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Filed pursuant to Rule 424(b)(3)
Registration No. 333-52731
PROSPECTUS
ROCKY MOUNTAIN INTERNET, INC.
4,000,0000 SHARES OF COMMON STOCK
This prospectus will allow us to issue of common stock over time in connection
with the acquisition of other businesses. This means:
- we may issue up to 4,000,000 shares of common stock from time to time;
- we will provide a prospectus supplement each time we issue common
stock;
- the prospectus supplement will inform you about the specific terms of
that offering and also may add, update or change information contained
in this document; and
- you should read this document and any prospectus supplement carefully
before you accept common stock as all or part of the purchase price
for our acquisition of your business.
This prospectus will also be used under certain limited circumstances in
connection with the resale of common stock that was originally issued pursuant
to this prospectus. Other than the businesses, assets or securities acquired,
we will not receive any proceeds from these offerings.
We will negotiate the price and other terms of the acquisitions with the owners
of the businesses, assets or securities that we acquire or with their
representatives. We will not pay underwriting discounts or concessions,
although fees may be paid to persons who bring specific acquisitions to our
attention.
We may structure the acquisition of businesses as:
- a merger with Rocky Mountain Internet or a subsidiary of Rocky
Mountain Internet;
- a purchase of all the stock of the other business; or
- a purchase of the assets of the other business.
Our common stock is traded on the Nasdaq National Market under the symbol
"RMII." On June 18, 1999, the last reported sale price of our common stock was
$11.375 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 TO READ ABOUT FACTORS YOU SHOULD CONSIDER
BEFORE ACCEPTING OUR COMMON STOCK AS ALL OR PART OF THE PURCHASE PRICE FOR OUR
ACQUISITION OF YOUR BUSINESS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is June 18, 1999.
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TABLE OF CONTENTS
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Risk Factors................................................................ 3
Cautionary Note About Forward-Looking Statements............................11
Recent Developments.........................................................12
Selected Consolidated Financial Data........................................13
Description of Common Stock.................................................14
Plan of Distribution - Acquisition Terms ...................................14
Selling Stockholders .......................................................14
Plan of Distribution by Selling Stockholders ...............................15
Validity of the Shares .....................................................15
Experts ....................................................................15
Where You Can Find More Information ........................................16
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision.
YOU MAY BE RESTRICTED IN YOUR ABILITY TO RESELL YOUR COMMON STOCK
If you are an affiliate of a company we acquire or an affiliate of our
company, you may not resell common stock issued pursuant to this prospectus
unless:
- we allow you to use this prospectus to resell your shares; or
- you rely on an exemption from registration.
The exemption from registration provided by Rules 144 and 145 under the
Securities Act of 1933 allows you to resell your shares if you comply with
certain manner of sale and volume limitations. Specifically, you may resell
your common stock if the number of shares to be sold in any three month
period does not exceed the greater of:
- one percent of our common stock outstanding at the time of the sale;
or
- the average weekly trading volume in our common stock on the Nasdaq
National Market during the four calendar weeks before the sale.
Another exemption from registration provided by Rule 144(k) allows you to resell
all of your common stock if:
- you have held your stock for at least two years; and
- you have not been an affiliate of our company for at least three
months before the sale.
The two year holding period described above does not begin to run until you have
paid the full purchase price of the common stock to us or an affiliate of ours.
WE HAVE A SHORT OPERATING HISTORY, HAVE INCURRED NET LOSSES SINCE OUR INCEPTION
AND EXPECT FUTURE LOSSES
We started our business in 1993 and began offering Internet access services
in 1994. We have incurred operating losses in every year of our existence. We
incurred net losses of $2.3 million for the year ended December 31, 1996, $4.2
million for the year ended December 31, 1997 and $10.7 million for year ended
December 31, 1998. As of December 31, 1998, we have an accumulated deficit of
$17.4 million. We may never be profitable.
In 1998, a proposed merger transaction with Internet Communications
Corporation and related financing transactions was terminated. As a result, we
recorded costs, expenses and related fees of approximately $6.1 million. Of
this amount, approximately $4.2 million relates to warrants that we issued.
Although we are attempting to agree on a schedule for the payment of these
expenses that is satisfactory to all parties, we cannot assure that we will be
able to reach an agreement with all parties. If we are unsuccessful, we do not
currently have the ability to pay all of these expenses.
IF WE ARE UNABLE TO RAISE FUNDS TO FINANCE OUR GROWTH, YOUR INVESTMENT COULD BE
ADVERSELY AFFECTED
We intend to expand or open new access sites or make other capital
investments as dictated by subscriber demand and strategic considerations. To
open new dial-up access sites, known in our industry as points of presence or
POPs, we must spend significant amounts of money for new equipment as well as
for leased telecommunications facilities and advertising. In addition, to
expand our subscriber base nationwide, we will have to spend significant amounts
of money on additional equipment to maintain the high speed and reliability of
our Internet access services. We may also need to spend significant amounts of
cash to:
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- fund growth, operating losses, and increased expenses;
- implement our acquisition strategy;
- take advantage of unanticipated opportunities, such as major strategic
alliances or other special marketing opportunities, acquisitions of
complementary businesses or assets, or the development of new
products; and
- respond to unanticipated developments or competitive pressures.
