<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 1998
REGISTRATION NO. 333-47099
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
VERIO INC.
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 7375 84-1339720
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
---------------------
VERIO INC.
8005 SOUTH CHESTER STREET
SUITE 200
ENGLEWOOD, COLORADO 80112
(303) 645-1900
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)
---------------------
JUSTIN L. JASCHKE
CHIEF EXECUTIVE OFFICER
VERIO INC.
8005 SOUTH CHESTER STREET, SUITE 200
ENGLEWOOD, COLORADO 80112
(303) 645-1900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
<TABLE>
<S> <C> <C>
GAVIN B. GROVER, ESQ. CARLA HAMRE DONELSON, ESQ. JONATHAN A. SCHAFFZIN, ESQ.
MORRISON & FOERSTER LLP GENERAL COUNSEL CAHILL GORDON & REINDEL
425 MARKET STREET VERIO INC. 80 PINE STREET
SAN FRANCISCO, CALIFORNIA 94105 8005 SOUTH CHESTER STREET NEW YORK, NEW YORK 10005
(415) 268-7000 SUITE 200 (212) 701-3000
ENGLEWOOD, COLORADO 80112
(303) 645-1900
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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 (the "Securities Act"), please check the following box. [ ]
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
registration 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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,
please check the following box. [ ]
---------------------
THE REGISTRANT 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 FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 10, 1998
PROSPECTUS
5,000,000 SHARES
[VERIO LOGO]
COMMON STOCK
------------------
All of the shares of Common Stock (the "Shares") offered hereby are being
sold by Verio Inc. (the "Company" or "Verio"). Prior to the Offering, there has
been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $16.00 and
$19.00 per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price. Application has
been made to have the Common Stock approved for listing on the Nasdaq National
Market under the symbol "VRIO."
Nippon Telegraph and Telephone Company ("NTT") has agreed to purchase
directly from the Company shares of Common Stock (the "NTT Shares") concurrently
with and conditioned upon the consummation of the Offering in an aggregate
amount of up to 12.5% of the Company's fully diluted Common Stock after giving
effect to the Offering and the sale of the NTT Shares up to a maximum investment
of $100.0 million at a 3.25% discount to the Price to Public. See
"Business -- NTT Strategic Relationship."
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY MATTERS DISCUSSED UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 9.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=========================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ---------------------------------------------------------------------------------------------------------
Total(3) $ $ $
=========================================================================================================
</TABLE>
(1) For information regarding indemnification of the Underwriters see
"Underwriting."
(2) Before deducting expenses payable by the Company, estimated at
$1,000,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase
up to an aggregate of 750,000 additional shares of Common Stock solely to
cover over-allotments, if any. See "Underwriting." If such option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ ,
respectively.
------------------
The Shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the Shares
offered hereby will be available for delivery on or about , 1998 at
the offices of Smith Barney Inc., 333 West 34th Street, New York, New York
10001.
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1998.
<PAGE> 3
[NETWORK MAP]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES, INCLUDING
ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER "SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," IN ADDITION TO CERTAIN STATEMENTS CONTAINED
ELSEWHERE IN THIS PROSPECTUS, ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "REFORM
ACT") AND ARE THUS PROSPECTIVE. SUCH STATEMENTS, WHEN MADE IN CONNECTION WITH AN
INITIAL PUBLIC OFFERING, ARE NOT COVERED BY THE SAFE HARBOR PROVISIONS PROVIDED
IN SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"). SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER FACTORS
ARE DISCUSSED UNDER THE HEADING "RISK FACTORS," BEGINNING ON PAGE 9 OF THIS
PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO CAREFULLY CONSIDER SUCH
FACTORS.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this Summary is qualified in its
entirety by, the more detailed information, including the Company's Consolidated
Financial Statements and notes thereto and the Unaudited Pro Forma Condensed
Combined Financial Statements and notes thereto, each as contained herein.
Unless otherwise indicated, the information in this Prospectus (i) assumes an
initial public offering price of $17.50 per share, (ii) assumes that the
Underwriters' over-allotment option will not be exercised, (iii) gives effect to
the conversion of the Company's Series A, Series B, Series C and Series D-1
Preferred Stock, (iv) gives effect to the filing of the Company's amended
Certificate of Incorporation, which will occur prior to the consummation of the
Offering, (v) gives effect to an increase in the number of shares of Common
Stock issuable pursuant to options that may be granted under the Company's 1998
Stock Incentive Plan from and after the consummation of the Offering, and (vi)
gives effect to the NTT Investment (as defined). Unless the context otherwise
requires, references herein to (i) "Verio" or the "Company" are to Verio Inc., a
Delaware corporation (formerly known as World-Net Access, Inc.), and its
subsidiaries, and (ii) the "Verio ISPs" are to those Internet service providers
in which Verio has a direct or indirect equity investment, including
subsidiaries and minority investments. Information concerning those entities in
which the Company does not have a majority interest has been provided by those
entities and is believed by the Company to be accurate. Verio and the Verio logo
are trademarks of the Company. This Prospectus may contain trademarks, trade
names and service marks of other parties. Capitalized terms used in this
Prospectus, which are not otherwise defined herein, have the respective meanings
ascribed to them in "Glossary of Terms." See "Risk Factors -- Forward-Looking
Statements" for certain information relating to statements contained in this
Prospectus that are not historical facts.
THE COMPANY
Verio is a leading national provider of Internet connectivity and enhanced
Internet services to small and medium sized businesses. Since its inception in
March 1996, the Company has rapidly established a national presence through the
acquisition, integration, and growth of local Internet service providers
("ISPs") with a business customer focus. Verio believes that small and medium
sized businesses represent an attractive target market for the provision of
Internet services due to this market's low current penetration levels and
customer churn rates, and the expanding Internet needs of these businesses.
Because of their limited internal technical resources, small and medium sized
businesses also typically require hands-on local support and highly reliable
turnkey solutions for mission critical applications. Verio further believes that
these needs currently are underserved by both the national and local ISPs. While
national ISPs lack the local presence to provide customized, hands-on service,
local ISPs typically lack the scale and resources required to provide dedicated,
high-capacity Internet access, around-the-clock support and tailored product
offerings at competitive prices.
