EXHIBIT 99.5
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Option Agreement (the "Option Agreement") by
and between Rhythms NetConnections Inc. (the "Corporation") and_______________
_______________________ ("Optionee") evidencing the stock option (the "Option")
granted this day to Optionee under the terms of the Corporation's 1999 Stock
Incentive Plan, and such provisions are effective immediately. All capitalized
terms in this Addendum, to the extent not otherwise defined herein, shall have
the meanings assigned to them in the Option Agreement.
LIMITED STOCK APPRECIATION RIGHT
1. Optionee is hereby granted a limited stock appreciation right
exercisable upon the following terms and conditions:
(a) Optionee shall have the unconditional right,
exercisable at any time during the thirty (30)-day period immediately
following a Hostile Take-Over, to surrender the Option to the
Corporation. In return for the surrendered Option, Optionee shall
receive a cash distribution from the Corporation in an amount equal to
the excess of (A) the Take-Over Price of the shares of Common Stock
which are the time subject to the surrendered option (whether or not
the Option is otherwise at the time exercisable for those shares) over
(B) the aggregate Exercise Price payable for such shares.
(b) To exercise this limited stock appreciation right,
Optionee must, during the applicable thirty (30)-day exercise period,
provide the Corporation with written notice of the option surrender in
which there is specified the number of Option Shares as to which the
Option is being surrendered. Such notice must be accompanied by the
return of Optionee's copy of the Option Agreement, together with any
written amendments to such Agreement. The cash distribution shall be
paid to Optionee within five (5) business days following such delivery
date. The exercise of the limited stock appreciation right in
accordance with the terms of this Addendum is hereby pre-approved by
the Plan Administrator in advance of such exercise, and no further
approval of the Plan Administrator or the Board shall be required at
the time of the actual option surrender and cash distribution. Upon
receipt of such cash distribution, the Option shall be cancelled with
respect to the Option Shares for which the Option has been
surrendered, and Optionee shall cease to have any further right to
acquire those Option Shares under the Option Agreement. The Option
shall, however, remain outstanding for the balance of the Option
Shares (if any) in accordance with the terms of the Option Agreement,
and the Corporation shall issue a replacement stock option agreement
(substantially in the same form of the surrendered Option Agreement)
for those remaining Option Shares.
(c) In no event may this limited stock appreciation right
be exercised when there is not a positive spread between the Fair
Market Value of the Option Shares subject to the surrendered option
and the aggregate Exercise Price payable for such shares. This
limited stock appreciation right shall in all events terminate upon
the expiration or sooner termination of the option term and may not be
assigned or transferred by Optionee, except to the extent the Option
is transferable in accordance with the provisions of the Option
Agreement.
2. For purposes of this Addendum, the following definitions shall be
in effect:
(a) A HOSTILE TAKE-OVER shall be deemed to occur upon the
acquisition, directly or indirectly, by any person or related group of
persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control
with, the Corporation) of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept.
(b) The TAKE-OVER PRICE per share shall be deemed to be
equal to the GREATER of (A) the Fair Market Value per Option Share on
the option surrender date or (B) the highest reported price per share
of Common Stock paid by the tender offeror in effecting the Hostile
Take-Over. However, if the surrendered Option is designated as an
Incentive Option in the Grant Notice, then the Take-Over Price shall
not exceed the clause (A) price per share.
IN WITNESS WHEREOF, Rhythms NetConnections Inc. has caused this
Addendum to be executed by its duly-authorized officer.
RHYTHMS NETCONNECTIONS INC.
By:
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Title:
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EFFECTIVE DATE:
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