We will require additional funds through equity, debt, or other external
financing in order to fund our current operations and to achieve our business
plan. We cannot assure that any additional capital resources will be available
to us, or, if available, will be on terms that will be acceptable to us. Any
additional equity financing will dilute the equity interests of existing
security holders. If adequate funds are not available or are not available on
acceptable terms, our ability to execute our business plan and our business
could be materially and adversely affected.
COMPETITION IN OUR INDUSTRY IS INTENSE AND IS LIKELY TO INCREASE
We operate in the Internet services market, which is extremely competitive.
Our current and prospective competitors include many large companies that have
substantially greater market presence, financial, technical, marketing and other
resources than we have. We compete directly or indirectly with the following
categories of companies:
- established online services, such as America Online, the Microsoft
Network, CompuServe and Prodigy;
- local, regional and national Internet service providers, such as
MindSpring, Earthlink, Network, Inc., Internet America and PSINet;
- national telecommunications companies, such as AT&T Corp., MCI
WorldCom, Inc., Sprint and GTE;
- regional Bell operating companies, such as BellSouth and SBC
Communications;
- computer hardware and software companies, such as International
Business Machines and Microsoft Corporation; and
- online cable services, such as At Home and Roadrunner.
Our competition is likely to increase. We believe this will probably happen as
large diversified telecommunications and media companies acquire Internet
service providers and as Internet service providers consolidate into larger,
more competitive companies. Diversified competitors may bundle other services
and products with Internet connectivity services, potentially placing us at a
significant competitive disadvantage. In addition, competitors may charge less
than we do for Internet services, causing us to reduce or preventing us from
raising our fees. As a result, our business may suffer.
WE MAY NOT BE ABLE TO COMPETE IN THE LOCAL EXCHANGE AND LONG-DISTANCE TELEPHONE
MARKET
In 1998, we entered the long distance telephone market. We will compete
directly with inter-exchange carriers and long distance carriers and other long
distance resellers and providers, including large carriers such as AT&T, MCI
WorldCom and Sprint and new entrants to the long distance market. Many of our
competitors are significantly larger and have substantially greater market
presence and financial, technical, operational, marketing and other resources.
We will face stiff price competition and may not be able to compete.
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Moreover, the local exchange telephone services market in most states was
only recently opened to competition due to the passage of the 1996
Telecommunications Act and related regulatory rulings. There are numerous
operating complexities associated with providing these services. We will be
required to develop new products, services and systems and will need to develop
new marketing initiatives to sell these services. Our inability to overcome any
of these operating complexities could have a material adverse effect on us.
WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS TO
REMAIN COMPETITIVE
The Internet services market is characterized by rapidly changing
technology, evolving industry standards, changes in member needs and frequent
new service and product introductions. Our future success depends, in part, on
our ability to
- use leading technologies to develop our technical expertise;
- enhance our existing services; and
- develop new services that meet changing member needs on a timely and
cost-effective basis.
In particular, we must provide subscribers with the appropriate products,
services and guidance to best take advantage of the rapidly evolving Internet.
Our failure to respond in a timely and effective manner to new and evolving
technologies could have a negative impact on our business.
Our ability to compete will also depend upon the continued compatibility of
our services with products offered by various vendors. Although we intend to
support emerging standards in the market for Internet access, industry standards
may not be established. Moreover, if industry standards are established, we may
not be able to conform to these new standards in a timely fashion. Our
competitors may develop services and technologies that will render our services
or technology noncompetitive or obsolete.
We are also at risk to fundamental changes in the way customers access the
Internet. Currently, most customers access Internet services through computers
connected by telephone lines. However, several companies have developed cable
television modems and other "broadband technologies" that transmit data at
substantially faster speeds than the modems that our subscribers and we use. We
must develop new technology or modify our existing technology to accommodate new
and faster sources of Internet access, including cable television modems,
screen-based telephones, wireless products, televisions, and other consumer
electronic devices. We may not succeed in adapting our Internet access business
to new and faster access devices.
ANY DECLINE IN OUR MEMBER RETENTION LEVELS OR OUR PRICES WILL ADVERSELY AFFECT
US
Our new member acquisition costs are substantial relative to the monthly
fees we charge. Accordingly, our long-term success largely depends on our
retention of existing members. While we continue to invest significant
resources in our infrastructure and technical and member support capabilities,
it is relatively easy for Internet users to switch to competing providers.
Consequently, our investments may not help member retention. Any significant
loss of members will substantially decrease our revenue and cause our business
to suffer.
As a result of competitive pricing pressures in the market for Internet
services, we reduced the prices we charge our Internet customers during 1995,
1997 and 1998. We expect that continued price pressures may cause us to reduce
prices further in order to remain competitive, and we expect that such further
price reductions could adversely effect our results of operations, unless we can
lower our costs commensurate with such price decreases.