The Company believes it has a unique competitive advantage in serving small
and medium sized business customers through the combination of the technical
competency, hands-on support and entrepreneurial culture of locally based ISPs
with the quality and economic efficiency of Verio's national network,
operational infrastructure and financial strength. Verio has quickly built
critical mass by acquiring the stock or assets of, or making significant
investments in, over 30 ISPs that provide a comprehensive range of Internet
connectivity and enhanced products and services to over 80,000 customer accounts
in 33 of the top 50 Metropolitan Statistical Areas ("MSAs") in the country, with
combined revenues of approximately $23.2 million for the three months ended
December 31, 1997. The Company integrates and optimizes the operations of its
ISPs by consolidating their operations into regional operating units with
centralized regional management, connecting their local networks to Verio's
high-speed, highly reliable national backbone, and providing them with Verio's
integrated national support services.
Total ISP revenues in the United States are projected to grow from $3.3
billion in 1996 to $18.3 billion in 2000, according to International Data
Corporation ("IDC"). Industry analysts have reported that small and medium sized
businesses represent a potential market of over seven million customers in the
United States, and use of the Internet by this market segment is expected to
grow substantially from its current low level of market penetration. IDC
predicts that dedicated connections to the Internet for small and medium sized
businesses will grow from approximately 90,000 in 1996 to just under 800,000 in
2000, representing a 73% compounded annual growth rate. Small and medium sized
businesses generally seek an ISP with locally
3
<PAGE> 5
based personnel who are readily available to respond in-person to technical
issues, who can assist in developing and implementing the customer's effective
use of the Internet, and with whom they can establish a stable and long-term
relationship. In addition, they are increasingly reliant on enhanced product
offerings that address their specific business needs on a cost-effective basis,
allowing them to compete with larger companies. For example, IDC estimates Web
hosting revenues from small and medium sized businesses will grow from $84
million in 1996 to over $3.4 billion in 2000, representing 95% of the total Web
hosting market.
The rapid development and growth of the Internet has resulted in a highly
fragmented industry of over 4,000 national and local ISPs in the United States,
with no dominant ISP serving the needs of small and medium sized businesses.
Independent regional and local ISPs have successfully captured approximately
one-half of this market, despite the substantially greater resources of the
national providers. However, rising costs and increasing demands from business
customers have made it more difficult for the small ISP to meet its customer's
demands on a cost-effective basis. Facing these competitive pressures, Verio
believes that independent regional and local ISPs will continue to be attracted
to and benefit from the consolidation opportunity provided by Verio.
Internet connectivity and enhanced Internet services to small and medium
sized businesses. Key elements of the Company's strategy in accomplishing this
goal are to: (a) continue its role as the leading consolidator of independent
ISPs by acquiring additional local and regional ISPs focused on the Company's
target market; (b) integrate the operations of its ISPs and capture operational
economies of scale by leveraging its national infrastructure and support
services; (c) develop and offer additional high-margin enhanced services to
increase revenues from existing and future customers; and (d) build customer
loyalty and gain market share by expanding the Company's local technical,
distribution and service capabilities and establishing national Verio brand name
recognition.
Verio owns and operates a national network, providing a high bandwidth,
highly reliable data transmission path connecting Verio's customers to the
Internet. The Company's national network architecture is based on a combination
of Asynchronous Transfer Mode ("ATM") and clear channel circuits operating at
DS-3 and OC-3 speeds. The network interconnects more than 15 national nodes and
over 180 local points of presence ("POPs") across the United States. The Company
believes that aggregating the bandwidth and capacity requirements of each Verio
ISP onto one national network provides operational control and efficiency,
reduces costs, provides redundancy, and results in a higher quality service,
thereby addressing some of the most significant challenges that an ISP faces in
supporting its customers. The reliability of the national network is the result
of many factors, including but not limited to redundant routers and other
critical hardware, carrier class facilities at POP locations (such as back up
power, fire suppression and climate control), and redundant telecommunications
lines. Verio's national infrastructure incorporates several other elements
critical to maintaining the highest quality Internet service, such as peering
relationships with other national ISPs, sophisticated network management tools,
and a comprehensive range of national services to support its regional
operations. These services include 7-day X 24-hour customer technical support,
financial information management through a central, standardized accounting
system, a sophisticated billing and collections system, and national marketing
and product development programs. The Company continues to rollout its national
infrastructure and support services to its ISPs. Of the over 30 ISPs acquired to
date, 16 now invoice their customers through Verio's national billing service,
21 take advantage of Verio's customer technical support, 25 are linked to
Verio's national backbone, 20 utilize Verio's national accounting system, and
the network operations of 17 of these ISPs are monitored by Verio's national
Network Operations Center ("NOC").
Verio believes that a critical factor in the successful implementation of
its business strategy is the quality of its management team and Board of
Directors. The Company's senior management team and Board of Directors have
previously successfully executed similar consolidation strategies and have
considerable experience in the management and growth of recurring revenue-based
telecommunications businesses. Management believes that its experience in the
deployment of similar systems and services in other emerging telecommunications
industries can be leveraged to significantly improve the quality of services
currently available in the Internet service industry.
4
<PAGE> 6
RECENT DEVELOPMENTS
Since December 31, 1997, the Company has completed the acquisition of all
of the remaining equity (each, a "Buyout") of 8 of the Verio ISPs in which Verio
did not initially acquire 100% ownership. Verio is in the process of integrating
the Verio ISPs in each region into regional operating units to capture and
promote operational and management efficiencies and economies of scale. On March
12, 1998, the Company announced the consolidation of the Verio ISPs' operations
and marketing efforts under the Verio brand name.
