series, Growth-Income
Fund (1)............................................. 188,000 188,000 -0-
Chase Securities, Inc. (2)............................. 26,000 26,000 -0-
Clinton Riverside Convertible Portfolio Limited........ 40,000 40,000 -0-
Dallas Police & Fire Pension System.................... 19,500 19,500 -0-
D.E. Shaw Investments, L.P............................. 20,000 20,000 -0-
D.E. Shaw Valence, L.P................................. 30,000 30,000 -0-
Deutsche Bank Securities Inc........................... 620,000 620,000 -0-
Donaldson, Lufkin & Jenrette Securities Corp........... 47,000 47,000 -0-
Fifth Third Bank....................................... 10,000 10,000 -0-
Goldman Sachs & Co. for the account of Ardsley O Sphere
Fund, Ltd............................................ 105,000 105,000 -0-
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
SHARES SHARES OWNED
SHARES OWNED OFFERED AFTER THIS
BEFORE THE OFFERING FOR SALE OFFERING
------------------- -------- ------------
<S> <C> <C> <C>
Goldman Sachs & Co. for the account of Ardsley Partners
Fund I, L.P.......................................... 65,000 65,000 -0-
Goldman Sachs & Co. for the account of Ardsley Partners
Fund II, L.P......................................... 95,000 95,000 -0-
Goldman Sachs & Co. for the account of Ardsley Partners
Institutional Fund, L.P.............................. 65,000 65,000 -0-
Goldman Sachs & Co. for the account of HH Managed
Account 1 Limited.................................... 60,000 60,000 -0-
Grace Brothers, Ltd.................................... 15,000 15,000 -0-
Houston Firemen's Relief and Pension Fund "B".......... 2,500 2,500 -0-
Houston Municipal Emplyees Pension System.............. 4,500 4,500 -0-
The Income Fund of America (1)......................... 250,000 250,000 -0-
JMG Capital Partners, L.P.............................. 15,000 15,000 -0-
JMG Triton Offshore Fund, Ltd.......................... 90,000 90,000 -0-
J.M. Hull Associates................................... 3,800 3,800 -0-
JP Morgan Securities................................... 75,000 75,000 -0-
LLT Limited............................................ 8,000 8,000 -0-
Loomis Sayles High Yield Income Fund................... 1,000 1,000 -0-
Lyxor Master Fund...................................... 22,000 22,000 -0-
McMahan Securities Company L.P......................... 5,550 5,550 -0-
Morgan Stanley & Co.................................... 10,000 10,000 -0-
Philip J. Hempleman.................................... 30,000 30,000 -0-
Quattro Fund, LLC...................................... 4,500 4,500 -0-
RAM Trading Ltd........................................ 165,000 165,000 -0-
Sagamore Hill Hub Fund Ltd............................. 100,000 100,000 -0-
Salomon Smith Barney Inc. (3).......................... 75,710 75,710 -0-
SAM Investments LDC.................................... 200,000 200,000 -0-
San Diego County Employees Retirement Association...... 20,000 20,000 -0-
Southport Management Partners, L.P..................... 25,000 25,000 -0-
Southport Partners International, Ltd.................. 62,000 62,000 -0-
St. Claire International............................... 5,000 5,000 -0-
State of Connecticut Fund "F".......................... 7,500 7,500 -0-
Triton Capital Investments, Ltd........................ 15,000 15,000 -0-
White River Securities LLC............................. 20,000 20,000 -0-
Zurich HFR Master Hedge Fund Index Ltd................. 5,000 5,000 -0-
</TABLE>
COMMON STOCK
<TABLE>
<CAPTION>
SHARES SHARES OWNED
SHARES OWNED OFFERED FOR AFTER THIS
BEFORE THE OFFERING SALE OFFERING
------------------- ----------- ------------
<S> <C> <C> <C>
Augusta Partners, L.P................................. 176,250 176,250 -0-*
Bear, Stearns & Co. Inc............................... 47,000 47,000 -0-*
American Variable Insurance Series, Growth-Income
Fund (1)............................................ 7,180,000 441,800 6,738,200
BNP Arbitrage SNC..................................... 104,648 104,648 -0-*
BNP Copper Neff Convertible Strategies Fund, L.P...... 6,978 6,978 -0-*
Chase Securities, Inc. (2)............................ 61,100 61,100 -0-*
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
SHARES SHARES OWNED
SHARES OWNED OFFERED FOR AFTER THIS
BEFORE THE OFFERING SALE OFFERING
------------------- ----------- ------------
<S> <C> <C> <C>
Clinton Riverside Convertible Portfolio Limited....... 94,000 94,000 -0-*
Dallas Fire & Fire Pension System..................... 45,825 45,825 -0-*
D.E. Shaw Investments, L.P............................ 47,000 47,000 -0-*
D.E. Shaw Valence, L.P................................ 70,500 70,500 -0-*
Deutsche Bank Securities Inc.......................... 1,460,825 1,457,000 3,825*
Donaldson, Lufkin & Jenrette Securities Corp.......... 110,450 110,450 -0-*
Fifth Third Bank...................................... 23,500 23,500 -0-*
Goldman Sachs & Co. for the account of Ardsley O
Sphere Fund, Ltd.................................... 246,750 246,750 -0-*
Goldman Sachs & Co. for the account of Ardsley
Partners Fund I, L.P................................ 152,750 152,750 -0-*
Goldman Sachs & Co. for the account of Ardsley
Partners Fund II, L.P............................... 223,250 223,250 -0-*
Goldman Sachs & Co. for the account of Ardsley
Partners Institutional Fund, L.P.................... 152,750 152,750 -0-*
Goldman Sachs & Co. for the account of HH Managed
Account 1 Limited................................... 141,000 141,000 -0-*
Grace Brothers, Ltd................................... 35,250 35,250 -0-*
Houston Firemen's Relief and Pension Fund "B"......... 5,875 5,875 -0-
Houston Municipal Emplyees Pension System............. 10,575 10,575 -0-
The Income Fund of America (1)........................ 7,325,700 587,500 6,738,200(4)
JMG Capital Partners, L.P............................. 35,250 35,250 -0-*
JMG Triton Offshore Fund, Ltd......................... 211,500 211,500 -0-*
J.M. Hull Associates.................................. 8,930 8,930 -0-*
JP Morgan Securities.................................. 176,250 176,250 -0-*
LLT Limited........................................... 18,800 18,800 -0-*
Loomis Sayles High Yield Fixed Income Fund............ 2,350 2,350 -0-*
Lyxor Master Fund..................................... 51,700 51,700 -0-*
McMahan Securities Company L.P........................ 12,925 12,925 -0-*
Morgan Stanley & Co................................... 23,500 23,500 -0-*
Philip J. Hempleman................................... 70,500 70,500 -0-*
Quattro Fund, LLC..................................... 28,200 10,575 17,625*
RAM Trading Ltd....................................... 387,750 387,750 -0-*
Sagamore Hill Hub Fund Ltd............................ 235,000 235,000 -0-*
Salomon Smith Barney Inc. (3)......................... 177,919 177,919 -0-*
SAM Investments LDC................................... 470,000 470,000 -0-*
San Diego County Employees Retirement Association..... 47,000 47,000 -0-*
Southport Management Partners, L.P.................... 58,750 58,750 -0-*
Southport Partners International, Ltd................. 145,700 145,700 -0-*
St. Claire International.............................. 11,750 11,750 -0-*
State of Connecticut Fund "F"......................... 17,625 17,625 -0-*
Triton Capital Investments, Ltd....................... 35,250 35,250 -0-*
White River Securities LLC............................ 47,000 47,000 -0-*
Zurich HFR Master Hedge Fund Index Ltd................ 11,750 11,750 -0-*
</TABLE>
------------------------
* Represents less than one percent of total shares outstanding as of
August 14, 2000.
(1) Capital Research and Management Company serves as the investment adviser to
this selling stockholder.
(2) Chase Securities, Inc. has served as co-underwriter for Rhythms
Netconnections' private placements of 12 3/4% Senior Notes and 14% Senior
Notes.
(3) Salomon Smith Barney Inc. served as co-underwriter for Rhythms
Netconnections' private placements of Series F preferred stock, 12 3/4%
Senior Notes and 14% Senior Notes.
(4) Includes a total of 6,738,200 shares of common stock, representing 8.5% of
the total shares outstanding as of August 14, 2000, beneficially owned by
other investment funds in which Capital Research and Management Company
serves as investment adviser.
19
<PAGE>
DESCRIPTION OF THE SERIES F PREFERRED STOCK
THE FOLLOWING SECTION DESCRIBES ALL MATERIAL TERMS OF THE SERIES F PREFERRED
STOCK, BUT DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE CERTIFICATE OF DESIGNATIONS RELATING TO THE
SERIES F PREFERRED STOCK.
GENERAL
Under the certificate of designations, 3,000,000 shares of our 6 3/4% Series
F cumulative convertible preferred stock, $0.001 par value per share and $100.00
liquidation preference per share have been authorized. All shares of Series F
preferred stock have been validly issued, fully paid and nonassessable.
The holders of the shares of Series F preferred stock have no preemptive
rights or preferential rights to purchase or subscribe to stock, obligations,
warrants or any other of our securities.
RANKING
The Series F preferred stock, with respect to dividend rights and upon
liquidation, winding up and dissolution, rank:
- junior to all our existing and future debt obligations;
- junior to "senior stock", which is each class or series of our capital
stock that has terms which expressly provide that that class will rank
senior to the preferred stock;
- on a parity with "parity stock", which is our Series E preferred stock,
and each other class or series of our capital stock that has terms which
expressly provide that that class or series will rank on a parity with the
preferred stock; and
- senior to "junior stock", which is our common stock and each class or
series of our capital stock that has terms which do not expressly provide
that that class or series will rank senior to or on a parity with the
preferred stock.
The terms "senior stock", "parity stock" and "junior stock" include
warrants, rights, calls or options exercisable for or convertible into that type
of stock.
DIVIDENDS
The holders of the shares of Series F preferred stock are entitled to
receive, when, as and if declared by our board of directors out of funds legally
available for payment, cumulative dividends per share at the annual rate of
6 3/4% of the $100.00 liquidation preference per share of Series F preferred
stock. The dividend rate is equivalent to $6.75 per share annually. The right of
the holders of the shares of Series F preferred stock to receive dividend
payments is subject to the rights of any holders of shares of senior stock and
parity stock.
