EXHIBIT 99.2
RHYTHMS NETCONNECTIONS INC.
STOCK OPTION AGREEMENT
RECITALS
A. Optionee is to render valuable services
to the Corporation (or a Parent or Subsidiary), and this Agreement is
executed pursuant to, and is intended to carry out the purposes of, the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement
shall have the meaning assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
X. XXXXX OF OPTION. THE CORPORATION HEREBY GRANTS TO OPTIONEE, AS OF THE
GRANT DATE, AN OPTION TO PURCHASE UP TO THE NUMBER OF OPTION SHARES
SPECIFIED IN THE GRANT NOTICE. THE OPTION SHARES SHALL BE PURCHASABLE
FROM TIME TO TIME DURING THE OPTION TERM SPECIFIED IN PARAGRAPH 2 AT
THE EXERCISE PRICE.
II. OPTION TERM. THIS OPTION SHALL HAVE A MAXIMUM TERM OF TEN (10) YEARS
MEASURED FROM THE GRANT DATE AND SHALL ACCORDINGLY EXPIRE AT THE CLOSE
OF BUSINESS ON THE EXPIRATION DATE, UNLESS SOONER TERMINATED IN
ACCORDANCE WITH PARAGRAPH 5 OR 6.
III. LIMITED TRANSFERABILITY.
A. This option shall be neither transferable nor assignable by
Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be
exercised, during Optionee's lifetime, only by Optionee.
However, Optionee may designate one or more persons as the
beneficiary or beneficiaries of this option, and this option
shall, in accordance with such designation, automatically be
transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding such option. Such beneficiary
or beneficiaries shall take the transferred option subject
to all the terms and conditions of this Agreement, including
(without limitation) the limited time period during which
this option may, pursuant to Paragraph 5, be exercised
following Optionee's death.
B. This option may, in connection with the Optionee's estate plan,
be assigned in whole or in part during Optionee's lifetime
to one or more members of Optionee's immediate family or to
a trust established for the exclusive benefit of one or more
such family members. The assigned portion shall be
exercisable only by the person or persons who acquire a
proprietary interest in the option pursuant to such
assignment. The terms applicable to the assigned portion
shall be the same as those in effect for this option
immediately prior to such assignment.
IV. DATES OF EXERCISE. THIS OPTION SHALL BECOME EXERCISABLE FOR THE OPTION
SHARES IN ONE OR MORE INSTALLMENTS AS SPECIFIED IN THE GRANT NOTICE. AS
THE OPTION BECOMES EXERCISABLE FOR SUCH INSTALLMENTS, THOSE
INSTALLMENTS SHALL ACCUMULATE, AND THE OPTION SHALL REMAIN EXERCISABLE
FOR THE ACCUMULATED INSTALLMENTS UNTIL THE EXPIRATION DATE OR SOONER
TERMINATION OF THE OPTION TERM UNDER PARAGRAPH 5 OR 6.
V. CESSATION OF SERVICE. THE OPTION TERM SPECIFIED IN PARAGRAPH 2 SHALL
TERMINATE (AND THIS OPTION SHALL CEASE TO BE OUTSTANDING) PRIOR TO THE
EXPIRATION DATE SHOULD ANY OF THE FOLLOWING PROVISIONS BECOME
APPLICABLE:
A. Should Optionee cease to remain in Service for any reason (other
than death, Permanent Disability or Misconduct) while
holding this option, then Optionee shall have a period of
three (3) months (commencing with the date of such cessation
of Service) during which to exercise this option, but in no
event shall this option be exercisable at any time after the
Expiration Date.
B. Should Optionee die while holding this option, then the personal
representative of Optionee's estate or the person or persons
to whom the option is transferred pursuant to Optionee's
will or in accordance with the laws of inheritance shall
have the right to exercise this option. However, if Optionee
has designated one or more beneficiaries of this option,
then those persons shall have the exclusive right to
exercise this option following Optionee's death. Any such
right to exercise this option shall lapse, and this option
shall cease to be outstanding, upon the EARLIER of (i) the
expiration of the twelve (12)-month period measured from the
date of Optionee's death or (ii) the Expiration Date.