The Company continues to evaluate additional ISPs for investment or
acquisition. Since December 31, 1997, the Company has acquired an ISP in its
Northeast region, and has executed definitive agreements to acquire four
additional ISPs. Two of these ISPs will expand the Company's Midwest presence,
one will join the Northeast operations, and one is located in Florida and is the
Company's first acquisition in the Southeast region. With these four additional
ISPs, the Company will serve 36 of the top 50 MSAs in the U.S. The revenue
attributable to these four ISPs is estimated to be approximately $2.3 million
for the three months ended December 31, 1997, which would bring the Company's
total revenue for that three month period to $25.5 million. The Company believes
that consummation of each of these acquisitions is probable. Accordingly,
financial information for these acquisitions is reflected in the pro forma
financial statements contained herein. Nonetheless, there can be no assurance
that all of the closing conditions will be satisfied or that the Company will
consummate any or all of these acquisitions. In addition, the Company has
executed a non-binding letter of intent to acquire an additional ISP located in
Michigan which, if acquired, would further enhance the Company's market presence
in the Midwest region.
Mark D. Johnson, who served as the Company's President, Chief Operating
Officer and a director of the Company, died on March 9, 1998. While Mr. Johnson
played an important role in overseeing the Company's operations, the Company
does not expect that his death will adversely affect the Company's operations,
growth or financial prospects because of the strength of the Company's core
management team. Justin Jaschke, Verio's Chief Executive Officer, has been
appointed to serve as President of the Company and has assumed Mr. Johnson's
responsibilities on behalf of the Company while Verio conducts an executive
search to fill the positions that were held by Mr. Johnson.
On March 25, 1998, the Company consummated the sale of $175.0 million
principal amount of 10 3/8% Senior Notes due 2005 (the "1998 Notes"). In
connection with the sale of the 1998 Notes, the Company repurchased the $50.0
million principal amount of the Company's 1997 Notes held by Brooks Fiber
Properties, Inc. ("Brooks") (the "Refinancing") for an aggregate net purchase
price of approximately $54.5 million, plus accrued interest. See "Certain
Transactions."
On March 31, 1998, the Company signed a long-term agreement with Qwest
Communications Corporation ("Qwest") to purchase long haul capacity and
ancillary services on Qwest's planned 16,285 mile MacroCapacity(SM) Fiber
Network. Over the first seven years of the agreement, Verio has committed to
purchase, and Qwest has committed to provide, not less than $100.0 million of
capacity and services at agreed upon prices. See "Management's Discussion and
Analysis of Financial Condition and Result of Operations -- Costs and Expenses"
and "Business -- Verio National Network." The Company will have the right to
prepay its commitment under the agreement. The Company also may order capacity
and services in excess of the commitment level, and after the seven-year
commitment term, at the agreed upon prices.
On April 6, 1998, Verio signed a credit agreement providing for a $57.5
million revolving credit financing facility (the "Bank Facility"). The Chase
Manhattan Bank serves as agent for the lenders in the Bank Facility. The Company
has drawn no funds to date under the Bank Facility.
On April 7, 1998, the Company executed agreements establishing a strategic
relationship with NTT. These agreements provide for an investment by NTT or one
of its affiliates in the Company (the "NTT Investment"), concurrent with and
conditioned upon the consummation of the Offering, for up to 12.5% of the
Company's fully diluted Common Stock (up to a maximum investment of $100.0
million) at a 3.25% discount to the Price to Public. Verio also executed a
commercial services agreement with NTT's U.S. affiliate, NTT America, Inc. ("NTT
America"), under which Verio is designated as the preferred provider of Internet
access and related services to customers of NTT America on a reseller basis.
Verio and NTT will connect their
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<PAGE> 7
backbones and establish a peering and transit relationship. In conjunction with
its equity investment, NTT will be entitled to designate one member to serve on
the Company's Board of Directors. See "Business -- NTT Strategic Relationship"
and "Principal Stockholders -- NTT Investment."
The Company's headquarters is located at 8005 South Chester Street, Suite
200, Englewood, Colorado 80112. The Company's phone number is (303) 645-1900.
THE OFFERING
Common Stock offered by the
Company............................. 5,000,000 shares.
Common Stock to be outstanding after
the Offering........................ 31,732,214 shares(1).
Use of Proceeds..................... The Company will receive approximately
$80.8 million of net proceeds (after
deducting the Underwriters' discount
and expenses related to the Offering)
from the Offering. The Company also
will receive approximately $78.5
million in cash from the sale of the
NTT Shares (based upon an assumed
initial public offering of 5,000,000
shares of Common Stock an assumed Price
to Public of $17.50 per share). The net
combined proceeds received by the
Company are expected to be used to
further the Company's acquisition and
investment strategy, to continue the
development and implementation of the
national backbone, customer care
center, network operations center and
billing and accounting services, and to
fund the Company's general working
capital requirements. See "Use of
Proceeds."
Proposed Nasdaq National Market
Symbol.............................. VRIO
- ---------------
(1) Includes (i) 1,294,266 shares of Common Stock outstanding at April 10, 1998;
(ii) 18,561,667 shares of Common Stock issuable upon conversion of the
Series A, B and C Preferred Stock outstanding at April 10, 1998; (iii)
2,237,554 shares of Common Stock issuable upon conversion of the Series D-1
Preferred Stock issued and expected to be issued in connection with
acquisitions and Buyouts completed or probable as of April 10, 1998; and
(iv) 4,638,727 shares of Common Stock to be sold by the Company to NTT for
approximately $78.5 million, (based upon an assumed initial public offering
of 5,000,000 shares of Common Stock at an assumed Price to Public of $17.50
per share), concurrently with the Offering. Excludes (i) up to 9,200,000
shares of Common Stock that, effective upon the consummation of the
Offering, will be reserved for issuance under the Company's stock option
plans, of which 3,629,940 shares were issuable upon exercise of outstanding
options as of April 10, 1998 at a weighted average exercise price of $8.61
per share, (ii) 2,112,480 shares of Common Stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $.01 per share,
and (iii) 3,000,000 shares of Common Stock reserved for issuance under the
Company's 1998 Employee Stock Purchase Plan. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Notes to
Consolidated Financial Statements.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except per share amounts)
The summary historical consolidated financial data as of and for the period
from inception (March 1, 1996) to December 31, 1996 and as of and for the year
ended December 31, 1997 have been derived from the audited Consolidated
Financial Statements of the Company included elsewhere in this Prospectus.