Dividends are payable in equal amounts on March 3, June 3, September 3 and
December 3 of each year, beginning on June 3, 2000. If any of those dates is not
a business day, then dividends will be payable on the next succeeding business
day. Dividends will accrue from the most recent date as to which dividends will
have been paid or, if no dividends have been paid, from the date of the original
issuance of the shares of Series F preferred stock. Dividends will be payable to
holders of record as they appear in our stock records at the close of business
on February 17, May 17, August 17 and November 17 of each year or on a record
date which will be fixed by our board of directors and which will be not more
than 60 days and not less than 10 days before the applicable quarterly dividend
payment date. Dividends will be cumulative from each quarterly dividend payment
date, whether or not we will have funds legally available for the payment of
those dividends. Accumulated unpaid dividends
20
<PAGE>
accrue and cumulate dividends at the yearly rate contained on the cover page of
this prospectus. Dividends payable on the shares of Series F preferred stock for
any period shorter than a full quarterly period will be computed on the basis of
a 360-day year consisting of twelve 30-day months.
Dividends on the shares of Series F preferred stock are payable in cash. We
have the option to pay all or any part of a dividend by delivering shares of our
common stock to the transfer agent. In this case, we must deliver to the
transfer agent a number of shares of our common stock which, when resold by the
transfer agent, will result in net cash proceeds sufficient to pay the
applicable dividend in cash to the holders of the shares of Series F preferred
stock. The holders of shares of preferred stock will not receive any shares of
our common stock as a dividend.
We will not (1) declare or pay any dividend on or (2) set apart any sum for
the payment of dividends on any outstanding shares of preferred stock with
respect to any dividend period unless we have declared and paid or have declared
and set apart a sufficient sum for the payment of all dividends on all
outstanding shares of this issue of preferred stock for all preceding dividend
periods.
We will not (1) declare, pay or set apart funds for the payment of any
dividend or other distribution with respect to any junior stock or parity stock
or (2) redeem, purchase or otherwise acquire for consideration junior stock or
parity stock through a sinking fund or otherwise, unless we have paid or set
apart funds for the payment of all accrued and unpaid dividends with respect to
the shares of this issue of preferred stock and any parity stock at the time
those dividends are payable. As an exception to clause (1) of this paragraph, we
will be able to (a) declare and pay dividends on junior stock or parity stock
which are payable solely in shares of parity stock or junior stock, in the case
of parity stock, or junior stock, in the case of junior stock, or by the
increase in the liquidation value of junior stock or parity stock and (b)
redeem, purchase or otherwise acquire junior stock or parity stock in exchange
for consideration consisting of parity stock or junior stock, in the case of
parity stock, or junior stock, in the case of junior stock.
REDEMPTION
MANDATORY REDEMPTION
We are required to redeem the preferred stock on March 3, 2012 at a
redemption price equal to the liquidation preference per share, plus accumulated
and unpaid dividends to the date of redemption. We are not required to make any
sinking fund payments with respect to the Series F preferred stock.
PROVISIONAL REDEMPTION
We may redeem any shares of Series F preferred stock at any time prior to
March 6, 2003 ("Provisional Redemption"), at a redemption price equal to the
liquidation preference per share, plus accumulated and unpaid dividends to the
date of redemption (the "Provisional Redemption Date") after 30 days' notice if:
- the closing price of our common stock shall have exceeded 150% of the
conversion price then in effect for at least 20 trading days in any
consecutive 30-trading day period ending on the trading day prior to the
date of mailing of the notice of provisional redemption (the "Notice
Date," which such date shall be no more than 60 nor less than 30 days
prior to the Provisional Redemption Date) and
- the shelf registration statement covering resales of the Series F
preferred stock and the common stock issuable upon conversion of the
Series F preferred stock is effective and available for use and is
expected to remain effective and available for use for the 30 days
following the Notice Date.
21
<PAGE>
Upon any Provisional Redemption, we will make an additional payment in cash
(the "Make-Whole Payment") with respect to the shares of Series F preferred
stock called for redemption to the holders on the Notice Date in an amount equal
to $13.79 per share of Series F preferred stock, less the amount of any
dividends actually paid on such Series F preferred stock prior to the Notice
Date. We will be obligated to make the Make-Whole Payment on all shares of
Series F preferred stock called for Provisional Redemption, including any shares
of Series F preferred stock converted after the Notice Date and prior to the
Provisional Redemption Date. The indentures governing our 1998 senior discount
notes, 1999 senior notes and 2000 senior notes restrict our ability to make the
Make-Whole Payment which depends upon our ability to make restricted payments
under those indentures. At the present time we are not permitted and, based upon
our projections, we may not be permitted through the Provisional Redemption Date
to make restricted payments. As such, we are not likely to be able to make the
Provisional Redemption.
OPTIONAL REDEMPTION
Except as set forth above under "--Provisional Redemption", we may not
redeem any shares of Series F preferred stock before March 6, 2003. After that
date, we will have the option to redeem for cash any or all shares of Series F
preferred stock, at any time or from time to time, upon not less than 30 nor
more than 60 days' prior notice sent by first class mail to each holder's
registered address, at the following redemption prices, expressed as a
percentage of the liquidation preference per share, plus accumulated and unpaid
dividends to the date of redemption, beginning on March 6 of each of the
following years:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------ ----------------
<S> <C>
2003......................................... 104.725%
2004......................................... 104.050%
2005......................................... 103.375%
2006......................................... 102.700%
2007......................................... 102.025%
2008......................................... 101.350%
2009......................................... 100.675%
2010 and thereafter.......................... 100.000%
</TABLE>
In the case of any partial redemption, we will select the shares of Series F
preferred stock to be redeemed on a pro rata basis, by lot or any other method
that we, in our discretion, deem fair and appropriate. However, we may redeem
all the shares held by holders of fewer than 100 shares or who would hold fewer
than 100 shares as a result of the redemption.
If the redemption date falls after a dividend payment record date and before
the related dividend payment date, the holders of the shares of Series F
preferred stock at the close of business on that dividend payment record date
will be entitled to receive the dividend payable on those shares on the
corresponding dividend payment date, even if those shares are redeemed after
that dividend payment record date. Except as provided for in the preceding
sentence, no payment or allowance will be made for accrued dividends on any
shares of preferred stock called for redemption.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
us or a reduction or decrease in our capital stock resulting in a distribution
of assets to the holders of any class or series of our capital stock, each
holder of shares of Series F preferred stock will be entitled to payment out of
our assets available for distribution of an amount equal to the then effective
liquidation preference per share of preferred stock held by that holder, plus
all accumulated and unpaid dividends on those shares
22
<PAGE>
to the date of that liquidation, dissolution, winding up or reduction or
decrease in capital stock, before any distribution is made on any junior stock,
including our common stock, but after any distributions on any of our
indebtedness or our senior stock. After payment in full of the liquidation
preference and all accumulated and unpaid dividends to which holders of shares
of Series F preferred stock are entitled, the holders will not be entitled to
any further participation in any distribution of our assets. If, upon any
voluntary or involuntary liquidation, dissolution or winding up of us or a
reduction or decrease in our capital stock, the amounts payable with respect to
shares of Series F preferred stock and all other parity stock are not paid in
full, the holders of shares of Series F preferred stock and the holders of the
parity stock will share equally and ratably in any distribution of our assets in
proportion to the full liquidation preference and all accumulated and unpaid
dividends to which each such holder is entitled.
Neither the voluntary sale, conveyance, exchange or transfer, for cash,
shares of stock, securities or other consideration, of all or substantially all
of our property or assets nor the consolidation, merger or amalgamation of the
Company with or into any corporation or the consolidation, merger or
amalgamation of any corporation with or into the Company will be deemed to be a
voluntary or involuntary liquidation, dissolution or winding up of the Company
or a reduction or decrease in our capital stock.
We are not required to set aside any funds to protect the liquidation
preference of the shares of Series F preferred stock, although the liquidation
preference will be substantially in excess of the par value of the shares of the
Series F preferred stock.
VOTING RIGHTS
Except as required under Delaware law or as provided in the certificate of
designations, the holders of the shares of Series F preferred stock will not be
entitled to vote on any matter as our stockholders, except as follows:
(1) The affirmative vote of the holders of at least a majority of the
outstanding shares of Series F preferred stock, voting with holders of
shares of all other series of preferred stock affected in the same way as a
single class, in person or by proxy, at a special or annual meeting called
for that purpose, or by written consent in lieu of meeting, will be required
to amend, repeal or change any provisions of the certificate of designations
in any manner which would adversely affect, alter or change the powers,
preferences or special rights of the Series F preferred stock and any of
those securities affected in the same way. With respect to any matter on
which the holders are entitled to vote as a separate class, each share of
Series F preferred stock will be entitled to one vote.
(2) If at any time the equivalent of six quarterly dividends payable on
the shares of Series F preferred stock are accrued and unpaid, whether or
not consecutive and whether or not declared, the holders of all outstanding
shares of Series F preferred stock and any parity stock or senior stock
having similar voting rights then exercisable, voting separately as a single
class without regard to series, will be entitled to elect at the next annual
meeting of our stockholders two directors to serve until all dividends
accumulated and unpaid on any of those voting shares have been paid or
declared and funds set aside to provide for payment in full. In exercising
the voting rights described in this paragraph, each outstanding share of
Series F preferred stock will be entitled to one vote.
The creation, authorization or issuance of any other class or series of our
capital stock or the increase or decrease in the amount of authorized capital
stock of any of those classes or series or of the preferred stock, or any
increase, decrease or change in the par value of any class or series of capital
stock, including the Series F preferred stock, will not require the consent of
the holders of the
23
<PAGE>
Series F preferred stock and will not be deemed to affect adversely, alter or
change the powers, preferences and special rights of the shares of Series F
preferred stock.
CONVERSION RIGHTS
Each share of Series F preferred stock will be convertible at any time and
from time to time, at the option of the holder, into fully paid and
nonassessable shares of our common stock. The number of shares of common stock
deliverable upon conversion of a share of Series F preferred stock, adjusted as
provided under "-- Adjustments to the Conversion Price", is referred to in this
document as the "conversion ratio". The conversion ratio will be 2.35 and will
equal the ratio the numerator of which will be the $100.00 liquidation
preference per share and the denominator of which will be the conversion price.
The conversion price will be $42.56, subject to adjustment from time to time.