C. Should Optionee cease Service by reason of Permanent Disability
while holding this option, then Optionee shall have a period
of twelve (12) months (commencing with the date of such
cessation of Service) during which to exercise this option.
In no event shall this option be exercisable at any time
after the Expiration Date.
D. During the limited period of post-Service exercisability, this
option may not be exercised in the aggregate for more than
the number of Option Shares for which the option is
exercisable at the time of Optionee's cessation of Service.
Upon the expiration of such limited exercise period or (if
earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding for any exercisable
Option Shares for which the option has not been exercised.
However, this option shall, immediately upon Optionee's
cessation of Service for any reason, terminate and cease to
be outstanding with respect to any Option Shares for which
this option is not otherwise at that time exercisable.
E. Should Optionee's Service be terminated for Misconduct while this
option is outstanding, then this option shall terminate
immediately and cease to remain outstanding.
VI. SPECIAL ACCELERATION OF OPTION.
A. This option, to the extent outstanding at the time of a Corporate
Transaction but not otherwise fully exercisable, shall
automatically accelerate so that this option shall,
immediately prior to the effective date of such Corporate
Transaction, become exercisable for all of the Option Shares
at the time subject to this option and may be exercised for
any or all of those Option Shares as fully vested shares of
Common Stock. No such acceleration of this option shall
occur, however, if and to the extent: (i) this option is, in
connection with the Corporate Transaction, to be assumed by
the successor corporation (or parent thereof) or (ii) this
option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread
existing at the time of the Corporate Transaction on the
Option Shares for which this option is not otherwise at that
time exercisable (the excess of the Fair Market Value of
those Option Shares over the aggregate Exercise Price
payable for such shares) and provides for subsequent payout
in accordance with the same option exercise/vesting schedule
set forth in the Grant Notice.
B. Immediately following the Corporate Transaction, this option
shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent
thereof) in connection with the Corporate Transaction.
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C. If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately
adjusted, immediately after such Corporate Transaction, to
apply to the number and class of securities which would have
been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior
to such Corporate Transaction, and appropriate adjustments
shall also be made to the Exercise Price, PROVIDED the
aggregate Exercise Price shall remain the same. To the
extent the actual holders of the Corporation's outstanding
Common Stock receive cash consideration for their Common
Stock in consummation of the Corporate Transaction, the
successor corporation (if any) may, in connection with the
assumption of this option, substitute one or more shares of
its own common stock with a fair market value equivalent to
the cash consideration paid per share of Common Stock in
such Corporate Transaction.
D. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or
any part of its business or assets.
VII. ADJUSTMENT IN OPTION SHARES. SHOULD ANY CHANGE BE MADE TO THE COMMON
STOCK BY REASON OF ANY STOCK SPLIT, STOCK DIVIDEND, RECAPITALIZATION,
COMBINATION OF SHARES, EXCHANGE OF SHARES OR OTHER CHANGE AFFECTING THE
OUTSTANDING COMMON STOCK AS A CLASS WITHOUT THE CORPORATION'S RECEIPT
OF CONSIDERATION, APPROPRIATE ADJUSTMENTS SHALL BE MADE TO (I) THE
TOTAL NUMBER AND/OR CLASS OF SECURITIES SUBJECT TO THIS OPTION AND (II)
THE EXERCISE PRICE IN ORDER TO REFLECT SUCH CHANGE AND THEREBY PRECLUDE
A DILUTION OR ENLARGEMENT OF BENEFITS HEREUNDER.
VIII. STOCKHOLDER RIGHTS. THE HOLDER OF THIS OPTION SHALL NOT HAVE ANY
STOCKHOLDER RIGHTS WITH RESPECT TO THE OPTION SHARES UNTIL SUCH PERSON
SHALL HAVE EXERCISED THE OPTION, PAID THE EXERCISE PRICE AND BECOME A
HOLDER OF RECORD OF THE PURCHASED SHARES.
IX. MANNER OF EXERCISING OPTION.
A. In order to exercise this option with respect to all or any part
of the Option Shares for which this option is at the time
exercisable, Optionee (or any other person or persons
exercising the option) must take the following actions:
1. Execute and deliver to the Corporation a Notice of
Exercise for the Option Shares for which the
option is exercised.
2. Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
a. cash or check made payable to the
Corporation;
b. shares of Common Stock held by Optionee (or
any other person or persons exercising the
option) for the requisite period necessary to
avoid a charge to the Corporation's earnings
for financial reporting purposes and valued
at Fair Market Value on the Exercise Date; or
c. through a special sale and remittance
procedure pursuant to which Optionee (or any
other person or persons exercising the
option) shall concurrently provide
irrevocable instructions (i) to a
Corporation-designated brokerage firm to
effect the immediate sale of the purchased
shares and remit to the Corporation, out of
the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate
Exercise Price payable for the purchased
shares plus all applicable Federal, state and
local income and employment taxes required to
be withheld by the Corporation by reason of
such exercise and (ii) to the Corporation to
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deliver the certificates for the purchased
shares directly to such brokerage firm in
order to complete the sale.
Except to the extent the sale and remittance
procedure is utilized in connection with the option exercise,
payment of the Exercise Price must accompany the Notice of
Exercise delivered to the Corporation in connection with the
option exercise.
3. Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if
other than Optionee) have the right to exercise this
option.
4. Make appropriate arrangements with the Corporation
(or Parent or Subsidiary employing or retaining
Optionee) for the satisfaction of all Federal, state
and local income and employment tax withholding
requirements applicable to the option exercise.
B. As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person
or persons exercising this option) a certificate for the
purchased Option Shares, with the appropriate legends affixed
thereto.
C. In no event may this option be exercised for any fractional
shares.
X. COMPLIANCE WITH LAWS AND REGULATIONS.
A. The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by
the Corporation and Optionee with all applicable requirements
of law relating thereto and with all applicable regulations of
any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for
trading at the time of such exercise and issuance.
B. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to
be necessary to the lawful issuance and sale of any Common
Stock pursuant to this option shall relieve the Corporation of
any liability with respect to the non-issuance or sale of the
Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts
to obtain all such approvals.
XI. SUCCESSORS AND ASSIGNS. EXCEPT TO THE EXTENT OTHERWISE PROVIDED IN
PARAGRAPHS 3 AND 6, THE PROVISIONS OF THIS AGREEMENT SHALL INURE TO THE
BENEFIT OF, AND BE BINDING UPON, THE CORPORATION AND ITS SUCCESSORS AND
ASSIGNS AND OPTIONEE, OPTIONEE'S ASSIGNS, THE LEGAL REPRESENTATIVES,
HEIRS AND LEGATEES OF OPTIONEE'S ESTATE AND ANY BENEFICIARIES OF THIS
OPTION DESIGNATED BY OPTIONEE.
XII. NOTICES. ANY NOTICE REQUIRED TO BE GIVEN OR DELIVERED TO THE
CORPORATION UNDER THE TERMS OF THIS AGREEMENT SHALL BE IN WRITING AND
ADDRESSED TO THE CORPORATION AT ITS PRINCIPAL CORPORATE OFFICES. ANY
NOTICE REQUIRED TO BE GIVEN OR DELIVERED TO OPTIONEE SHALL BE IN
WRITING AND ADDRESSED TO OPTIONEE AT THE ADDRESS INDICATED BELOW
OPTIONEE'S SIGNATURE LINE ON THE GRANT NOTICE. ALL NOTICES SHALL BE
DEEMED EFFECTIVE UPON PERSONAL DELIVERY OR UPON DEPOSIT IN THE U.S.
MAIL, POSTAGE PREPAID AND PROPERLY ADDRESSED TO THE PARTY TO BE
NOTIFIED.
XIII. GOVERNING LAW. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT RESORT TO THAT STATE'S CONFLICT-OF-LAWS RULES.
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EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Rhythms NetConnections, Inc. (the
"Corporation") that I elect to purchase ________ shares of the Corporation's
Common Stock (the "Purchased Shares") at the option exercise price of $ 14.23
per share (the "Exercise Price") pursuant to that certain option (the
"Option") granted to me on June 10, 1999.
Concurrently with the delivery of this Exercise Notice to
the Corporation, I shall hereby pay to the Corporation the Exercise Price for
the Purchased Shares in accordance with the provisions of my agreement with
the Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a
condition for exercise. Alternatively, I may utilize the special
broker-dealer sale and remittance procedure specified in my agreement to
effect payment of the Exercise Price.