OUR BUSINESS DEPENDS ON CONTINUED GROWTH OF THE INTERNET
Our future success substantially depends on continued growth in the use of
the Internet. Although we believe that Internet usage and popularity will
continue to grow as it has in the past, we cannot be certain that this growth
will continue or that it will continue in its present form. If Internet usage
declines or evolves away from our business, our growth will slow or stop and our
financial results will suffer.
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IF WE FAIL TO EFFECTIVELY MANAGE OUR GROWTH, OUR BUSINESS WILL SUFFER
Our rapid growth has and will place a significant strain on our managerial,
operational, financial and information systems resources. To accommodate our
increasing size and manage our growth, we must continue to implement and improve
these systems and attract, train, manage and retain qualified employees. These
demands will require us to add new management personnel and develop new
expertise. In order to successfully integrate newly acquired assets and
continue to implement a nationwide strategy and network, we must:
- closely monitor service quality, particularly through third-party
"POPs";
- acquire and install necessary equipment and telecommunications
facilities;
- create and implement marketing strategies in new and existing markets;
- employ qualified personnel to provide technical and marketing support
for new sites; and
- continue to expand our managerial, operational, and financial
resources to support expansion.
Although we are taking steps to manage our growth effectively, we may not
succeed. If we fail to successfully manage our growth, our ability to maintain
and increase our member base will be impaired and our business will suffer.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH ACQUISITIONS
Since January 1998, we have acquired the stock or assets of eight companies
and may acquire another company, UStel, Inc. in the next few months. As part of
our long-term business strategy, we continually evaluate strategic acquisitions
of businesses and subscriber accounts. Acquisitions often involve a number of
special risks, including the following:
- we may experience difficulty integrating acquired operations and
personnel;
- we may be unable to retain acquired subscribers;
- the acquisition may disrupt our ongoing business;
- we may not be able to successfully incorporate acquired technology and
rights into our service offerings and maintain uniform standards,
controls, procedures, and policies;
- the businesses we acquire may fail to achieve the revenues and
earnings we anticipated;
- we may ultimately be liable for contingent and other liabilities, not
previously disclosed to us, of the companies that we acquire; and
- our resources may be diverted in asserting and defending our legal
rights.
We may not successfully overcome problems encountered in connection with
potential future acquisitions. In addition, an acquisition could materially
adversely affect our operating results by:
- diluting your ownership interest;
- causing us to incur additional debt; and
- forcing us to amortize expenses related to goodwill and other
intangible assets.
Any of these factors could have a material adverse effect on our business.
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WE HAVE BEEN SUED FOR AN ALLEGED BREACH OF A MERGER AGREEMENT
In June 1998, we announced that we had entered into a merger agreement to
acquire Internet Communications Corporation. On October 13, 1998, we announced
that we had terminated the merger agreement due to, among other things, Internet
Communications Corporation's failure to satisfy certain obligations under the
merger agreement. On October 14, 1998, Internet Communications Corporation
filed a lawsuit against us in Denver District Court claiming $30 million in
damages and alleging, among other things, that we breached the merger agreement
and had made misrepresentations to them with respect to the proposed merger
transaction. We have filed several counterclaims against Internet
Communications Corporation. Our counterclaims allege that the merger failed
because of the actions and misrepresentations of Internet Communications
Corporation and its agents. We are seeking damages in excess of $175 million.
We believe Internet Communications Corporation's claims are without merit, and
intend to conduct a vigorous defense. We also intend to vigorously pursue our
counterclaims against Internet Communications Corporation. However, we may not
prevail in our defense or in any counterclaims. We hope that we can resolve the
dispute without the necessity for a trial, but we may not succeed. If the
dispute cannot be resolved quickly, we will incur additional litigation costs
and the litigation may hamper our ability to obtain additional financing. An
unfavorable outcome could have a material adverse affect on our business.
IF WE DO NOT SUCCEED IN OBTAINING SUFFICIENT NETWORK CAPACITY FROM OUR INTERNAL
AND LEASED NETWORK, WE MAY LOSE CUSTOMERS
Our success depends, in part, on the capacity, reliability and security of
our network. Our network includes computers, servers, routers, modems,
broadband fiber systems, access to third party broadband systems and other
related hardware and software. Network capacity constraints have occurred in
the past and may occur in the future, in connection with:
- particular dial-up POPs affecting only members attempting to use that
particular point of presence; and
- system wide services, such as e-mail and news services, which can
affect all members.
These capacity constraints result in slowdowns, delays or inaccessibility when
members try to use a particular service. Poor network performance could cause
members to terminate their membership with us. To reduce the probability of
such problems, we will be required to expand and improve our network. Such
expansion and improvement will be very costly and time consuming. We may not be
able to expand or adapt our network to meet additional demand or changing
subscriber requirements on a timely basis or at a commercially reasonable cost.