The information set forth below should be read in conjunction with the
Unaudited Pro Forma Condensed Combined Financial Statements and the historical
Consolidated Financial Statements of the Company and the notes thereto included
elsewhere in this Prospectus. Results of operations for the year ended December
31, 1997 are not necessarily indicative of results of operations for future
periods. The Company's development and expansion activities, including
acquisitions, during the periods shown below may significantly affect the
comparability of this data from one period to another. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)(2)
----------------------------------- ---------------
PERIOD FROM
INCEPTION YEAR ENDED YEAR ENDED
(MARCH 1, 1996) TO DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1996 1997 1997
------------------ ------------ ---------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue............................... $ 2,365 $ 35,692 $ 88,265
Total costs and expenses.................... 8,645 75,981 146,126
-------- ---------- -----------
Loss from operations........................ $ (6,280) $ (40,289) $ (57,861)
======== ========== ===========
Net loss attributable to common
stockholders.............................. $ (5,145) $ (46,329) $ (64,131)
======== ========== ===========
Loss per common share -- basic and
diluted................................... $ (5.29) $ (40.47) $ (2.90)
======== ========== ===========
Weighted average common shares outstanding--
basic and diluted......................... 971,748 1,144,685 22,090,352
OTHER DATA:
EBITDA(3)................................... $ (5,611) $ (29,665) $ (31,950)
Capital expenditures(4)..................... 3,430 14,547 14,547
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
QUARTERLY STATEMENT OF OPERATIONS DATA:
Total revenue........................................... $ 4,414 $ 8,249 $ 9,624 $ 13,405
Total costs and expenses................................ 10,006 17,103 20,365 28,507
------- ------- -------- ----------
Loss from operations.................................... $(5,592) $(8,854) $(10,741) $ (15,102)
======= ======= ======== ==========
Net loss attributable to common stockholders............ $(4,677) $(8,120) $(12,762) $ (20,770)
======= ======= ======== ==========
OTHER DATA:
EBITDA(3)............................................... $(4,346) $(6,306) $ (7,798) $ (11,215)
======= ======= ======== ==========
</TABLE>
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<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA(1) AS ADJUSTED(5)
---------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 72,586 $ 27,299 $314,649
Restricted cash and securities.......................... 40,554 40,554 27,822
Goodwill, net........................................... 83,216 152,241 152,241
Total assets............................................ 246,471 276,058 555,888
Long-term debt and capital lease obligations, net of
current portions...................................... 142,321 143,651 272,694
Redeemable preferred stock.............................. 97,249 -- --
Stockholders' equity (deficit).......................... (27,001) 95,808 245,049
</TABLE>
- ---------------
(1) Pro forma for the Completed and Proposed Acquisitions (as defined in the
Company's Unaudited Pro Forma Condensed Combined Financial Statements) as if
they had occurred on December 31, 1997 for balance sheet purposes and on
January 1, 1997 for statement of operations data purposes and for the
conversion of the Preferred Stock into Common Stock upon completion of the
Offering. See "Unaudited Pro Forma Condensed Combined Financial Statements."
(2) Pro forma interest expense, including amortization of debt issuance costs,
assuming that the 1998 Notes had been issued on January 1, 1997 and after
giving effect to the Refinancing, totaled $27.3 million for the year ended
December 31, 1997.
(3) EBITDA represents earnings (loss) from operations before interest, taxes,
depreciation, amortization and provision for loss on write-offs of
investments in ISPs and fixed assets. The primary measure of operating
performance is net earnings (loss). Although EBITDA is a measure commonly
used in the Company's industry, it should not be construed as an alternative
to net earnings (loss), determined in accordance with generally accepted
accounting principles ("GAAP"), as an indicator of operating performance or
as an alternative to cash flows from operating activities, determined in
accordance with GAAP. In addition, the measure of EBITDA presented herein by
the Company may not be comparable to other similarly titled measures of
other companies.
(4) Excludes equipment and leasehold improvements acquired in business
acquisitions.
(5) As adjusted (a) to give effect to (i) the Offering after deducting the
Underwriters' discounts and commissions and estimated expenses, (ii) the
proceeds from the 1998 Notes and the application of the proceeds therefrom
to effect the Refinancing, and (iii) the sale of 4,638,727 shares of Common
Stock to NTT for approximately $78.5 million, (based upon an assumed initial
public offering of 5,000,000 shares of Common Stock at an assumed Price to
Public of $17.50 per share) concurrently with the Offering and (b) to
reflect an extraordinary charge of approximately $10.1 million for the loss
on early extinguishment of $50.0 million of 1997 Notes, representing the
excess of the repurchase price over the carrying value of such 1997 Notes as
of December 31, 1997.
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RISK FACTORS
Prospective purchasers of the Shares should carefully consider the
following risk factors, as well as the other information contained in this
Prospectus before making an investment in the Shares. This Prospectus contains
statements which constitute forward-looking statements within the meaning of the
Reform Act. The safe harbor provisions provided in Section 27A of the Securities
Act and Section 21E of the Exchange Act do not apply to forward-looking
statements made in connection with an initial public offering. These statements
appear in a number of places in this Prospectus and include statements regarding
the intent, belief or current expectations of the Company, its directors or its
officers primarily with respect to the future operating performance of the
Company. Prospective purchasers of the Shares are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those in the forward-looking statements as a result of various factors. The
accompanying information contained in this Prospectus, including the information
set forth below, identifies important factors that could cause such differences.
See "-- Forward-Looking Statements" below.
HISTORY OF LOSSES; NO ASSURANCE OF PROFITABILITY
The Company was formed in March 1996. The Company has incurred net losses
since its inception, and management expects to incur significant additional
losses as the Company continues its investment and acquisition program as well
as the building of its national network operations. Prospective investors have
limited operating and financial data about the Company upon which to base an
evaluation of the Company's performance and an investment in the Shares offered
hereby. For the period from inception to December 31, 1996 and the year ended
December 31, 1997, the Company reported net losses of $5.1 million and $46.3
million, respectively. From inception through December 31, 1997, the Company
reported cumulative cash used by operating activities of $37.6 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company expects to generate negative operating cash flow for at
least the next several years while it continues to acquire and invest in ISPs.