__________________________, ________
Date
_______________________________________
Optionee
Address: _____________________________
_______________________________________
Print name in exact manner it is to
appear on the stock certificate: _______________________________________
Address to which certificate is to be
sent, if different from address above: _______________________________________
_______________________________________
Social Security Number: _______________________________________
APPENDIX
The following definitions shall be in effect under the
Agreement:
(i) AGREEMENT shall mean this Stock Option Agreement.
(ii) BOARD shall mean the Corporation's Board of Directors.
(iii) COMMON STOCK shall mean shares of the Corporation's
common stock.
(iv) CODE shall mean the Internal Revenue Code of 1986, as
amended.
(v) CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the
Corporation is a party:
(a) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's
outstanding securities are transferred to a person
or persons different from the persons holding those
securities immediately prior to such transaction,
or
(b) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in
complete liquidation or dissolution of the
Corporation.
(vi) CORPORATION shall mean Rhythms NetConnections Inc., a
Delaware corporation, and any successor corporation to
all or substantially all of the assets or voting stock
of Rhythms NetConnections Inc.
(vii) EMPLOYEE shall mean an individual who is in the employ
of the Corporation (or any Parent or Subsidiary),
subject to the control and direction of the employer
entity as to both the work to be performed and the
manner and method of performance.
(viii) EXERCISE DATE shall mean the date on which the option
shall have been exercised in accordance with
Paragraph 9 of the Agreement.
(ix) EXERCISE PRICE shall mean the exercise price per Option
Share as specified in the Grant Notice.
(x) EXPIRATION DATE shall mean the date on which the option
expires as specified in the Grant Notice.
(xi) FAIR MARKET VALUE per share of Common Stock on any
relevant date shall be determined in accordance with
the following provisions:
(a) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value
shall be deemed equal to the closing selling price
per share of Common Stock on the date in question,
as the price is reported by the National
Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling
price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing
selling price on the last preceding date for which
such quotation exists, or
(b) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be
deemed equal to the closing selling price per share
of Common Stock on the date in question on the
Stock Exchange determined by the Board to be the
primary market for the Common Stock, as such price
is officially quoted in the composite tape of
transactions on such exchange. If there is no
closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall
be the closing selling price on the last preceding
date for which such quotation exists.
(xii) GRANT DATE shall mean the date of grant of the option as
specified in the Grant Notice.
(xiii) GRANT NOTICE shall mean the Notice of Grant of Stock
Option accompanying the Agreement, pursuant to which
Optionee has been informed of the basic terms of the
option evidenced hereby.
(xiv) MISCONDUCT shall mean the commission of any act of
fraud, embezzlement or dishonesty by Optionee, any
unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other
intentional misconduct by Optionee adversely affecting
the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The
foregoing definition shall not be deemed to be
inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may
consider as grounds for the dismissal or discharge
of Optionee or any other individual in the Service
of the Corporation (or any Parent or Subsidiary).
(xv) NOTICE OF EXERCISE shall mean the notice of exercise in
the form attached hereto as Exhibit I.
(xvi) OPTION SHARES shall mean the number of shares of Common
Stock subject to the option as specified in the Grant
Notice.
(xvii) OPTIONEE shall mean the person to whom the option is
granted as specified in the Grant Notice.
(xviii) PARENT shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations
ending with the Corporation, provided each
corporation in the unbroken chain (other than
the Corporation) owns, at the time of the
determination, stock possessing fifty percent
(50%) or more of the total combined voting power
of all classes of stock in one of the other
corporations in such chain.
(xix) PERMANENT DISABILITY shall mean the inability of
Optionee to engage in any substantial gainful activity
by reason of any medically determinable physical or
mental impairment which is expected to result in death
or has lasted or can be expected to last for a
continuous period of twelve (12) months or more.
(xx) SERVICE shall mean the Optionee's performance of
services for the Corporation (or any Parent or
Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a
consultant or independent advisor.
(xxi) STOCK EXCHANGE shall mean the American Stock Exchange
or the New York Stock Exchange.
SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