A holder of shares of Series F preferred stock may convert any or all of
those shares by surrendering to us at our principal office or at the office of
the transfer agent, as may be designated by our board of directors, the
certificate or certificates for those shares of Series F preferred stock
accompanied by a written notice stating that the holder elects to convert all or
a specified whole number of those shares in accordance with the provisions of
this section and specifying the name or names in which the holder wishes the
certificate or certificates for shares of common stock to be issued. In case the
notice specifies a name or names other than that of the holder, the notice will
be accompanied by payment of all transfer taxes payable upon the issuance of
shares of common stock in that name or names. Other than those taxes, we will
pay any documentary, stamp or similar issue or transfer taxes that may be
payable in respect of any issuance or delivery of shares of common stock upon
conversion of shares of Series F preferred stock. As promptly as practicable
after the surrender of that certificate or certificates and the receipt of the
notice relating to the conversion and payment of all required transfer taxes, if
any, or the demonstration to our satisfaction that those taxes have been paid,
we will deliver or cause to be delivered (a) certificates representing the
number of validly issued, fully paid and nonassessable full shares of our common
stock to which the holder, or the holder's transferee, of shares of Series F
preferred stock being converted will be entitled and (b) if less than the full
number of shares of Series F preferred stock evidenced by the surrendered
certificate or certificates is being converted, a new certificate or
certificates, of like tenor, for the number of shares evidenced by the
surrendered certificate or certificates less the number of shares being
converted. This conversion will be deemed to have been made at the close of
business on the date of giving the notice and of surrendering the certificate or
certificates representing the shares of Series F preferred stock to be converted
so that the rights of the holder thereof as to the shares being converted will
cease except for the right to receive shares of common stock and accrued and
unpaid dividends with respect to the shares of Series F preferred stock being
converted, and the person entitled to receive the shares of common stock will be
treated for all purposes as having become the record holder of those shares of
common stock at that time.
If a holder of shares of Series F preferred stock exercises conversion
rights, upon delivery of the shares for conversion, those shares will cease to
accrue dividends as of the end of the day immediately preceding the date of
conversion, but those shares will continue to be entitled to receive all accrued
dividends which the holder is entitled to receive through the last preceding
dividend payment date. Any accrued and unpaid dividends will be payable by us as
and when those dividends are paid to any remaining holders or, if none, on the
date which would have been the next succeeding dividend payment date had there
been remaining holders or at a later time when we believe we have adequate
available capital under applicable law to make such a payment. However, shares
of Series F preferred stock surrendered for conversion after the close of
business on any record date for the payment of dividends declared and before the
opening of business on the dividend payment date relating to that record date
must be accompanied by a payment in cash of an amount equal to the dividend
declared in respect of those shares.
24
<PAGE>
In case any shares of Series F preferred stock are to be redeemed, the right
to convert those shares of Series F preferred stock will terminate at the close
of business on the business day immediately preceding the date fixed for
redemption unless we default in the payment of the redemption price of those
shares.
We will make no payment or adjustment to any holder of shares of Series F
preferred stock surrendered for conversion in respect of any accrued and unpaid
dividends on the shares of Series F preferred stock surrendered for conversion.
In connection with the conversion of any shares of Series F preferred stock,
no fractions of shares of common stock will be issued, but we will pay a cash
adjustment in respect of any fractional interest in an amount equal to (a) the
fractional interest multiplied by the liquidation preference per share, divided
by (b) the conversion price. If more than one share of Series F preferred stock
will be surrendered for conversion by the same holder at the same time, the
number of full shares of common stock issuable on conversion of those shares
will be computed on the basis of the total number of shares of Series F
preferred stock so surrendered.
We will at all times reserve and keep available, free from preemptive
rights, for issuance upon the conversion of shares of Series F preferred stock a
number of our authorized but unissued shares of common stock that will from time
to time be sufficient to permit the conversion of all outstanding shares of
Series F preferred stock if necessary to permit the conversion of all
outstanding shares of Series F preferred stock. Before the delivery of any
securities which we will be obligated to deliver upon conversion of the
preferred stock, we will comply with all applicable federal and state laws and
regulations which require action to be taken by us. All shares of common stock
delivered upon conversion of the Series F preferred stock will upon delivery be
duly and validly issued and fully paid and nonassessable, free of all liens and
charges and not subject to any preemptive rights.
ADJUSTMENTS TO THE CONVERSION PRICE
The conversion price is subject to adjustment in certain events, including,
without duplication:
- the issuance of shares of common stock as a dividend or distribution on
the common stock,
- the subdivision or combination of the outstanding stock,
- the issuance to all or substantially all holders of common stock of rights
or warrants to subscribe for or purchase any common stock (or securities
convertible into common stock) at a price per share less than the current
market price per share,
- the distribution to all or substantially all holders of common stock of
shares of our capital stock (other than common stock), evidences or
indebtedness or other non-cash assets, and
- the distribution to all or substantially all holders of common stock of
cash in an aggregate amount that (together with all other cash
distributions to all or substantially all holders of common stock made
within the preceding 12 months not triggering a conversion price
adjustment) exceeds an amount equal to 10% of our market capitalization on
the business day immediately preceding the day on which we declare the
distribution.
We will not, however, be required to give effect to any adjustment in the
conversion price unless and until the net effect of one or more adjustments,
each of which will be carried forward until counted toward adjustment, will have
resulted in a change of the conversion price by at least 1%, and when the
cumulative net effect of more than one adjustment so determined will be to
change the conversion price by at least 1%, that change in the conversion price
will be given effect. In the event that, at any time as a result of the
provisions of this section, the holder of shares of Series F preferred stock
upon subsequent conversion become entitled to receive any shares of our capital
stock other than common stock, the number of those other shares so receivable
upon conversion of shares of preferred
25
<PAGE>
stock will thereafter be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions contained in this
section.
We from time to time may reduce the conversion price by any amount for any
period of time if the period is at least 20 days or any longer period required
by law and if the reduction is irrevocable during the period, but the conversion
price may not be less than the par value of the Series F preferred stock.
In any case in which this section requires that an adjustment as a result of
any event become effective from and after a record date, we may elect to defer
until after the occurrence of that event (a) issuing to the holder of any shares
of Series F preferred stock converted after that record date and before the
occurrence of that event the additional shares of common stock issuable upon
that conversion over and above the shares issuable on the basis of the
conversion price in effect immediately before adjustment and (b) paying to that
holder any amount in cash in lieu of a fractional share of common stock.
If we take a record of the holders of our common stock for the purpose of
entitling them to receive a dividend or other distribution, and after this and
before the distribution our shareholders legally abandon our plan to pay or
deliver that dividend or distribution, then no adjustment in the number of
shares of our common stock issuable upon conversion of shares of Series F
preferred stock or in the conversion price then in effect will be required by
reason of the taking of that record.
Our board of directors will have the power to resolve any ambiguity or
correct any error in this section, and its action in so doing will be final and
conclusive.
CHANGE IN CONTROL PUT RIGHT
For purposes of this section, "change in control" of us means the occurrence
of any of the following:
- any "person" or "group", as those terms are used in Sections 13(d) or
14(d) of the Exchange Act, other than a "permitted holder", is or becomes
the beneficial owner, as that term is used in Rules 13d-3 or 13d-5 under
the Exchange Act (except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has or acquires the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total
voting power of all of our voting stock (except that the person or group
shall not be deemed to be the "beneficial owner" of shares tendered
pursuant to a tender or exchange offer by that person or group or any of
their affiliates until the tendered shares are accepted for purchase or
exchange) and has, directly or indirectly, the right to elect or designate
a majority of our board of directors;
- during any consecutive two-year period, "continuing directors" cease for
any reason to constitute a majority of our board of directors;
- we consolidate with, or merge with or into, another person or sell,
assign, convey, transfer, lease or otherwise dispose of all or
substantially all of our assets to any person, or any person consolidates
with, or merges with or into, us, in any such event pursuant to which our
voting stock is converted into or exchanged for cash, securities or other
property, other than any such transaction where (i) our outstanding voting
stock is converted into or exchanged for (1) voting stock (other than
disqualified stock) of the surviving or transferee corporation or its
parent corporation and/or (2) cash, securities and other property in any
amount which could be paid by us as a restricted payment under the
indentures governing our 1998 senior discount notes, the 1999 senior notes
and the 2000 senior notes, (ii) the beneficial owners of our voting stock
before such transaction own, directly or indirectly, immediately after
such transaction, at least a majority of the voting power of all voting
stock of the surviving or transferee corporation or its
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parent corporation immediately after such transaction, as applicable, or
(iii) immediately after such transaction, no "person" or "group" (as such
terms are defined above), directly or indirectly, excluding the permitted
holders, is the "beneficial owner" (as defined above), directly or
indirectly, of more than 50% of the voting stock of such surviving or
transferee corporation or its parent corporation, as applicable, or has,
directly or indirectly, the right to elect or designate a majority of the
board of directors of the surviving or transferee corporation or its
parent corporation, as applicable.
For purposes of the above paragraph, "permitted holder" means Brentwood
Venture Capital, Enterprise Partners, Kleiner Perkins Caulfield & Byers, The
Sprout Group and Catherine M. Hapka and their respective affiliates; and
"continuing directors" means individuals who at the beginning of the period of
determination constituted our board of directors, together with any new
directors whose election by that board of directors or whose nomination for
election by our shareholders was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
that period or whose election or nomination for election was previously so
approved.
Notwithstanding the above, a change of control of us will be deemed not to
have occurred if the last sale price of our common stock for any five
trading days during the ten trading days immediately preceding the change of
control is at least equal to 105% of the conversion price then in effect
immediately preceding the change of control.
If there is a change in control of us, each holder of shares of Series F
preferred stock will have the right to require us to purchase all or any part of
that holder's shares of Series F preferred stock at a purchase price in cash
equal to 100% of the liquidation preference of those shares, plus all
accumulated and unpaid dividends on those shares to the date of purchase. Within
30 days following any change in control, we will mail a notice to each holder
describing the transaction or transactions that constitute the change in control
and offering to purchase that holder's preferred stock on the date specified in
that notice, which date will be no earlier than 30 days and no later than
60 days from the date the notice is mailed.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations to the extent those laws and
regulations are applicable in connection with the purchase of Series F preferred
stock as a result of a change in control. To the extent that the provisions of
any securities laws or regulations conflict with any of the provisions of this
section, we will comply with the applicable securities laws and regulations and
will be deemed not to have breached our obligations under this section.
On the date scheduled for payment of the shares of Series F preferred stock,
we will, to the extent lawful, (a) accept for payment all shares of Series F
preferred stock properly tendered, (b) deposit with the transfer agent an amount
equal to the purchase price of the shares of Series F preferred stock so
tendered and (c) deliver or cause to be delivered to the transfer agent shares
of Series F preferred stock so accepted together with an officers' certificate
stating the aggregate liquidation preference of the shares of Series F preferred
stock being purchased by us. The transfer agent will promptly mail or deliver to
each holder of shares of preferred stock so tendered the applicable payment for
those shares of Series F preferred stock, and the transfer agent will promptly
countersign and mail or deliver, or cause to be transferred by book-entry, to
each holder new shares of Series F preferred stock equal in liquidation
preference to any unpurchased portion of the shares of Series F preferred stock
surrendered, if any. We will publicly announce the results of our offer on or as
soon as practicable after the payment date for the purchase of shares of Series
F preferred stock in connection with a change in control.