The extent to which the Company experiences negative cash flow will depend upon
a number of factors including the number and size of its acquisitions and
investments, the ability to generate increasing revenues and cash flow, the
amount of expenditures incurred at the corporate and national level, the timing
of the Buyouts and any potential adverse regulatory developments. The Company
will be dependent on various financing sources to fund its growth as well as
continued losses from operations. There can be no assurance that the Company
will achieve or sustain positive operating cash flow or generate net income in
the future. To achieve profitability, the Company must, among other things,
develop and market products and services which are accepted on a broad
commercial basis. Given the Company's limited operating history, there can be no
assurance that the Company will ever achieve broad commercial acceptance or
profitability. See "-- Competition; Pricing Fluctuation," "-- Dependence on the
Internet; Uncertain Adoption of Internet as Medium of Commerce and
Communications" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
SUBSTANTIAL INDEBTEDNESS; EFFECT OF FINANCIAL LEVERAGE
The Company has indebtedness that is substantial in relation to its
stockholders' equity and cash flow. As of December 31, 1997, the Company had an
aggregate of approximately $142.3 million of long-term indebtedness outstanding,
representing 67% of total capitalization. After giving effect to the recent sale
of $175.0 million of the Company's 1998 Notes, the Offering and the NTT
Investment, long term indebtedness would represent 53% of total capitalization.
In addition, the Company recently signed the Bank Facility providing for $57.5
million of revolving credit. See "-- Requirements for Additional Capital." As a
result of the substantial indebtedness of the Company, fixed charges of the
Company are expected to exceed its earnings for the foreseeable future.
Substantial leverage poses the risk that the Company may not be able to generate
sufficient cash flow to service its indebtedness, or to adequately fund its
operations. The Company has experienced a substantial decrease in EBITDA, from
negative $5.6 million in 1996 to negative $29.7 million in 1997. Although EBITDA
as a percentage of revenue improved from negative 237% to negative 83%, there
can be no assurance that this trend will continue, or that the Company will be
able to increase its revenue and
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leverage the investments it has made in national services and systems, the
national network, and the operating overhead of the Verio ISPs, to achieve
sufficient cash flow to meet its debt service obligations. In particular, there
can be no assurance that the Company's operating cash flow will be sufficient to
pay the $13.5 million in annual interest (beginning in June 2000 following the
termination of the interest escrow arrangement for the 1997 Notes) on the $100.0
million principal amount of 1997 Notes outstanding after the Refinancing, to pay
the $18.2 million in annual interest on the 1998 Notes, or to meet its debt
service obligations under the Bank Facility, if drawn upon. The leveraged nature
of the Company also could limit the ability of the Company to effect future
financings or may otherwise restrict the Company's operations and growth.
REQUIREMENTS FOR ADDITIONAL CAPITAL
The Company's operations have required and will continue to require
substantial capital for investments in ISP operations, including the acquisition
of or investments in additional ISPs, the deployment of the Company's national
network and infrastructure and the funding of capital expenditures for expansion
of services and operating losses. The Company may need additional amounts to
fund its operating losses and those of the Verio ISPs, which amounts cannot be
determined. Over the longer term, it is likely that the Company will require
substantial additional funds to continue to fund the Company's investment and
acquisition program as well as product development, marketing, sales and
customer support capabilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company expects to meet its additional capital needs with the proceeds
from sales or issuance of equity securities, credit facilities and other
borrowings, lease financings, and sales of additional debt securities. The
failure to raise and generate sufficient funds may require the Company to delay
or abandon some of its planned future expansion or expenditures, which could
have a material adverse effect on the Company's growth and its ability to
compete in the Internet industry. No assurances can be given that the Company
will have sufficient cash flow available to maintain its current or future
growth plans or operations.
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results have fluctuated in the past and may in the
future fluctuate significantly depending upon a variety of factors, including
the incurrence of capital costs and costs associated with the Buyouts and the
introduction of value-added enhanced services and new services by the Company.
Additional factors that may contribute to variability of operating results
include: the pricing and mix of services offered by the Company; customer
retention rate; changes in pricing policies and product offerings by the
Company's competitors; growth in demand for network and Internet access
services; one-time costs associated with regional consolidation; and general
telecommunications services' performance and availability. The Company has also
experienced seasonal variation in Internet use and, therefore, revenue streams
may fluctuate accordingly. In response to competitive pressures, the Company may
take certain pricing or marketing actions that could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "-- Competition; Pricing Fluctuation." As a result, variations in the timing
and amounts of revenues could have a material adverse effect on the Company's
quarterly operating results. Due to the foregoing factors, the Company believes
that period-to-period comparisons of its operating results are not necessarily
meaningful and that such comparisons cannot be relied upon as indicators of
future performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
COMPETITION; PRICING FLUCTUATION
The market for Internet connectivity and related services is extremely
competitive. The Company anticipates that competition will continue to intensify
as the use of the Internet grows. The tremendous growth and potential market
size of the Internet access market has attracted many new start-ups as well as
existing businesses from different industries. Current and prospective
competitors include, in addition to other national, regional and local ISPs,
long distance and local exchange telecommunications companies, cable television
companies, direct broadcast satellite and wireless communications providers, and
on-line service providers. The Company believes that a reliable national
network, knowledgeable salespeople and the quality of technical
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support currently are the primary competitive factors in the Company's targeted
market, and that price is usually secondary to these factors.
The Company's current primary competitors include other ISPs with a
significant national presence which focus on business customers, such as UUNet,
GTE Internetworking (formerly BBN), PSINet, Concentric Network and DIGEX. While
the Company believes that its level of local service and support and target
market focus distinguish it from these competitors, some of these competitors
have a significantly greater market presence, brand recognition, and financial,
technical and personnel resources than the Company, and have extensive
coast-to-coast Internet backbones. The Company also competes with unaffiliated
regional and local ISPs in its targeted geographic regions.