In order to provide Internet access and other on-line services to our
customers, we lease long distance fiber optic telecommunications lines from
multiple national telecommunications service providers. We are dependent upon
these providers of data communications facilities. In addition, we have a
wholesale usage agreement with PSINet, which allows us to provide dial-up and
"switched" network access to our customers through PSINet's 235 POPs throughout
the United States. We also have other agreements with service providers on whom
we rely to deliver our product and service offerings. Moreover, PSINet provides
network access to some of our competitors. PSINet could choose to grant these
competitors preferential network access, potentially limiting our members'
ability to access the Internet. Even without such preferential treatment,
increased usage of PSINet's POPs by other Internet service providers and online
service providers may negatively affect access system performance.
SYSTEM FAILURES CAUSED BY NATURAL DISASTERS COULD HAVE AN ADVERSE EFFECT ON OUR
BUSINESS
We must protect our infrastructure against fire, earthquakes, power loss,
telecommunications failure, computer viruses, security breaches and similar
events. We do not currently maintain a redundant or backup network hub for all
of our customers. Moreover, because we lease our lines from long distance
telecommunications companies and regional Bell operating companies, we are
dependent upon these companies for physical repair and maintenance of the leased
lines. We maintain multiple carrier agreements to reduce the risk of loss of
operations from damage, power failures, telecommunications failures and similar
events. However, the occurrence of a natural disaster or other unanticipated
problems at our network operations center or any of our POPs may cause
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interruptions in the services we provide. In addition, failure of our
telecommunications providers to provide the data communications capacity we
require as a result of a natural disaster, operational disruption or for any
other reason could cause interruptions in the services we provide. Any damage
or failure that causes interruptions in our operations could have a material
adverse effect on us.
OUR NETWORK IS SUBJECT TO SECURITY RISKS AND INAPPROPRIATE USE BY INTERNET USERS
THAT COULD INTERRUPT OUR SERVICE
The future success of our business will depend on the security of our
network and the networks of third parties over which we have no control.
Despite implementation of security measures, we remain vulnerable to computer
viruses, sabotage, break-ins and similar disruptive problems caused by
subscribers or other Internet users. Any breach of our network security or
other inappropriate use of our network, such as the sending of excessive volumes
of unsolicited bulk e-mail or "spam," could lead to interruptions, delays, or
cessation of services to our subscribers. Our subscribers, in turn, could
terminate their membership or assert claims against us.
Third parties could also potentially jeopardize the security of
confidential information stored in our computer systems or our subscribers'
computer systems by their inappropriate use of the Internet, which could cause
losses to our subscribers or us or deter potential customers from subscribing to
our services. Inappropriate use of the Internet includes attempting to gain
unauthorized access to information or systems, commonly known as "cracking" or
"hacking." Although we intend to continue to implement security measures,
"hackers" have circumvented such measures in the past, and others may be able to
circumvent our security measures or the security measures of our third-party
network providers in the future.
To fix problems caused by computer viruses or other inappropriate uses or
security breaches, we may have to interrupt, delay, or cease service to our
subscribers, which could have a material adverse effect on our business. In
addition, we expect that our subscribers will increasingly use the Internet for
commercial transactions in the future. Any network malfunction or security
breach could cause these transactions to be delayed, not completed at all, or
completed with compromised security. As a result, subscribers or others may
assert claims of liability against us. Further, until more comprehensive
security technologies are developed, the security and privacy concerns of
existing and potential subscribers may inhibit the growth of the Internet
service industry in general and our subscriber base and revenue in particular.
WE ARE DEPENDENT ON TELECOMMUNICATIONS CARRIERS AND OTHER SUPPLIERS
We rely on traditional telecommunications carriers to transmit our traffic
over local and long distance networks. These networks may experience
disruptions and capacity constraints that are not easily remedied. We may have
no means of replacing these services. In addition, local phone service is
sometimes available only from one company. The benefits of competition and
alternative sources of supply are not present in these markets.
We also depend on certain suppliers of hardware and software components.
We acquire a majority of our networking service components, including terminal
servers and high-performance routers, from Cisco Systems, Inc., Bay Networks,
Inc. and Lucent Technologies, Inc. The expansion of our network places a
significant demand on our suppliers, some of which have limited production
capacity. In the past, we have experienced delays in delivery of new telephone
lines, modems, terminal servers and other equipment. If delays are severe, all
incoming modem lines may become full during peak times, resulting in busy
signals for subscribers who are trying to connect to Rocky Mountain Internet.
If our suppliers cannot meet increased demand and we are not able to develop
alternative sources of supply, we could experience delays and increased costs in
expanding our network, difficulty in providing our services and the loss of
dissatisfied customers.
WE MAY NOT SUCCESSFULLY PROTECT OUR PROPRIETARY RIGHTS OR AVOID CLAIMS THAT WE
INFRINGE THE PROPRIETARY RIGHTS OF OTHERS
Our success is dependent in part on our technology and other proprietary
rights. To protect our rights, we rely on a combination of copyright,
trademark, patent and trade secret laws and contractual restrictions. We cannot
be sure that these steps will be adequate to prevent misappropriation or
infringement of our intellectual property.