We will not be required to make an offer to purchase any shares of Series F
preferred stock upon the occurrence of a change in control if a third party
makes that offer in the manner, at the times and
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otherwise in compliance with the requirements described in this section and
purchases all shares of Series F preferred stock validly tendered and not
withdrawn.
The right of the holders of shares of Series F preferred stock described in
this section will be subject to our obligation to offer to purchase and purchase
all our 1998 senior discount notes, 1999 senior notes and 2000 senior notes that
have been tendered for purchase in connection with a change in control of the
Company. In addition, the right of the holders of shares of Series F preferred
stock described in this section will be subject to the repurchase or repayment
of our future indebtedness, which we are required to repurchase or repay in
connection with a change in control. When we have satisfied these obligations
and, subject to the legal availability of funds for this purpose, we will
purchase all shares tendered upon a change in control.
REGISTRATION RIGHTS
On March 3, 2000 we entered into a registration rights agreement with the
initial purchasers. Under the registration rights agreement, we:
- agreed to file, within 90 days of the closing date of the sale of the
Series F preferred stock, a shelf registration statement with the SEC on
the appropriate form under the Securities Act with respect to the shares
of Series F preferred stock and common stock into which the shares of
Series F preferred stock may be converted to cover resales by the holders;
- use our reasonable best efforts to cause this registration statement to be
declared effective, subject to some exceptions, on or before 180 days
after the closing date of the sale of the Series F preferred stock; and
- subject to certain "black-out" periods not to exceed 90 days in the
aggregate in any consecutive 365-day period, use our reasonable best
efforts to cause this registration statement to remain effective, subject
to some exceptions, until the earlier of (a) two years following the
effective date of the registration statement and (b) until all shares of
Series F preferred stock and common stock covered by that registration
statement have been sold under that registration statement.
We cannot assure you that we will be able to file, cause to be declared
effective or keep a registration statement effective for the required period.
Holders of shares of Series F preferred stock will be required to deliver
certain information to be used in connection with the shelf registration
statement within the time periods indicated in the registration rights agreement
in order to have their shares of Series F preferred stock or common stock into
which the shares of Series F preferred stock may be converted included in the
shelf registration statement.
If the shelf registration statement is not filed or declared effective by
the dates set forth above or if it ceases to be effective or usable in
connection with resales of shares of Series F preferred stock and common stock
during the periods specified in the registration rights agreement--we will refer
to that event as a "registration default"--then we will pay to each holder of
shares registrable under the registration rights agreement, with respect to the
first 90-day period immediately following the occurrence of a registration
default, additional dividends on the Series F preferred stock in an amount equal
to 0.50% per year, which we will refer to as "special dividends". The amount of
the special dividends will increase by an additional 0.25% per year with respect
to any subsequent 90-day period, but in no event will that rate exceed 1.00% per
year in the aggregate regardless of the number of registration defaults, until
all registration defaults have been cured. If, after the cure of all
registration defaults then in effect, there is a subsequent registration
default, the special dividend rate for that subsequent registration default will
initially be 0.25%, regardless of the special dividend rate in effect with
respect to any prior registration default at the time of the cure of that
registration default. All
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accrued special dividends will be paid to the holders entitled to those
dividends, in the manner provided for the payment of dividends in the
certificate of designations.
Special dividends, like ordinary dividends, will be paid in cash, although
we will have the option to deliver shares of our common stock to the transfer
agent for the preferred stock, which will resell those shares of common stock
and use the proceeds to pay special dividends in cash to the holders.
This is a summary of some important provisions of the registration rights
agreement. This summary is not complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the registration rights
agreement.
PORTAL
The shares of Series F preferred stock sold to qualified institutional
buyers are eligible to trade in the Private Offerings, Resales and Trading
through Automated Linkages or "PORTAL" market.
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
The transfer agent, registrar, dividend disbursing agent and redemption
agent for the shares of preferred stock is Computershare Trust Company, Inc.,
formerly American Securities Transfer & Trust, Inc.
BOOK-ENTRY ISSUANCE
The shares of preferred stock were issued as one global certificate
registered in the name of DTC or its nominee.
Purchasers of shares of Series F preferred stock may only hold interests in
the global certificates through DTC if they are participants in the DTC system.
Purchasers may also hold interests through a securities intermediary -- banks,
brokerage houses and other institutions that maintain securities accounts for
customers -- that has an account with DTC or its nominee. DTC will maintain
accounts showing the security holdings of its participants, and these
participants will in turn maintain accounts showing the security holdings of
their customers. Some of these customers may themselves be securities
intermediaries holding securities for their customers. Thus, each beneficial
owner of a book-entry certificate will hold that certificate indirectly through
a hierarchy of intermediaries, with DTC at the "top" and the beneficial owner's
own securities intermediary at the "bottom".
The shares of Series F preferred stock of each beneficial owner of a
book-entry certificate will be evidenced solely by entries on the books of the
beneficial owner's securities intermediary. The actual purchaser of shares of
Series F preferred stock will generally not be entitled to have the shares
represented by the global certificates registered in its name and will not be
considered the owner under our articles of incorporation or by-laws. In most
cases, a beneficial owner will also not be able to obtain a paper certificate
evidencing the holder's ownership of shares of Series F preferred stock. The
book-entry system for holding securities eliminates the need for physical
movement of certificates and is the system through which most publicly traded
stock is held in the United States. However, the laws of some jurisdictions
require some purchasers of securities to take physical delivery of their
securities in definitive form. These laws may impair the ability of a beneficial
owner to transfer book-entry shares of Series F preferred stock.
A beneficial owner of book-entry shares of Series F preferred stock
represented by a global certificate may exchange the shares for definitive
(paper) shares of Series F preferred stock only if:
- DTC is unwilling or unable to continue as depositary for that global
certificate and we do not appoint a qualified replacement for DTC within
90 days; or
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- we, in our sole discretion, decide to allow some or all book-entry
certificates to be exchangeable for definitive shares of preferred stock
in registered form.
Any global certificate that is so exchanged will be exchanged in whole for
definitive shares of Series F preferred stock in registered form, with the same
terms and of an equal aggregate liquidation preference. Definitive shares of
Series F preferred stock will be registered in the name or names of the person
or persons specified by DTC in a written instruction to the registrar of the
Series F preferred stock. DTC may base its written instruction upon directions
that it receives from its participants.
In this prospectus, references to actions taken by holders of shares of
Series F preferred stock will mean actions taken by DTC upon instructions from
its participants, and references to payments and notices of redemption to
holders of shares of preferred stock will mean payments and notices of
redemption to DTC as the registered holder of the shares of Series F preferred
stock for distribution to participants in accordance with DTC's procedures.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered under section 17A of the Exchange Act. The rules applicable
to DTC and its participants are on file with the SEC.
We will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the book-entry securities or for maintaining, supervising or
reviewing any records relating to beneficial ownership interests.
DTC may discontinue providing its services as securities depositary at any
time by giving reasonable notice. Under those circumstances, in the event that a
successor securities depositary is not appointed, share certificates are
required to be printed and delivered. Additionally, we may decide to discontinue
use of the system of book-entry transfers through DTC or any successor
depositary with respect to the shares of Series F preferred stock. In that
event, certificates for the shares will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable, but we do not
take responsibility for the accuracy of that information.
TAX CONSIDERATIONS
The following is a discussion of the material United States federal income
considerations with respect to the ownership and disposition of the preferred
stock and shares of our common stock. This discussion is based on the Internal
Revenue Code of 1986, as amended, existing and proposed Treasury regulations
thereunder and administrative and judicial interpretations thereof (all as of
the date hereof and all of which are subject to change, possibly with
retroactive effect). This discussion does not address all United States federal
income tax consequences that may be relevant to a holder in light of its
particular circumstances or to certain holders that may be subject to special
treatment under United States federal income tax laws, such as banks, insurance
companies, tax-exempt entities and certain United States expatriates.
Furthermore, the following discussion does not discuss any aspects of foreign,
state or local taxation. The following discussion is limited to United States
Holders who will hold the preferred stock or common stock as capital assets.
For purposes of this discussion, you are a "United States Holder" if you are
a beneficial owner of preferred stock or common stock that for United States
federal income tax purposes is:
- a citizen of the United States or an individual who is a resident of the
United States,
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- a corporation, partnership or other entity created or organized under the
laws of the United States or any political subdivision thereof (and any
other partnership treated as a domestic partnership under Treasury
regulations),
- an estate, the income of which is subject to United States federal income
taxation regardless of its source, or
- a trust, if both (1) a court within the United States is able to exercise
primary supervision over the administration of the trust, and (2) one or
more United States persons have the authority to control all substantial
decisions of the trust.
EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT ITS OWN TAX ADVISER WITH
RESPECT TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF OWNING AND
DISPOSING OF OUR PREFERRED STOCK AND SHARES OF COMMON STOCK, AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR OTHER TAXING
JURISDICTION.
UNITED STATES HOLDERS
PREFERRED STOCK
We have the option of making certain dividend payments to you by issuing
shares of our common stock to a third party, who will distribute the cash
proceeds of their sale to you (together with any top up payment, if necessary).
For United States federal income tax purposes, we will treat the payment of such
proceeds (together with any such top up payments) as the payment of a cash
dividend to you by us, although no assurances can be given that the Internal
Revenue Service will not assert different treatment.
DIVIDENDS. If you are a United States Holder, dividends paid to you on the
preferred stock will be taxable as ordinary income to the extent of our current
or accumulated earnings and profits, as determined for United States federal
income tax purposes. To the extent a dividend is not attributable to our current
or accumulated earnings and profits, that dividend will first reduce your tax
basis in the preferred stock, and then be treated as capital gain to the extent
that the amount exceeds that basis. We do not believe that we have current or
accumulated earnings and profits at this time. Accordingly, until such time as
we have current or accumulated earnings and profits for United States federal
income tax purposes, dividends paid on the preferred stock will reduce your tax
basis in the preferred stock or be treated as capital gain.
DIVIDENDS RECEIVED DEDUCTION. Dividends on the preferred stock will not be
eligible for the dividends received deduction unless and until we have current
or accumulated earnings and profits for United States federal income tax
purposes. At that time, subject to certain exceptions and limitations, if you
are a corporation, you may be entitled to a dividends received deduction equal
to 70 percent of the amount of any dividend attributable to our current or
accumulated earnings and profits. However, this deduction may be restricted,
eliminated or offset by other tax rules that limit the availability of the
dividends received deduction.
The dividends received deduction is reduced if you have incurred
indebtedness that is directly attributable to your investment in the preferred
stock or do not meet certain holding period requirements. Under the holding
period requirements, you must hold the preferred stock for more than 45 days
during the 90 day period surrounding the ex-dividend date or, in the event of
certain arrearages, 90 days during the 180 day period surrounding the
ex-dividend date. For these purposes, the holding period does not include any
period during which you have diminished your risk of loss with respect to the
preferred stock.