All of the major long distance companies (also known as interexchange
carriers or IXCs), including AT&T, MCI, and Sprint, offer Internet access
services and compete with the Company. The recent sweeping reforms in the
federal regulation of the telecommunications industry have created greater
opportunities for local exchange carriers ("LECs"), including the Regional Bell
Operating Companies ("RBOCs"), to enter the Internet connectivity market. In
order to address the Internet connectivity requirements of the current business
customers of long distance and local carriers, the Company believes that there
is a move toward horizontal integration through acquisitions of, joint ventures
with, and the wholesale purchase of connectivity from, ISPs. The
WorldCom/MFS/UUNet consolidation, the NETCOM/ICG merger, the Intermedia/DIGEX
merger and GTE's acquisition of BBN are indicative of this trend. Accordingly,
Verio expects that it will experience increased competition from the traditional
telecommunications carriers. Many of these telecommunications carriers, in
addition to their substantially greater network coverage, market presence, and
financial, technical and personnel resources, also have large existing
commercial customer bases. Furthermore, telecommunications providers may have
the ability to bundle Internet access with basic local and long distance
telecommunications services. Such bundling of services may have an adverse
effect on the Company's ability to compete effectively with the
telecommunications providers and may result in pricing pressure on the Company
that would have an adverse effect on the Company's business, financial condition
and results of operations.
Many of the major cable companies have announced that they are exploring
the possibility of offering Internet connectivity, relying on the viability of
cable modems and economical upgrades to their networks. MediaOne Group and TCI
have recently announced trials to provide Internet cable service to their
residential customers in select areas. Several announcements also have recently
been made by other alternative service companies approaching the Internet
connectivity market with various wireless terrestrial and satellite-based
service technologies. These include Hughes Network System's DirecPC that
provides high-speed data through direct broadcast satellite technology; CAI
Wireless System's announcement of an MMDS wireless cable operator launching data
services via 2.5 to 2.7 GHz and high-speed wireless modem technology;
Cellularvision's announcement that it is offering Internet access via high-speed
wireless LMDS technology; and Winstar, which currently offers high-speed
Internet access to business customers over the 38 GHz spectrum.
The predominant on-line service providers, including America Online,
CompuServe, Microsoft Network, and Prodigy, have all entered the Internet access
business by engineering their current proprietary networks to include Internet
access capabilities. The Company competes to a lesser extent with these on-line
service providers.
Recently, there have been several announcements regarding the planned
deployment of broadband services for high speed Internet access by cable and
telephone companies through new technologies such as cable modems and xDSL.
While these providers have initially targeted the residential consumer, it is
likely that their target markets will expand to encompass the Company's target
markets, which may significantly affect the pricing of the Company's service
offerings.
As a result of an increase in the number of competitors, and vertical and
horizontal integration in the industry, the Company currently encounters and
expects to encounter significant pricing pressure and other competition in the
future. Advances in technology as well as changes in the marketplace and the
regulatory environment are constantly occurring, and the Company cannot predict
the effect that ongoing or future
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developments may have on the Company or the pricing of its products and
services. See "-- Fluctuations in Operating Results," "-- Dependence on the
Internet; Uncertain Adoption of Internet as a Medium of Commerce and
Communications" and "-- Potential Liability for Information Disseminated Over
Network; Regulatory Matters."
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUISITIONS AND INVESTMENTS
The Company is currently experiencing a period of rapid expansion with the
acquisition and integration of its ISPs. The rapid growth of the Company's
business and its product and service offerings has placed, and is likely to
continue to place, a significant strain on the Company's managerial, operating,
financial and other resources. The Company's future performance will depend, in
part, upon its ability to manage its growth effectively, which will require that
the Company implement additional management information systems capabilities,
further develop its operating, administrative and financial and accounting
systems and controls, improve coordination between engineering, accounting,
finance, marketing and operations, and hire and train additional personnel.
Failure by the Company to develop adequate operational and control systems or to
attract and retain highly qualified management, financial, technical, sales and
marketing and customer care personnel could materially adversely affect the
Company's ability to integrate the ISPs it has acquired and continues to
acquire. While the Company anticipates that it will recognize various economies
and efficiencies of scale as a result of the Buyouts and the integration of the
businesses of the Verio ISPs, the process of consolidating the businesses and
implementing the strategic integration of the Company and its ISPs, even if
successful, may take a significant period of time, will place a significant
strain on the Company's resources, and could subject the Company to additional
expenses during the integration process. Furthermore, the Company's performance
will depend on the internal growth generated through ISP operations. As a
result, there can be no assurance that the Company will be able to integrate the
Verio ISPs successfully or in a timely manner in accordance with its strategic
objectives. Failure to integrate its ISPs or to manage effectively the growth of
the Company would have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE UPON IMPLEMENTATION OF NETWORK INFRASTRUCTURE; ESTABLISHMENT AND
MAINTENANCE OF PEERING RELATIONSHIPS
The Company's success will depend upon its ability to complete the
implementation of and to continue to expand its national network infrastructure
and support services in order to supply sufficient geographic reach, capacity,
reliability and security at an acceptable cost. The continued development and
expansion of the Company's national network will require that it enter into
additional agreements, on acceptable terms and conditions, with the various
providers of infrastructure capacity and equipment and support services. No
assurance can be given that any or all of the requisite agreements can be
obtained on satisfactory terms and conditions. See "Business -- Verio National
Network -- Peering Relationships."
In addition, the establishment and maintenance of peering relationships
with other ISPs is necessary in order to exchange traffic with other ISPs
without having to pay transit costs. The basis on which the large national ISPs
make peering available or impose settlement charges is evolving as the provision
of Internet access and related services has expanded and the dominance of a
small group of national ISPs has driven corporate peering policies. Recently,
companies that have previously offered peering have cut back or eliminated
peering relationships and are establishing new, more restrictive criteria for
peering. Furthermore, if increasing requirements associated with maintaining
peering with the major national ISPs develop, the Company may have to comply
with those additional requirements in order to continue to maintain its peering
relationships. The Company also anticipates that future expansions and
adaptations of its network infrastructure may be necessary in order to respond
to growth in the number of customers served, increased demands to transmit
larger amounts of data and changes to its customers' product and service
requirements. The expansion and adaptation of the Company's network
infrastructure will require substantial financial, operational and managerial
resources. There can be no assurance that the Company will be able to expand or
adapt its network infrastructure to meet the industry's evolving standards or
its customers' growing demands and changing requirements on a timely basis, at a
commercially reasonable cost, or at all, or that the Company will
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be able to deploy successfully any expanded and adapted network infrastructure.