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Nor can we be sure that competitors will not independently develop
technologies that are substantially equivalent or superior to our proprietary
property and technology.
In our industry, competitors often assert intellectual property claims
against one another. The success of our business depends on our ability to
assert and defend our intellectual property rights. Future litigation may have
an adverse impact on our financial condition. These claims could result in
substantial costs and diversion of resources, even if the claim is ultimately
decided in our favor. If a claim is asserted alleging that we infringed the
proprietary technology or information of a third party, we may be required to
seek licenses for such intellectual property. We cannot be sure that such
licenses would be offered or obtained on commercially reasonable terms, if at
all. The failure to obtain the necessary licenses or other rights could have a
material adverse affect on our business.
MR. HANSON HAS A CONTROLLING INTEREST IN ROCKY MOUNTAIN INTERNET WHICH MAY
PREVENT YOU FROM REALIZING A PREMIUM RETURN
Our chief executive officer, Douglas Hanson has a controlling interest in
Rocky Mountain Internet through his direct ownership of common stock, ability to
exercise outstanding warrants and options, and voting rights agreements. As a
result, Mr. Hanson has voting control of Rocky Mountain Internet and can
influence all matters that require stockholder approval. Mr. Hanson may
designate the members of our Board of Directors and can decide our operations
and business strategy. You may disagree with Mr. Hanson's management decisions.
As a controlling stockholder, Mr. Hanson also has the power to approve or
reject significant corporate matters, such as mergers, acquisitions and other
change-in-control transactions. Mr. Hanson's controlling interest could make it
more difficult for a third party to acquire us, even if the acquisition would be
beneficial to you. You may not realize the premium return that stockholders may
realize in conjunction with corporate takeovers.
MARKET PRICE OF OUR SECURITIES MAY FALL IF OTHER SECURITY HOLDERS SELL THEIR
STOCK
As of the date of this offering, we have 9,962,794 shares of common
stock outstanding. However, we have reserved approximately 11,900,000
additional shares for issuance upon exercise of warrants and stock options,
various anti-dilution provisions contained in the warrants and stock options,
conversion of preferred stock, and prior acquisitions. If our stockholders
sell substantial amounts of our common stock in the public market following
this offering, the market price of our common stock and our publicly traded
warrants could fall. Such sales also might make it more difficult for us to
sell equity or equity-related securities in the future at a price we deem
appropriate. We have issued and plan to issue additional convertible equity
and debt securities in the future. If these securities are exercised or
converted, you may experience significant dilution in the market value of
your stock. Our stock price is highly volatile
OUR STOCK PRICE IS HIGHLY VOLATILE
In the past, our common stock and publicly traded warrants have traded at
volatile prices. We believe that the market prices will continue to be subject
to significant fluctuations due to various factors and events that may or may
not be related to our performance. If the market value of our common stock
decreased substantially, we could be delisted from the Nasdaq National Market.
Consequently, you could find it difficult or impossible to sell your stock or to
determine the value of your stock.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations, which have particularly affected the market
prices of the stocks of Internet-sector companies and which may be unrelated to
the operating performance of such companies. Furthermore, our operating results
and prospects from time to time may be below the expectations of public market
analysts and investors. Any such event could result in a material decline in
the price of your stock.
FACTORS OUTSIDE OF OUR CONTROL MAY AFFECT OUR OPERATING RESULTS AND CAUSE OUR
QUARTERLY RESULTS TO FLUCTUATE
Our financial results may fluctuate significantly because of several
factors, many of which are beyond our control. These factors include:
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- costs associated with gaining and retaining members and capital
expenditures for upgrading our systems and infrastructure;
- timing and market acceptance of new and upgraded Internet service
introductions, technologies and services by us and our competitors;
- loss of subscribers, seasonal fluctuations in demand for our services;
- downward pressure on prices due to increased competition;
- changes in our operating expenses, including telecommunications costs;
and
- the effect of potential acquisitions.
Fluctuations caused by these and other factors could cause our business to
suffer.
WE HAVE NO INTENTION TO PAY DIVIDENDS
We have never paid any cash dividends on our common stock. We currently
intend to retain all future earnings, if any, for use in our business and do not
expect to pay any dividends in the foreseeable future.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION
We provide Internet services through data transmissions over public
telephone lines and cable networks. The Federal Communications Commission
governs these transmissions and establishes charges and terms for
communications. As an Internet access provider, we are not subject to direct
regulation by the Federal Communications Commission or any other governmental
agency, other than the regulations applicable to businesses generally. However,
we could become subject to Federal Communications Commission or other regulatory
agency regulation especially as Internet services and telecommunication services
converge. Changes in the regulatory environment could decrease our revenue and
increase our costs. For example, the Federal Communications Commission may
decide that Internet-based telephone services should be subject to pay carrier
access charges on the same basis as traditional telecommunications companies.