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Further, if a dividend
- equals or exceeds five percent of your adjusted tax basis in the preferred
stock (treating all dividends having ex-dividend dates within an 85-day
period as one dividend) or
- exceeds 20 percent of your adjusted tax basis in the preferred stock
(treating all dividends having ex-dividend dates within a 365-day period
as one dividend),
the dividend may constitute an "extraordinary dividend" that requires you to
reduce your adjusted tax basis in the preferred stock by the amount of the
dividend excluded from income under the dividends received deduction provisions
and to recognize gain in the amount that the extraordinary dividend exceeds your
basis in the shares.
You should also consider the effect of the corporate alternative minimum
tax, which imposes a minimum tax of 20 percent of a corporation's alternative
minimum taxable income for a taxable year. For purposes of the corporate
alternative minimum tax, alternative minimum taxable income is increased by 75
percent of the amount by which a corporation's adjusted current earnings in the
taxable year exceeds its alternative minimum taxable income. The amount of any
dividend on the preferred stock that is included in adjusted current earnings
will not be reduced by any dividends received deduction that is allowed with
respect to such dividend.
REDEMPTION PREMIUM. Upon the occurrence of the Provisional Redemption, you
may receive in addition to the liquidation preference a payment of cash that may
constitute a redemption premium under Section 305(c) of the Code. All or a
portion of the redemption premium may be viewed as a constructive distribution
(and thus as dividends depending upon the presence of current or accumulated
earnings and profits) that accrues over the period during which the preferred
stock cannot be called for redemption. Such accrual will arise due to the
Provisional Redemption feature only if, based on all of the facts and
circumstances as of the date the preferred stock is issued, redemption pursuant
to the Provisional Redemption were more likely than not to occur. We believe
that the Provisional Redemption would not be treated as more likely than not to
be exercised under these rules, so that the redemption premium would not be a
constructive distribution under Section 305(c) of the Code.
SALE OR OTHER DISPOSITION. Subject to the discussion in the following
paragraph, you generally will recognize capital gain or loss on a sale or other
disposition of your preferred stock in an amount equal to the difference between
your amount realized and your adjusted tax basis in the preferred stock. Your
adjusted tax basis will initially be your cost, and will be reduced by any
dividends you receive on the preferred stock to the extent such dividends are
not attributable to our current or accumulated earnings and profits. If you are
an individual United States Holder and your holding period for the preferred
stock is more than one year, capital gains in respect of that stock will be
subject to tax at a maximum rate of 20 percent.
REDEMPTION. A redemption or other purchase by us of your preferred stock
for cash will be treated, depending on the facts and circumstances, as (1) a
distribution on our stock or (2) a taxable exchange of your preferred stock.
Such a transaction will be treated as a taxable exchange of your preferred stock
if the transaction results in either:
- a complete termination of your interest in our stock,
- a "meaningful reduction" (as determined under Section 302 of the Code) of
your interest in our stock.
In determining whether any of these has occurred, you will be deemed to own
stock that is owned by persons that are treated as related to you for United
States federal income tax purposes or that is the subject of an option held by
you (including your conversion option) or by such a related person.
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If the redemption or other purchase is not treated as a taxable exchange,
the amounts received by you will be treated in the same manner as dividends paid
on the preferred stock, as described above.
CONVERSION. The conversion by you of your preferred stock into common stock
will not give rise to the recognition of income, gain or loss at the time of
conversion, assuming that you do not receive cash from us at that time and that
none of the common stock you receive is attributable to accrued but unpaid
dividends. Cash received in lieu of fractional shares of common stock will be
treated as if you received the fractional share and exchanged it for cash; the
excess, if any, of such cash over your adjusted tax basis attributable to the
fractional share should be treated as capital gain. You will have an aggregate
adjusted tax basis in the common stock that is equal to your aggregate adjusted
tax basis in your preferred stock at the time of conversion.
ADJUSTMENT TO CONVERSION RATIO. Adjustments to the conversion ratio of the
preferred stock may result in a dividend to you pursuant to Section 305 of the
Code if the adjustment has the effect of increasing your proportionate interest
in our earnings and profits or assets. Such dividend would be taxable to you in
the manner described above. In general, anti-dilution adjustments are not
treated as resulting in deemed distributions. However, adjustments considered to
compensate for taxable cash or property distributions to other shareholders
would result in a taxable deemed distribution to you.
COMMON STOCK
Dividends on the common stock will be taxable to you in the manner and under
the circumstances described for dividends on the preferred stock above. If you
are a corporation, you will be eligible for the dividends received deduction in
the manner and under the circumstances described with respect to the preferred
stock above, and generally subject to the same limitations. In addition, upon a
redemption, sale or other disposition by you of the common stock, you will be
taxable in the same manner and under the circumstances described for the
preferred stock above. Your holding period of common stock received on
conversion will include your holding period for the preferred stock in respect
of which the Common Stock was received, and your initial tax basis in such stock
will be as described in "--Conversion" above.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Payments made by a U.S. paying agent or other United States intermediary
broker in respect of our stock may be subject to information reporting to the
IRS and to a 31% backup withholding tax. Backup withholding will not apply,
however, (i) if you furnish a correct taxpayer identification number and make
any other required certification, or (ii) if you are otherwise exempt from
backup withholding.
Any amounts withheld under the backup withholding rules from a payment to
you will be allowed as a refund or a credit against your United States federal
income tax, provided that you have complied with applicable reporting
obligations.
THE ABOVE DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY. ACCORDINGLY,
EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS OR HER TAX ADVISOR WITH
RESPECT TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP
AND DISPOSITION OF OUR PREFERRED STOCK AND COMMON STOCK, INCLUDING THE
APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
JURISDICTION.
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PLAN OF DISTRIBUTION
We will not receive any of the proceeds from the sale of the securities
offered under this prospectus. The selling stockholders may sell the securities
directly from time to time to purchasers. Alternatively, the selling
stockholders may from time to time offer the securities through brokers, dealers
or agents who may receive compensation in the form of discounts, concessions or
commissions from the selling stockholders and/or the purchasers of the
securities. The selling stockholders and any brokers, dealers or agents who
participate in the sale of the securities may be considered "underwriters," and
any profits on the sale of the securities by them and any discounts, commissions
or concessions received by any such brokers, dealers or agents might be
considered underwriting discounts and commissions under the Securities Act. To
the extent the selling stockholders may be considered underwriters, the selling
stockholders may be subject to certain statutory liabilities of the Securities
Act, including, but not limited to, Section 11, 12 and 17 of the Securities Act
and Rule 10b-5 under the Exchange Act.
The selling stockholders may sell the securities offered under this
prospectus from time to time in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at varying prices determined at
the time of sale or at negotiated prices. The securities may be sold in
different ways including by one or more of the following methods:
- a block trade in which the broker or dealer so engaged will attempt to
sell the securities as agent but may position and resell a portion of the
block as principal to facilitate the transaction,
- purchases by a broker or dealer as principal and resale by that broker or
dealer for its account pursuant to this prospectus,
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers,
- an exchange distribution in accordance with the rules of that exchange,
- face-to-face transactions between sellers and purchasers without a
broker-dealer, and
- through the writing of options.
At any time a particular offer of the securities is made, a revised
prospectus or prospectus supplement, if required, will be distributed which will
contain the amount and type of securities being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agents,
any discounts, commissions and other items constituting compensation from the
selling stockholders selling securities and any discounts, commissions or
concessions allowed or reallowed or paid to dealers. A prospectus supplement
and, if necessary, a post-effective amendment to the registration statement of
which this prospectus is a part, will be filed with the SEC to reflect the
disclosure of additional information with respect to the distribution of the
securities. In addition, the securities covered by this prospectus may be sold
in private transactions or under Rule 144 rather than under this prospectus.
To the best of our knowledge, there are currently no plans, arrangements or
understandings between any holders and any broker, dealer, agent or underwriter
regarding the sale of the securities. There is no assurance that any holder will
sell any or all of the securities offered under this prospectus or that any
holder will not transfer, devise or gift the securities by other means not
described in this prospectus.
The selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations under the Exchange Act, including, Regulation M, which
may limit the timing of purchases and sales of any of the securities by you and
any other such person. Furthermore, under Regulation M under the Exchange Act,
any person engaged in the distribution of the securities may not simultaneously
engage in market-making activities
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with respect to the particular securities being distributed for certain periods
prior to the commencement of or during such distribution. All of the above may
affect the marketability of the securities and the availability of any person or
entity to engage in market-making activities with respect to the securities.
Under the registration rights agreement entered into in connection with our
offer and sale of the Series F preferred stock, we and the holders selling
securities under this prospectus will be indemnified by the other against
specific liabilities, including certain liabilities under the Securities Act, or
will be entitled to contribution in connection with those liabilities.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the securities to the public other than
commissions, fees and discounts of underwriters, brokers, dealers and agents.
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. These forward-looking
statements address, among other things:
- our network rollout plans and strategies;
- development and management of our business;
- our ability to attract, retain and motivate qualified personnel;
- success of our strategic alliances;
- our ability to attract and retain customers;
- the extent of acceptance of our services;
- the market opportunity and trends in the markets for our services;
- our ability to upgrade our technologies;
- prices of telecommunication services;
- the nature of regulatory requirements that apply to us;
- our ability to obtain any required governmental authorizations;
- our future capital expenditures and needs;
- our ability to obtain financing on commercially reasonable terms;
- our ability to compete; and
- the extent and nature of competition.
These statements may be found in this section, in the front inside cover of
this prospectus, in the sections of this prospectus entitled "Risk Factors" and
in this prospectus generally.
We have based these forward-looking statements on our current expectations
and projections about future events. However, our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of risks facing us, including risks stated in "Risk Factors," or faulty
assumptions on our part. For example, assumptions that could cause actual
results to vary materially from future results include, but are not limited to:
- our ability to successfully market our services to current and new
customers;
- our ability to generate customer demand for our services in our target
markets;
- the development of our target market and market opportunities;
- market pricing for our services and for competing services;
- the extent of increasing competition;
- our ability to acquire funds to expand our network;
- the ability of our equipment and service suppliers to meet our needs;
- trends in regulatory, legislative and judicial developments;
- our ability to scale our business to meet the demands of our customers;
- our ability to control our corporate overhead while rapidly growing our
business;
- the mix of our services that our customers purchase at different prices;
- our ability to manage growth of our operations; and
- our ability to access regions and enter into suitable interconnection
agreements with incumbent carriers.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
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LEGAL MATTERS
Brobeck, Phleger & Harrison LLP, Broomfield, Colorado, will pass upon the
validity of the preferred stock and common stock for us.