Failure to maintain peering relationships or establish new ones, if necessary,
would cause the Company to incur additional operating expenditures which would
have a material adverse effect on the Company's business, financial condition
and results of operations.
CHALLENGES OF GROWTH BY ACQUISITIONS
The Company's business strategy is dependent, in part, upon its ability to
continue to successfully identify and acquire ISPs that meet the Company's
investment criteria. The Company is continuing to seek and evaluate qualified
ISP candidates in order to optimize its market presence in the regions it
currently serves, and to expand its focus to encompass the remaining top 50 MSAs
not currently served by the Verio ISPs. In pursuing these opportunities, the
Company may compete with other communications companies with similar acquisition
strategies, many of which may be larger and have greater financial and other
resources than the Company. Competition for independent ISPs is based on a
number of factors, including price, terms and conditions, size and access to
capital, ability to offer cash, stock, or other forms of consideration and other
matters. No assurance can be given that the Company will be able to successfully
identify suitable ISPs or, once identified, will be able to consummate an
acquisition of or an investment in those targeted ISPs on terms and conditions
acceptable to the Company. See "Business -- The Verio Strategy" and
"-- Competition; Pricing Fluctuation." Further, the Company's ability to
consummate transactions with ISPs that it identifies will require significant
financial resources. Failure to raise and generate sufficient funds may require
the Company to delay or abandon some of its planned future expansion or
expenditures, which could have a material adverse effect on the Company's
growth. See "-- Requirements for Additional Capital."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent upon the efforts of its senior management
team, the loss of any of whom could impede the achievement of product
development and marketing objectives and could have a material adverse effect on
the Company. The Company believes that its future success will depend in large
part on its ability to attract and retain qualified technical and marketing
personnel for whom there is intense competition in the areas of the Company's
activities. There can be no assurance that the Company will be able to attract
and retain the personnel necessary for the development and integration of its
business. Delays in hiring such personnel could delay the achievement of
development and marketing objectives. The loss of the services of key personnel
or the failure to attract additional personnel as required could have a material
adverse effect on the Company's business, financial condition and results of
operations.
RISK OF SYSTEM FAILURE
The Company's operations are dependent upon its ability to protect its
network infrastructure against damage from fire, earthquakes, floods, power
loss, telecommunications failures and similar events or to construct networks
that are not vulnerable to the effects of such events. Significant portions of
the Company's computer equipment, including components critical to the operation
of its Internet backbone, are located at the Company's facility in Englewood,
Colorado and the Company's NOC located in Dallas, Texas. Despite precautions
taken by and planned by the Company, the occurrence of a natural disaster or
other unanticipated problem at the Company's NOC or at a number of the Company's
national nodes could cause interruptions in the services provided by the
Company. The failure of a local POP would result in interruption of service to
the customers served by such POP until necessary repairs were effected or
replacement equipment were installed. Additionally, failure of the Company's
telecommunications providers to provide the data communications capacity
required by the Company as a result of natural disaster, operational disruption
or for any other reason could cause interruptions in the services provided by
the Company. Any damage or failure that causes interruptions in the Company's
operations could have a material adverse effect on the Company's business,
financial condition and results of operations.
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SECURITY RISKS
Despite the implementation of security measures by the Company, networks
are vulnerable to unauthorized access, computer viruses and other disruptive
problems. ISPs have in the past experienced, and may in the future experience,
interruptions in service as a result of the accidental or intentional actions of
Internet users, current and former employees or others. Unauthorized access
could also potentially jeopardize the security of confidential information
stored in the computer systems of the Company and its customers, which may
result in liability of the Company to its customers and also may deter potential
subscribers. Although the Company intends generally to continue to implement
industry-standard security measures, such measures have been circumvented in the
past, and there can be no assurance that measures implemented by the Company
will not be circumvented in the future. Eliminating computer viruses and
alleviating other security problems may require interruptions, delays or
cessation of service to the Company's customers which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON THE INTERNET; UNCERTAIN ADOPTION OF INTERNET AS A MEDIUM OF
COMMERCE AND COMMUNICATIONS
The Company's products and services are targeted toward users of the
Internet, which has experienced rapid growth. As is typical in the case of a new
and rapidly evolving industry characterized by rapidly changing technology,
evolving industry standards and frequent new product and service introductions,
demand and market acceptance for recently introduced products and services are
subject to a high level of uncertainty. In addition, critical issues concerning
the commercial use of the Internet remain unresolved and may impact the growth
of Internet use, especially in the business market targeted by the Company.
Despite growing interest in the many commercial uses of the Internet, many
businesses have been deterred from purchasing Internet access services for a
number of reasons, including, among others, inconsistent quality of service,
lack of availability of cost-effective, high-speed options, a limited number of
local access points for corporate users, inability to integrate business
applications on the Internet, the need to deal with multiple and frequently
incompatible vendors, inadequate protection of the confidentiality of stored
data and information moving across the Internet, and a lack of tools to simplify
Internet access and use. In particular, numerous published reports have
indicated that a perceived lack of security of commercial data, such as credit
card numbers, has significantly impeded commercial exploitation of the Internet
to date, and there can be no assurance that encryption or other technologies
will be developed that satisfactorily address these security concerns. Published
reports have also indicated that capacity constraints caused by growth in the
use of the Internet may, unless resolved, impede further development of the
Internet to the extent that users experience delays, transmission errors and
other difficulties. Further, the adoption of the Internet for commerce and
communications, particularly by those individuals and enterprises which have
historically relied upon alternative means of commerce and communication,
generally requires the understanding and acceptance of a new way of conducting
business and exchanging information. In particular, enterprises that have
already invested substantial resources in other means of conducting commerce and
exchanging information may be particularly reluctant or slow to adopt a new
strategy that may make their existing personnel and infrastructure obsolete.