The Federal Telecommunications Act of 1996 imposed fines on Internet
service providers, in part, for providing access to indecent and obscene
services. The United States Supreme Court found this part of the
unconstitutional in June of 1997. However, on March 12, 1998, the Senate
Commerce Committee approved two bills that attempt to reconstruct these
unconstitutional provisions. Although it is too early to determine the ultimate
course of these bills, and to evaluate the constitutionality of the proposals,
these provisions, if enacted and upheld, could expose ISPs such as Rocky
Mountain Internet to liabilities.
Additional laws and regulations may be adopted with respect to the
Internet, covering issues such as Universal Service Fund support payments,
content, user privacy, pricing, libel, obscene material, indecency, gambling,
intellectual property protection and infringement and technology export and
other controls. Other federal Internet-related legislation has been introduced
which may limit commerce and discourse on the Internet. The FCC currently is
considering:
- whether Internet service providers are regulated telecommunications
providers;
- whether Internet service providers are required to contribute to the
Universal Service Fund; and
- how various companies in the Internet and telecommunications
industries should be classified.
IF WE ARE UNABLE TO RETAIN KEY EXECUTIVES, OUR BUSINESS WILL BE ADVERSELY
AFFECTED
Our success greatly depends on our ability to attract and retain key
technical, sales, marketing, information systems, financial and executive
personnel. We are especially dependent on the continued services of our senior
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management team, particularly Douglas H. Hanson, our Chief Executive Officer and
Chairman of the Board of Directors, and Mary Beth Vitale, our President and
Chief Operating Officer. The loss of Mr. Hanson, Ms. Vitale or other senior
managers could have a materially detrimental effect on us. Ms. Vitale is the
only executive with an employment agreement. All other members of our senior
management team can terminate their employment at any time. We do not maintain
key person life insurance on any of our personnel. If we fail to attract, hire
or retain the necessary personnel, or if we lose the services of any member of
our senior management team, our business could be adversely affected.
OUR FAILURE TO ENSURE THAT OUR SYSTEMS OR OUR CUSTOMERS AND SUPPLIERS SYSTEMS
ARE YEAR 2000 COMPLIANT COULD LEAD TO A MAJOR SYSTEM FAILURE THAT COULD
ADVERSELY AFFECT OUR BUSINESS
The Year 2000 problem is the result of computer programs that use two
digits rather than four to define the applicable year. On January 1, 2000,
computer equipment and programs that have time-sensitive software may not be
able to distinguish whether "00" means 1900 or 2000. Incompatible date coding
could cause a major system failure or could create erroneous results. We may
also be vulnerable to other companies' Year 2000 issues.
Our failure, or the failure of third parties on which we rely, to
adequately address Year 2000 readiness issues could result in an interruption,
or a failure, of some normal business activities or operations. Presently, we
believe that the primary risks that we face with regard to the Year 2000 are
those arising from third party services or products. In particular, we depend
heavily on a significant number of third party vendors to provide both network
services and equipment. A significant Year 2000-related disruption of these
network services or equipment could cause our customers to consider seeking
alternate providers or cause an unmanageable burden on customer service and
technical support. This in turn could materially and adversely affect business.
Furthermore, our business depends on the continued operation of, and
widespread access to, the Internet. To the extent that the normal operation of
the Internet is disrupted by the Year 2000 issue, or if a large portion of our
customers are unable to access the Internet due to Year-2000 related issues in
connection with their own systems, our business could be materially and
adversely affected.
We also face Year 2000 risks related to the acquisitions we make. If we
fail to identify and address Year 2000 issues in connection with our
acquisitions, our business could be materially and adversely affected.
We have established a program to coordinate appropriate activity to be
taken to address the Year 2000 issue. As of December 31, 1998, we had incurred
approximately $50,000 in connection with the implementation of the program. We
expect to incur an additional $150,000 to $200,000 of expenses to implement the
remainder of the Year 2000 readiness program. These estimates do not include
additional costs that may be incurred to expand the program for systems and
products that we may acquire later in 1999. These are our best estimates, and
we do not believe that the total costs will have a material affect on our
business. However, if the actual costs resulting from implementation of the
Year 2000 readiness program significantly exceed our estimates, they may have a
material adverse effect on our business.
Furthermore, we have not developed a Year 2000 contingency plan to identify
and address significant Year 2000 risks.
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference may include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. We intend the forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements in these sections. All statements regarding our expected financial
position and operating results, our business strategy, our financing plans and
the outcome of any contingencies are forward-looking statements. These
statements can sometimes be identified by our use of forward-looking words such
as "may," "believe," "plan," "will," "anticipate," "estimate," "expect,"
"intend" and other phrases of similar meaning. Known and unknown risks,
uncertainties and
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other factors could cause the actual results to differ materially from those
contemplated by the statements. The forward-looking information is based on
various factors and was derived using numerous assumptions.