EXPERTS
The consolidated financial statements and financial statement schedule
incorporated by reference in this registration statement to the Annual Report on
Form 10-K for the year ended December 31, 1999 have been so incorporated in
reliance on the reports of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission. You may read and copy these reports, proxy statements
and other information at the public reference facilities maintained by the SEC
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
Regional Offices located at 7 World Trade Center, 13th floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may
also obtain copies of this material at prescribed rates from the Public
Reference Section of the SEC at 450 Fifth Street, Washington, D.C. 20549. You
may obtain copies from the Public Reference Room by calling the SEC at
(800) 732-0330. In addition, we are required to file electronic versions of such
material with the SEC through the SEC's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. The SEC maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
Our common stock is listed on Nasdaq reports and other information concerning us
can also be inspected at the offices of the National Association of Securities
Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20001-1500 U.S.A.
You should rely only on the information provided in this prospectus. We have
not authorized anyone to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. You should assume that the information appearing in this prospectus is
accurate only as of the date on the front cover of this prospectus. Our
business, financial condition, results of operations and prospects may have
changed since that date.
In making an investment decision regarding the Series F preferred stock or
common stock, you must rely on your own examination of us and the terms of the
offering, including the merits and risks involved. The contents of this
prospectus are not to be considered as legal, business or tax advice. You should
consult your own counsel, accountants or other advisors as to legal, tax,
business, financial and related aspects of a purchase of the shares of Series F
preferred stock or common stock.
37
<PAGE>
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
This prospectus incorporates certain documents about us by reference which
are not presented in this prospectus or delivered with this prospectus. We
incorporate by reference the documents listed below which were filed with the
SEC under the Exchange Act:
- our Annual Report on Form 10-K for the fiscal year ended December 31,
1999, filed on March 30, 2000;
- our Definitive Proxy Statement on Schedule 14A, filed on April 10, 2000;
- our Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2000, filed on May 12, 2000;
- our Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2000, filed on August 14, 2000; and
- the description of our common stock contained in our registration
statement on Form 8-A filed on April 8, 1999.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus but before all the
depositary shares offered by this prospectus have been sold:
- reports filed under Sections 13(a) and (c) of the Exchange Act;
- definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting; and
- any reports filed under Section 15(d) of the Exchange Act.
The reports and other documents that we file after the date of this
prospectus will update and supercede the information in this prospectus.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address:
Rhythms NetConnections Inc.
9100 East Mineral Circle
Englewood, Colorado 80112
(303) 476-4200
38
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
[LOGO]
RHYTHMS NETCONNECTIONS INC.
3,000,000
6 3/4% CUMULATIVE CONVERTIBLE PREFERRED STOCK
AND 7,050,000 SHARES OF COMMON STOCK
ISSUABLE ON CONVERSION OF THE
6 3/4% CUMULATIVE CONVERTIBLE PREFERRED STOCK
-----------------------------
PROSPECTUS
-----------------------------
, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the common stock being registered. All the amounts shown are estimates,
except for the registration fee and the Nasdaq National Market fee.
<TABLE>
<S> <C>
Registration fee............................................ $ 79,200
Nasdaq National Market Listing Fee.......................... 17,500
Printing and engraving expenses............................. 50,000
Legal fees and expenses..................................... 50,000
Accounting fees and expenses................................ 40,000
Miscellaneous expenses...................................... 10,000
--------
Total................................................... $246,700
========
</TABLE>
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law permits indemnification
of our officers and directors under certain conditions and subject to certain
limitations. Section 145 of the Delaware General Corporation Law also provides
that a corporation has the power to purchase and maintain insurance on behalf of
its officers and directors against any liability asserted against such person
and incurred by him or her in such capacity, or arising out of his or her status
as such, whether or not the corporation would have the power to indemnify him or
her against such liability under the provisions of Section 145 of the Delaware
General Corporation Law.
Article VII, Section 1 of our Restated Bylaws provides that we shall
indemnify its directors and executive officers to the fullest extent not
prohibited by the Delaware General Corporation Law. The rights to indemnify
thereunder continue as to a person who has ceased to be a director, officer,
employee or agent and inure to the benefit of the heirs, executors and
administrators of the person. In addition, expenses incurred by a director or
executive officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that he or she is
or was our director or officer (or was serving at our request as a director of
officer of another corporation) shall be paid by us in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by us
as authorized by the relevant section of the Delaware General Corporation Law.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
Article V, Section (A) of our Restated Certificate of Incorporation provides
that a director of ours shall not be personally liable for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to us or our stockholders, (ii) for acts or
omissions not in good faith or acts or omissions that involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law or (iv) for any transaction from which the
director derived any improper personal benefit.
We have entered into indemnification agreements with each of its directors
and executive officers. Generally, the indemnification agreements attempt to
provide the maximum protection permitted by Delaware law as it may be amended
from time to time. Moreover, the indemnification agreements provide for certain
additional indemnification. Under such additional indemnification provisions,
however, an individual will not receive indemnification for judgments,
settlements or expenses if he or
II-1
<PAGE>
she is found liable to us (except to the extent the court determines he or she
is fairly and reasonable entitled to indemnity for expenses), for settlements
not approved by us or for settlements and expenses if the settlement is not
approved by the court. The indemnification agreements provide for us to advance
to the individual any and all reasonable expenses (including legal fees and
expenses) incurred in investigating or defending any such action, suit or
proceeding. In order to receive an advance of expenses, the individual must
submit to us copies of invoices presented to him or her for such expenses. Also,
the individual must repay such advances upon a final judicial decision that he
or she is not entitled to indemnification.
We have purchased director's and officers' liability insurance. We intend to
enter into additional indemnification agreements with each of its directors and
executive officers to effectuate these indemnity provisions.
We have an insurance policy covering our directors and officers with respect
to certain liabilities, including liabilities arising under the Securities Act
or otherwise.
II-2
<PAGE>
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
3.1(8) Restated Certificate of Incorporation of Rhythms
Netconnections Inc.
3.2(8) Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant.
3.3(2) Certificate of Designation of Series 1 Junior Participating
Preferred Stock of Registrant.
3.4(2) Restated Bylaws of the Registrant.
3.5(7) Certificate of Designation of 6 3/4% Series F Convertible
Preferred Stock of Registrant.
3.6(7) Certificate of Designation of 8.25% Series E Convertible
Preferred Stock of Registrant.
4.1(2) Form of Certificate of common stock.
4.2(1) Indenture, dated as of May 5, 1998, by and between the
Registrant and State Street Bank and Trust Company of
California, N.A., as trustee, including form of the
Registrant's 13 1/2% Senior Discount Notes due 2008,
Series A and form of Registrant's 13 1/2% Senior Discount
Notes due 2008, Series B.
4.3(1) Warrant Agreement, dated as of May 5, 1998, by and between
the Registrant and State Street Bank and Trust Company of
California, N.A.
4.4(1) Warrant Registration Rights Agreement, dated as of May 5,
1998, by and among the Registrant and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Penner & Smith Incorporated, and
Donaldson, Lufkin & Jenrette Securities Corporation.
4.5(2) Warrant to Purchase Shares of Common Stock, dated May 19,
1998, by and between the Registrant and Sun Financial
Group, Inc.
4.6(2) Common Stock Purchase Warrant, dated March 3, 1999, by and
between the Registrant and MCI WorldCom Venture Fund, Inc.
4.7(2) Common Stock Purchase Warrant, dated March 16, 1999, by and
between the Registrant and Microsoft Corporation.
4.8(2) Warrant to Purchase Shares of Common Stock, dated March 31,
1999, by and between Registrant and GATX Capital
Corporation.
4.9(2) Warrant Purchase Agreement, dated as of April 6, 1999, by
and between Registrant and MCI WorldCom Venture Fund, Inc.
4.10(2) Common Stock Purchase Warrant, dated April 6, 1999, by and
among the Registrant and MCI WorldCom Venture Fund, Inc.
4.11(2) Common Stock Purchase Warrant, dated April 6, 1999, by and
among the Registrant and U.S. Telesource, Inc.
4.12(2) Common Stock Purchase Warrant, dated April 5, 1999, by and
among the Registrant and Cisco Systems Capital Corporation.
4.13(2) Rights Agreement, dated April 2, 1999, by and among
Registrant and American Securities Transfer & Trust, Inc.
4.14(3) Indenture, dated as of April 23, 1999, by and between the
Registrant and State Street Bank and Trust Company of
California, N.A., as trustee, Including form of the
Registrant's 12 3/4% Senior Notes due 2009, Series A and
form of the Registrant's 12 3/4% Senior Notes due 2009,
Series B.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
4.15(3) Notes Registration Rights Agreement, dated as of April 23,
1999, by and among the Registrant and Merrill Lynch & Co.,
Merrill Lynch, Pierce Fenner & Smith Incorporated, Salomon
Smith Barney Inc. and Chase Securities Inc.
4.16(3) Pledge and Escrow Agreement, dated as of April 23, 1999,
from the Registrant as Pledgor to State Street Bank and
Trust Company of California, N.A., as trustee.
4.17(4) Amendment No. 1 to Warrant Agreement, dated as of August,
1999 between the Registrant and State Street Bank and Trust
Company of California, N.A.
4.18(7) Indenture, dated February 23, 2000, by and between the
Registrant and State Street Bank and Trust Company of
California, N.A., as trustee, including form of the
Registrant's 14% Senior Notes due 2010, Series A and form of
the Registrant's 14% Senior Notes due 2010, Series B.
4.19(7) Notes Registration Statement, dated as of February 23, 2000,
among the Registrant, Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner and Smith Incorporated, and Salomon Smith
Barney Inc., Chase Securities Inc., and Credit Suisse First
Boston.
4.20(7) Registration Rights Agreement, dated March 3, 2000, by and
among the Registrant and Merrill Lynch, Pierce, Fenner and
Smith Incorporated and Salomon Smith Barney Inc.
4.21(7) Registration Rights Agreement, dated March 16, 2000, by and
among the Registrant and the entities listed on Schedule I
thereto.
4.22(9) Rhythms Netconnections Inc. 2000 Stock Award Plan and Form
of Stock Award Agreement.
4.23(10) Amended and Restated Rhythms Netconnections Inc. 2000 Stock
Award Plan and Form of Stock Award Agreement.
5.1(11) Opinion of Brobeck Phleger & Harrison LLP.
9.1(1) Voting Trust Agreement, dated as of May 5, 1998, by and
among Sprout Capital VII, L.P., Donaldson Lufkin & Jenrette
Securities Corporation, and First Union Trust Company,
National Association, as trustee.
9.2(1) Voting Trust Agreement, dated as of March 12, 1998, by and
between Enron Communications Group, Inc. and the Registrant,
as trustee.
10.1(1) Series A Preferred Stock Purchase Agreement, dated July 3,
1997, by and among the Registrant and the Investors listed
on Schedule A thereto.
10.2(1) Subsequent Closing Purchase Agreement, dated December 23,
1997, by and among the Registrant and the Investors listed
on Schedule A thereto.
10.3(1) Series B Preferred Stock Purchase Agreement, dated
March 12, 1998, by and among the Registrant and the
Investors listed on Schedule A thereto.
10.4(2) Enterprise Services Solution Agreement between Cisco
Systems, Inc. and the Registrant, dated December 3, 1998
10.5(2) Series C Preferred Stock Purchase Agreement, dated March 3,
1999, by and among the Registrant and MCI WorldCom Venture
Fund, Inc.
10.6(2) Amended and Restated Investors' Rights Agreement, dated
March 3, 1999, by and among the Registrant and the Investors
listed on Schedule A thereto.
10.7(2) Agreement, dated March 3, 1999, by and between the
Registrant and MCI WorldCom, Inc.
10.8(2) Series C Preferred Stock and Warrant Purchase Agreement,
dated March 16, 1999, by and among the Registrant and
Microsoft Corporation.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.9(2) Amended and Restated Investors' Rights Agreement, dated
March 16, 1999, by and among the Registrant and the
Investors listed on Schedule A thereto.
10.10(2) Distribution Agreement, dated March 16, 1999, by and among
the Registrant and Microsoft Corporation.
10.11(1) Master Lease Agreement No. 1642 and Addendum thereto, each
dated November 19, 1997, and Second Addendum thereto, dated
as of May 19, 1998, between the Registrant and Sun Financial
Group, Inc.
10.12(2) Business Lease (Single Tenant) between the Registrant and BR
Venture, LLC dated September 1998.
10.13(1) Employment Agreement between the Registrant and Catherine M.
Hapka, dated June 10, 1997.
10.14(1) 1997 Stock Option/Stock Issuance Plan.
10.15(2) 1999 Stock Incentive Plan.
10.16(2) 1999 Employee Stock Purchase Plan.
10.17(1) Form of Indemnification Agreement between the Registrant and
each of its directors.
10.18(1) Form of Indemnification Agreement between the Registrant and
each of its officers.
10.19(2) QuickStart Loan and Security Agreement, dated October 29,
1997, between the Registrant and Silicon Valley Bank.
10.20(2) Third Addendum, dated March 31, 1999, to Master Lease
Agreement, dated November 19, 1997, by and among Company and
GATX Capital Corporation
10.21(2) Master Lease Agreement, dated March 31, 1999, by and among
Company and GATX Capital Corporation.
10.22(2) First Addendum, dated March 31, 1999, to Master Lease
Agreement, dated March 31, 1999, by and among Company and
GATX Capital Corporation.
10.23(2) Amendment No. 1, dated April 6, 1999, to Framework
Agreement, dated March 3, 1999, by and among the Registrant
and MCI WorldCom, Inc.
10.24(2) Series C Preferred Stock and Warrant Purchase Agreement,
dated April 6, 1999, by and among the Registrant and U.S
Telesource, Inc.
10.25(2) Series D Preferred Stock Purchase Agreement, dated April 6,
1999, by and among the Registrant and the Investors listed
on Schedule A thereto.
10.26(2) Amended and Restated Investors' Rights Agreement, dated
April 6, 1999, by and among the Registrant and the Investors
listed on Schedule A thereto.
10.27(2) Lease Agreement, dated April 5, 1999, by and among the
Registrant and Cisco Systems Capital Corporation.
10.28(3) Amendment No. 2, dated May 10, 1999, to Framework Agreement,
dated March 3, 1999, by and among the Registrant and MCI
WorldCom, Inc.
10.29(4) Employment Agreement with Steve Stringer.
10.30(2) Employment Agreement with Michael Lanier.
10.31(5) Master Lease Agreement, dated July 30, 1999, by and between
the Company and GATX Capital Corporation
10.32(6) ACI Plus Service Agreement, dated April 6, 1999, by and
between the Company and Qwest Communications Corporation.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.33(7) Joint Venture Agreement, dated January 1, 2000, by and
between the Registrant, Rhythms Links, Inc. and Optel
Communications Corporation.
10.34(7) Preferred Stock and Warrant Purchase Agreement, dated
February 6, 2000 by and between the Registrant and the
Purchasers listed on Schedule I thereto.
10.35 Amendment to Rights Agreement, dated February 6, 2000, by
and between Rhythms Netconnections Inc. and Computershare
Trust Company, Inc.
10.36(7) Purchase Agreement, dated February 16, 2000, by and between
the Registrant and the Initial Purchasers listed on Schedule
I thereto.
10.37(7) Purchase Agreement, dated February 28, 2000 by and between
the Registrant and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Salomon Smith
Barney Inc.
10.38(7) Employment Agreement with David J. Shimp.
10.39(7) Employment Agreement with Scott C. Chandler.
10.40(4) Plus Service Agreement, dated April 6, 1999, by and between
the Registrant and Qwest Communications Corporation.
10.41(8) Sublease, dated January 1, 2000, by and between the
Registrant and Cyprus Amax Minerals Company
10.42(13) Purchase and Sale Agreement, dated April 6, 2000, by and
between Rhythms Netconnections Inc. and MGA Development
Associates, L.P.
10.43(13) Special Warranty Deed, dated May 8, 2000, by and between
Rhythms Netconnections Inc. and MGA Development
Associates, L.P.
10.44(13) Dividend Payment Agreement, dated June 2, 2000, by and
between Rhythms Netconnections Inc. and American Securities
Transfer & Trust, Inc.
12.1(12) Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Dividends.
21.1(2) Subsidiaries of the Registrant.
23.1* Consent of PricewaterhouseCoopers LLP
24.1(11) Powers of Attorney.
27.1(13) Financial Data Schedule
</TABLE>
------------------------
* To be filed by amendment.
(1) Previously filed with the Commission as an exhibit to the registration
statement on Form S-4 (File No. 333-59393) and incorporated herein by
reference.
(2) Previously filed with the Commission as an exhibit to the registration
statement on Form S-1 (File No. 333-72409) and incorporated herein by
reference.
(3) Previously filed with the Commission as an exhibit to the registration
statement on Form S-4 (File No. 333-82637) and incorporated herein by
reference.
(4) Previously filed with the Commission as an exhibit to the registration
statement on Form S-1 (File No. 333-82867) and incorporated herein by
reference.
(5) Previously filed with the Commission as an exhibit to Form 10-Q filed
November 11, 1999 and incorporated herein by reference.
II-6
<PAGE>
(6) Previously filed with the Commission as an exhibit to Form 10-Q filed
August 11, 1999 and incorporated herein by reference.
(7) Previously filed with the Commission as an exhibit to Form 10-K filed
March 30, 2000 and incorporated herein by reference.
(8) Previously filed with the Commission as an exhibit to the registration
statement on Form S-4 (File No. 333-37618) and incorporated herein by
reference.
(9) Previously filed with the Commission as an exhibit to the registration
statement on Form S-8 (File No. 333-38986) and incorporated herein by
reference.
(10) Previously filed with the Commission as an exhibit to the registration
statement on Form S-8 (File No. 333-41874) and incorporated herein by
reference.
(11) Previously filed with the Commission as an exhibit to this registration
statement on Form S-3.
(12) Included in Part I of this registration statement on Form S-3.
(b) Financial Statement Schedules included separately in the Registration
Statement.
(13) Previously filed with the Commission as an exhibit to Form 10-Q filed
August 14, 2000 and incorporated herein by reference.
All other schedules are omitted because they are not required, are not
applicable or the information is incorporated by reference to Form 10-K filed
March 30, 2000.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities
II-7
<PAGE>
Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under "Item 14--Indemnification
of Directors and Officers" hereof, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Englewood, State of Colorado, on the 17th day of
August, 2000.
<TABLE>
<S> <C> <C>
RHYTHMS NETCONNECTIONS INC.
A Delaware Corporation
By: /s/ JOHN W. BRAUKMAN
----------------------------------------
John W. Braukman
CHIEF FINANCIAL OFFICER
</TABLE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board and August 17, 2000
------------------------------------ Chief Executive Officer
Catherine M. Hapka (Principal Executive Officer)
* President and Chief Operating Officer August 17, 2000
------------------------------------
Steve Stringer
/s/ JOHN W. BRAUKMAN Chief Financial Officer August 17, 2000
------------------------------------ (Principal Financial and Accounting
John W. Braukman Officer)
* Director August 17, 2000
------------------------------------
Kevin R. Compton
* Director August 17, 2000
------------------------------------
Keith B. Geeslin
* Director August 17, 2000
------------------------------------
Susan Mayer
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director August 17, 2000
------------------------------------
William R. Stensrud
* Director August 17, 2000
------------------------------------
John L. Walecka
* Director August 17, 2000
------------------------------------
Edward J. Zander
* Director August 17, 2000
------------------------------------
Michael Levitt
</TABLE>
<TABLE>
<S> <C> <C> <C>
* /s/ JOHN W. BRAUKMAN
-----------------------------------
John W. Braukman
ATTORNEY-IN-FACT
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
3.1(8) Restated Certificate of Incorporation of Rhythms
Netconnections Inc.
3.2(8) Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant.
3.3(2) Certificate of Designation of Series 1 Junior Participating
Preferred Stock of Registrant.
3.4(2) Restated Bylaws of the Registrant.
3.5(7) Certificate of Designation of 6 3/4% Series F Convertible
Preferred Stock of Registrant.
3.6(7) Certificate of Designation of 8.25% Series E Convertible
Preferred Stock of Registrant.
4.1(2) Form of Certificate of common stock.
4.2(1) Indenture, dated as of May 5, 1998, by and between the
Registrant and State Street Bank and Trust Company of
California, N.A., as trustee, including form of the
Registrant's 13 1/2% Senior Discount Notes due 2008,
Series A and form of Registrant's 13 1/2% Senior Discount
Notes due 2008, Series B.
4.3(1) Warrant Agreement, dated as of May 5, 1998, by and between
the Registrant and State Street Bank and Trust Company of
California, N.A.
4.4(1) Warrant Registration Rights Agreement, dated as of May 5,
1998, by and among the Registrant and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Penner & Smith Incorporated, and
Donaldson, Lufkin & Jenrette Securities Corporation.
4.5(2) Warrant to Purchase Shares of Common Stock, dated May 19,
1998, by and between the Registrant and Sun Financial
Group, Inc.
4.6(2) Common Stock Purchase Warrant, dated March 3, 1999, by and
between the Registrant and MCI WorldCom Venture Fund, Inc.
4.7(2) Common Stock Purchase Warrant, dated March 16, 1999, by and
between the Registrant and Microsoft Corporation.
4.8(2) Warrant to Purchase Shares of Common Stock, dated March 31,
1999, by and between Registrant and GATX Capital
Corporation.