Although we believe that our expectations that are expressed in these
forward-looking statements are reasonable, we cannot promise that our
expectations will turn out to be correct. Our actual results could be
materially different from our expectations, including the following:
- we may lose subscribers or fail to grow our subscriber base;
- we may not successfully integrate new subscribers or assets obtained
through acquisitions;
- we may fail to compete with existing and new competitors;
- we may not be able to sustain our current growth;
- we may not adequately respond to technological developments impacting
the Internet;
- we may fail to identify and correct a significant Year 2000 compliance
problem and experience a major system failure;
- we may fail to settle outstanding litigation; and
- we may not be able to find needed financing.
This list is intended to identify some of the principal factors that could cause
actual results to differ materially from those described in the forward-looking
statements included elsewhere in this report. These factors are not intended to
represent a complete list of all risks and uncertainties inherent in our
business, and should be read in conjunction with the more detailed cautionary
statements included in this prospectus under the caption "Risk Factors."
RECENT DEVELOPMENTS
POSSIBLE ACQUISITION OF USTEL, INC.
On March 10, 1999, UStel, Inc. filed a voluntary petition for bankruptcy
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court, Western District of Washington. Since filing for bankruptcy,
UStel, Inc. had been in negotiations with various parties interested in
acquiring all or substantially all of its assets.
On April 7, 1999, we entered into a contingent preliminary agreement to
acquire the assets of UStel, Inc., a regional long-distance telecommunications
company headquartered in Seattle, Washington. In accepting our preliminary
agreement with UStel, the United States Bankruptcy Court conferred the status of
"preferred bidder and acquirer" on us. However, final approval of the
acquisition by the Bankruptcy Court is subject to three significant conditions.
Specifically, we must negotiate and execute the following agreements, all of
which must be deemed satisfactory to the Bankruptcy Court:
- a financing agreement with Goldman Sachs, LP, the senior secured
creditor, to provide us with all the funds necessary to purchase UStel
and to operate UStel for at least the following year;
- an agreement with the wholesale long-distance carrier for UStel, MCI
WorldCom, which provides continued long-distance services for a
reasonable period of time; and
- commercial lease agreements which ensure uninterrupted continuation of
UStel business activities.
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Because these conditions may never be realized, we cannot be sure that we will
be able to acquire the assets of UStel. Even if we succeed in acquiring the
assets of UStel, we may not succeed in integrating the acquired assets and
personnel. Further, we may not be able to retain acquired customers. See "Risk
Factors - We may not be able to compete in the local exchange and long-distance
telephone market" and "-- We are subject to risks associated with acquisitions."
PROPOSALS SUBMITTED TO STOCKHOLDERS AT 1999 ANNUAL MEETING
We have submitted the following proposals to our shareholders at our 1999
Annual Meeting:
- approval of the change of our name from Rocky Mountain Internet, Inc.
to "RMI.net;"
- approval of an increase the number of authorized shares of common
stock from 25,000,000 to 100,000,000 shares;
- approval of an increase in the number of shares that we may issue
under our 1998 Employees' Option Plan from 266,544 to 1,000,000
shares;
We have incorporated our preliminary proxy statement by reference.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following is a summary of selected consolidated financial data of the
Company as of and for the five years ended December 31, 1998. This data should
be read in conjunction "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our Consolidated Financial Statements
and the Notes thereto, which are included in our Annual Report on Form 10-K and
are incorporated by reference in this document.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- --------------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $10,087,015 $ 6,127,111 $3,281,579 $1,179,325 $ 253,806
Operating loss (8,834,320) (3,800,706) (2,281,194) (108,522) (40,720)
Net loss (9,024,960) (4,152,853) (2,342,571) (128,794) (44,086)
Basic and diluted loss per share (1.18) (0.79) (1.03) (0.07) (0.02)
BALANCE SHEET DATA:
Cash and cash equivalents $ 5,729,346 $ 1,053,189 $ 348,978 $ 274,661 $ 36,470
Investments - - 1,356,629 - -
Working capital (deficit) 2,019,846 (209,003) 370,884 (186,865) (174,029)
Total assets 24,949,254 5,082,119 5,540,167 924,603 249,818
Long term debt 493,963 904,627 1,134,380 904,627 51,745
Total stockholders' equity
(deficit) 11,436,381 2,083,370 2,317,437 (169,036) (43,143)
</TABLE>
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DESCRIPTION OF COMMON STOCK
The description of our common stock, $0.001 par value, is included in our
Registration Statement on Form 8-A, which was filed with the Securities and
Exchange Commission on August 14, 1996. We have incorporated our Registration
Statement on Form 8-A by reference.
PLAN OF DISTRIBUTION -- ACQUISITION TERMS
We will offer and issue our common stock from time to time in connection
with our acquisition of other businesses, assets or securities. We expect that:
- terms of the acquisitions involving the issuance of common stock
covered by this prospectus will be determined by direct negotiations
with the owners of the businesses, assets or securities that we
acquire or with their representatives; and
- the common stock will be issued at prices reasonably related to the
market price of the common stock either at the time an agreement is
entered into or at or about the time the securities will be delivered.