4.9(2) Warrant Purchase Agreement, dated as of April 6, 1999, by
and between Registrant and MCI WorldCom Venture Fund, Inc.
4.10(2) Common Stock Purchase Warrant, dated April 6, 1999, by and
among the Registrant and MCI WorldCom Venture Fund, Inc.
4.11(2) Common Stock Purchase Warrant, dated April 6, 1999, by and
among the Registrant and U.S. Telesource, Inc.
4.12(2) Common Stock Purchase Warrant, dated April 5, 1999, by and
among the Registrant and Cisco Systems Capital Corporation.
4.13(2) Rights Agreement, dated April 2, 1999, by and among
Registrant and American Securities Transfer & Trust, Inc.
4.14(3) Indenture, dated as of April 23, 1999, by and between the
Registrant and State Street Bank and Trust Company of
California, N.A., as trustee, including form of the
Registrant's 12 3/4% Senior Notes due 2009, Series A and
form of the Registrant's 12 3/4% Senior Notes due 2009,
Series B.
4.15(3) Notes Registration Rights Agreement, dated as of April 23,
1999, by and among the Registrant and Merrill Lynch & Co.,
Merrill Lynch, Pierce Fenner & Smith Incorporated, Salomon
Smith Barney Inc. and Chase Securities Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
4.16(3) Pledge and Escrow Agreement, dated as of April 23, 1999,
from the Registrant as Pledgor to State Street Bank and
Trust Company of California, N.A., as trustee.
4.17(4) Amendment No. 1 to Warrant Agreement, dated as of August,
1999 between the Registrant and State Street Bank and Trust
Company of California, N.A.
4.18(7) Indenture, dated February 23, 2000, by and between the
Registrant and State Street Bank and Trust Company of
California, N.A., as trustee, including form of the
Registrant's 14% Senior Notes due 2010, Series A and form of
the Registrant's 14% Senior Notes due 2010, Series B.
4.19(7) Notes Registration Statement, dated as of February 23, 2000,
among the Registrant, Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner and Smith Incorporated, and Salomon Smith
Barney Inc., Chase Securities Inc., and Credit Suisse First
Boston.
4.20(7) Registration Rights Agreement, dated March 3, 2000, by and
among the Registrant and Merrill Lynch, Pierce, Fenner and
Smith Incorporated and Salomon Smith Barney Inc.
4.21(7) Registration Rights Agreement, dated March 16, 2000, by and
among the Registrant and the entities listed on Schedule I
thereto.
4.22(9) Rhythms Netconnections Inc. 2000 Stock Award Plan and Form
of Stock Award Agreement.
4.23(10) Amended and Restated Rhythms Netconnections Inc. 2000 Stock
Award Plan and Form of Stock Award Agreement.
5.1(11) Opinion of Brobeck Phleger & Harrison LLP.
9.1(1) Voting Trust Agreement, dated as of May 5, 1998, by and
among Sprout Capital VII, L.P., Donaldson Lufkin & Jenrette
Securities Corporation, and First Union Trust Company,
National Association, as trustee.
9.2(2) Voting Trust Agreement, dated as of March 12, 1998, by and
between Enron Communications Group, Inc. and the Registrant,
as trustee.
10.1(1) Series A Preferred Stock Purchase Agreement, dated July 3,
1997, by and among the Registrant and the Investors listed
on Schedule A thereto.
10.2(1) Subsequent Closing Purchase Agreement, dated December 23,
1997, by and among the Registrant and the Investors listed
on Schedule A thereto.
10.3(1) Series B Preferred Stock Purchase Agreement, dated
March 12, 1998, by and among the Registrant and the
Investors listed on Schedule A thereto.
10.4(2) Enterprise Services Solution Agreement between Cisco
Systems, Inc. and the Registrant, dated December 3, 1998
10.5(2) Series C Preferred Stock Purchase Agreement, dated March 3,
1999, by and among the Registrant and MCI WorldCom Venture
Fund, Inc.
10.6(2) Amended and Restated Investors' Rights Agreement, dated
March 3, 1999, by and among the Registrant and the Investors
listed on Schedule A thereto.
10.7(2) Agreement, dated March 3, 1999, by and between the
Registrant and MCI WorldCom, Inc.
10.8(2) Series C Preferred Stock and Warrant Purchase Agreement,
dated March 16, 1999, by and among the Registrant and
Microsoft Corporation.
10.9(2) Amended and Restated Investors' Rights Agreement, dated
March 16, 1999, by and among the Registrant and the
Investors listed on Schedule A thereto.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.10(2) Distribution Agreement, dated March 16, 1999, by and among
the Registrant and Microsoft Corporation.
10.11(1) Master Lease Agreement No. 1642 and Addendum thereto, each
dated November 19, 1997, and Second Addendum thereto, dated
as of May 19, 1998, between the Registrant and Sun Financial
Group, Inc.
10.12(2) Business Lease (Single Tenant) between the Registrant and BR
Venture, LLC dated September 1998.
10.13(1) Employment Agreement between the Registrant and Catherine M.
Hapka, dated June 10, 1997.
10.14(1) 1997 Stock Option/Stock Issuance Plan.
10.15(2) 1999 Stock Incentive Plan.
10.16(2) 1999 Employee Stock Purchase Plan.
10.17(1) Form of Indemnification Agreement between the Registrant and
each of its directors.
10.18(1) Form of Indemnification Agreement between the Registrant and
each of its officers.
10.19(1) QuickStart Loan and Security Agreement, dated October 29,
1997, between the Registrant and Silicon Valley Bank.
10.20(2) Third Addendum, dated March 31, 1999, to Master Lease
Agreement, dated November 19, 1997, by and among Company
and GATX Capital Corporation
10.21(2) Master Lease Agreement, dated March 31, 1999, by and among
Company and GATX Capital Corporation.
10.22(2) First Addendum, dated March 31, 1999, to Master Lease
Agreement, dated March 31, 1999, by and among Company and
GATX Capital Corporation.
10.23(2) Amendment No. 1, dated April 6, 1999, to Framework
Agreement, dated March 3, 1999, by and among the Registrant
and MCI WorldCom, Inc.
10.24(2) Series C Preferred Stock and Warrant Purchase Agreement,
dated April 6, 1999, by and among the Registrant and U.S
Telesource, Inc.
10.25(2) Series D Preferred Stock Purchase Agreement, dated April 6,
1999, by and among the Registrant and the Investors listed
on Schedule A thereto.
10.26(2) Amended and Restated Investors' Rights Agreement, dated
April 6, 1999, by and among the Registrant and the Investors
listed on Schedule A thereto.
10.27(2) Lease Agreement, dated April 5, 1999, by and among the
Registrant and Cisco Systems Capital Corporation.
10.28(4) Amendment No. 2, dated May 10, 1999, to Framework Agreement,
dated March 3, 1999, by and among the Registrant and MCI
WorldCom, Inc.
10.29(4) Employment Agreement with Steve Stringer.
10.30(4) Employment Agreement with Michael Lanier.
10.31(5) Master Lease Agreement, dated July 30, 1999, by and between
the Company and GATX Capital Corporation
10.32(6) ACI Plus Service Agreement, dated April 6, 1999, by and
between the Company and Qwest Communications Corporation.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.33(7) Joint Venture Agreement, dated January 1, 2000, by and
between the Registrant, Rhythms Links, Inc. and Optel
Communications Corporation.
10.34(7) Preferred Stock and Warrant Purchase Agreement, dated
February 6, 2000 by and between the Registrant and the
Purchasers listed on Schedule I thereto.
10.35 Amendment to Rights Agreement, dated February 6, 2000, by
and between Rhythms Netconnections Inc. and Computershare
Trust Company, Inc.
10.36(7) Purchase Agreement, dated February 16, 2000, by and between
the Registrant and the Initial Purchasers listed on Schedule
I thereto.
10.37(7) Purchase Agreement, dated February 28, 2000 by and between
the Registrant and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Salomon Smith
Barney Inc.
10.38(7) Employment Agreement with David J. Shimp.
10.39(7) Employment Agreement with Scott C. Chandler.
10.40(4) Plus Service Agreement, dated April 6, 1999, by and between
the Registrant and Qwest Communications Corporation.
10.41(8) Sublease, dated January 1, 2000, by and between the
Registrant and Cyprus Amax Minerals Company
10.42(13) Purchase and Sale Agreement, dated April 6, 2000, by and
between Rhythms Netconnections Inc. and MGA Development
Associates, L.P.
10.43(13) Special Warranty Deed, dated May 8, 2000, by and between
Rhythms Netconnections Inc. and MGA Development
Associates, L.P.
10.44(13) Dividend Payment Agreement, dated June 2, 2000, by and
between Rhythms Netconnections Inc. and American Securities
Transfer & Trust, Inc.
12.1(12) Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Dividends.
21.1(2) Subsidiaries of the Registrant.
23.1* Consent of PricewaterhouseCoopers LLP.
24.1(11) Powers of Attorney.
27.1(13) Financial Data Schedule
</TABLE>
------------------------
* To be filed by amendment.
(1) Previously filed with the Commission as an exhibit to the registration
statement on Form S-4 (File No. 333-59393) and incorporated herein by
reference.
(2) Previously filed with the Commission as an exhibit to the registration
statement on Form S-1 (File No. 333-72409) and incorporated herein by
reference.
(3) Previously filed with the Commission as an exhibit to the registration
statement on Form S-4 (File No. 333-82637) and incorporated herein by
reference.
(4) Previously filed with the Commission as an exhibit to the registration
statement on Form S-1 (File No. 333-82867) and incorporated herein by
reference.
(5) Previously filed with the Commission as an exhibit to Form 10-Q filed
November 11, 1999 and incorporated herein by reference.
(6) Previously filed with the Commission as an exhibit to Form 10-Q filed
August 11, 1999 and incorporated herein by reference.
<PAGE>
(7) Previously filed with the Commission as an exhibit to Form 10-K filed
March 30, 2000 and incorporated herein by reference.
(8) Previously filed with the Commission as an exhibit to the registration
statement on Form S-4 (File No. 333-37618) and incorporated herein by
reference.
(9) Previously filed with the Commission as an exhibit to the registration
statement on Form S-8 (File No. 333-38986) and incorporated herein by
reference.
(10) Previously filed with the Commission as an exhibit to the registration
statement on Form S-8 (File No. 333-41874) and incorporated herein by
reference.
(11) Previously filed with the Commission as an exhibit to this registration
statement on Form S-3.
(12) Included in Part I of this registration statement on Form S-3.
(13) Previously filed with the Commission as an exhibit to Form 10-Q filed
August 14, 2000 and incorporated herein by reference.
(b) Financial Statement Schedules included separately in the Registration
Statement.
None.