While we do not expect to pay underwriting discounts or commissions, we may pay
a finder's fee from time to time with respect to specific mergers or
acquisitions.
Regardless of the method we use to distribute the common stock, we will
provide a prospectus supplement that will disclose:
- the material terms of the acquisition, including the number of shares
issued and the consideration received;
- the amount of any compensation received by any finders, dealers or
agents; and
- the terms of any indemnification provisions, including indemnification
from liabilities under the federal securities laws.
SELLING STOCKHOLDERS
Persons who receive securities from us pursuant to acquisitions covered by
this prospectus may be entitled to use this prospectus to register the resale of
their common stock. We refer to these individuals as the "selling
stockholders." However, no selling stockholder will be authorized to use this
prospectus or a supplement to this prospectus without first obtaining our
consent. We may restrict the selling stockholders' right to use this
prospectus. In particular, we may restrict the time period in which selling
stockholders may use this prospectus and the number of shares of common stock
that selling stockholders may offer pursuant to this prospectus. We may also
impose other limitations and conditions in the agreements we negotiate with the
owners of the businesses, assets or securities that we acquire or with their
representatives. We will identify the selling stockholders and the number of
shares that they can sell in a prospectus supplement.
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PLAN OF DISTRIBUTION BY SELLING STOCKHOLDERS
With our permission, selling stockholders may use this prospectus and a
prospectus supplement to resell their common stock from time to time, including
in one or more of the following transactions:
- on the Nasdaq National Market;
- in the over-the-counter market;
- in transactions other than on the Nasdaq National Market or in the
over-the-counter market;
- through brokers, dealers or market makers, or in direct transactions
with purchasers;
- in connection with long or short sales;
- by pledge to secure debts and other obligations;
- in connection with the writing of options, in hedge transactions, and
in settlement of other transactions in standardized or
over-the-counter options; or
- in a combination of any of the above transactions.
The selling security holders may sell their common stock at prevailing market
prices, at prices related to prevailing market prices, at negotiated prices, or
at fixed prices.
Brokers and dealers that are used will either receive discounts or
commissions from the selling stockholders, or will receive commissions from the
purchasers. The selling stockholders may be deemed to be underwriters within
the meaning of the Securities Act of 1933. We may agree to indemnify the
selling stockholders against liabilities, including liabilities arising under
the Securities Act of 1933.
VALIDITY OF THE SHARES
For the purposes of this offering, Hall & Evans, L.L.C., of Denver,
Colorado, has given its opinion as to the validity of the securities offered in
this prospectus.
EXPERTS
Ernst & Young, LLP, independent auditors, have audited our consolidated
financial statements and schedule as of and for the year ended December 31, 1998
included in our Annual Report on Form 10-K for the year ended December 31, 1998,
as set forth in their report, which is incorporated by reference in this
prospectus and elsewhere in the registration statement. Baird, Kurtz and
Dobson, independent accountants, have audited our consolidated financial
statements and schedule as of December 31, 1997 and for each of the two years in
the period then ended included in our Annual Report on Form 10-K for the year
ended December 31, 1998, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements and schedule are incorporated by reference in reliance on
Ernst & Young LLP's and Baird, Kurtz & Dobson's reports, given on their
authority as experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at www.sec.gov. You may also read and copy any
document we file at the SEC's Public Reference Rooms in Washington, D.C., New
York, New York and Chicago, Illinois. The Public Reference Room in Washington,
D.C. is located at 450 Fifth Street, N.W. Please call the SEC at 1-800-SEC-0330
for further information on the Public Reference Rooms.
Our common stock is listed on the Nasdaq National Market. Reports, proxy
statements and other information concerning Rocky Mountain Internet can be
reviewed at the offices of Nasdaq Operations, 1735 "K" Street, N.W., Washington,
D.C. 20006.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until we sell all of the common stock:
- 1999 Proxy Statement on Schedule 14A;
- Current Report on Form 8-K, filed April 19, 1999;
- Annual Report on Form 10-K for the fiscal year ended December 31,
1998;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
and
- The description of our common stock contained in our registration
statement on Form 8-A, filed August 14, 1996.
We have also filed a registration statement on Form S-4 with the SEC under the
Securities Act of 1933. This prospectus does not contain all of the information
set forth in the registration statement. You should read the registration
statement for further information about our company and the common stock. You
may request a copy of these filings at no cost. Please direct your requests to:
Christopher J. Melcher
Vice President and General Counsel
Rocky Mountain Internet, Inc.
999 Eighteenth Street, Suite 2201
Denver, Colorado 80202
(303) 672-0700
You may also want to refer to our web site at WWW.RMI.NET.
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not
authorized anyone else to provide you with different information. We are not
making an offer of the common stock in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front page of those documents.
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COMMON STOCK
$0.001 PAR VALUE
ROCKY MOUNTAIN INTERNET, INC.
PROSPECTUS
JUNE 18, 1999