The Company is also at risk as a result of fundamental technological
changes in the way Internet solutions may be marketed and delivered. Integrating
technological advances may require substantial time and expense, and there can
be no assurance that the Company will succeed in adapting its network
infrastructure. While the Company believes that its plan of combining the scale
and scope of a national operation with the local presence of its ISP operations
offers significant advantages for commerce and communication over the Internet,
there can be no assurance that commerce and communication over the Internet will
become widespread, or that the Company's offered Internet access and
communications services will become widely adopted for these purposes. The
failure of the market for business-related Internet solutions to continue to
develop would adversely impact the Company's business, financial condition and
results of operations.
In addition, new technologies or industry standards have the potential to
replace or provide lower cost alternatives to the Company's existing products
and services. The adoption of such new technologies or industry standards could
render the Company's existing products and services obsolete and unmarketable.
For example, the Company's services rely on the continued widespread commercial
use of Transmission Control
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Protocol/Internet Protocol ("TCP/IP"). Alternative open and proprietary protocol
standards that compete with TCP/IP, including proprietary protocols developed by
IBM and Novell, Inc., have been or are being developed. If the market for
Internet access services fails to develop, develops more slowly than expected,
or becomes saturated with competitors, or if the Internet access and services
offered by the Company and its ISPs are not broadly accepted, the Company's
business, operating results and financial condition will be materially adversely
affected.
POTENTIAL LIABILITY FOR INFORMATION DISSEMINATED OVER NETWORK; REGULATORY
MATTERS
The law relating to liability of on-line service providers and ISPs for
information carried on or disseminated through their networks is currently
unsettled. A number of lawsuits have sought to impose such liability for
defamatory speech and infringement of copyrighted materials. Although some
courts have ruled that the 1996 Telecommunications Act immunizes ISPs from
liability for defamatory material carried on their facilities, there can be no
assurance that other courts will take a similar approach. In one case, a state
court held that an on-line service provider could be found liable for defamatory
materials provided through its service, on the ground that the service provider
exercised active editorial control over postings to its service. Other courts
have held that on-line service providers and ISPs may, under certain
circumstances, be subject to damages for copying or distributing copyrighted
materials. Although the Supreme Court has declared the Communications Decency
Act ("CDA") to be unconstitutional as it applies to the transmission of indecent
on-line communications to minors, state and federal statutes continue to
prohibit the on-line distribution of obscene materials. The imposition upon ISPs
or Web server hosts of potential liability for materials carried on or
disseminated through their systems could require the Company to implement
measures to reduce its exposure to such liability. Such measures may require the
expenditure of substantial resources or the discontinuation of certain product
or service offerings, any of which could have a material adverse effect on the
Company's business, operating results and financial condition.
Although the Company is not currently subject to direct regulation by the
Federal Communications Commission (the "FCC") or any other federal or state
agency, changes in the regulatory environment relating to the Internet
connectivity market, including regulatory changes which directly or indirectly
affect telecommunications costs or increase the likelihood or scope of
competition from the RBOCs or other telecommunications companies, could affect
the prices at which the Company may sell its services. For example, proposed
regulations at the FCC would require discounted Internet connectivity rates for
schools and libraries. Also, the FCC is considering whether ISPs should be
required to pay access charges to local telephone companies for each minute that
dial up users spend connected to ISPs through telephone company switches, and
some telephone companies have requested similar relief from state regulatory
commissions. The imposition of access charges would affect the Company's costs
of serving dial up customers and could have a material adverse effect on the
Company's business, operating results and financial condition.
DEPENDENCE UPON SUPPLIERS; LIMITED SOURCES OF SUPPLY
The Company relies on other companies to supply certain key components of
its network infrastructure, including telecommunications services and networking
equipment which, in the quantities and quality demanded by the Company, are
available only from limited sources. For example, the Company currently relies
on Cisco Systems to supply routers critical to the Company's network, and the
Company could be adversely affected if routers from Cisco were to become
unavailable on commercially reasonable terms. Sprint, MCI and MFS, which are
competitors of the Company, are the Company's primary providers of data
communications facilities and network capacity. The Company also is dependent
upon LECs, which often are competitors of the Company, to provide
telecommunications services and lease physical space to the Company for routers,
modems and other equipment. The Company has from time to time experienced delays
in receiving telecommunications services, which can lead to the loss of
customers or prospective customers. There can be no assurance that, on an
ongoing basis, the Company will be able to obtain such services on the scale and
within the time frames required by the Company at a commercially reasonable
cost, or at all. Failure to obtain or to continue to make use of such services
would have a material adverse effect on the Company's business, operating
results and financial condition.
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FINANCIAL INFORMATION CONCERNING COMPLETED AND PROBABLE ACQUISITIONS
The regional ISPs targeted by the Company for acquisition typically do not
have audited financial statements and have varying degrees of internal controls
and detailed financial information. The pro forma financial information in this
Prospectus includes financial information concerning certain completed and
probable acquisitions for which audited financial statements are not presently
available. These companies are included in the "Pro Forma Financial Statements."
While the Company believes such information to be reliable, the Company has only
recently acquired certain of the companies and is in the process of performing
its due diligence investigations of the other companies. There can be no
assurance that the Company's due diligence investigations and subsequent audit
will not reveal matters of significance, including with respect to liabilities,
contingent or otherwise, of these companies.
ANTI-TAKEOVER PROVISIONS
Certain provisions of Delaware law and the Company's Certificate of
Incorporation (the "Certificate of Incorporation") and Bylaws (the "Bylaws") may
have the effect of delaying, deterring or preventing a future takeover or change
in control of the Company unless such takeover or change in control is approved
by the Company's Board of Directors. Such provisions also may render the removal
of directors and management more difficult. Such provisions could limit the
price that certain investors might be willing to pay in the future for shares of
the Company's Common Stock. These provisions of Delaware law and the Company's
Certificate of Incorporation and Bylaws may also have the effect of discouraging
or preventing certain types of transactions involving an actual or threatened
change of control of the Company (including unsolicited takeover attempts), even
though such a transaction may offer the Company's stockholders the opportunity
to sell their stock at a price above the prevailing market price. The Company's
Certificate of Incorporation places certain restrictions on who may call a
special meeting of stockholders. In addition, the Company's Board of Directors
has the authority to issue up to 12,500,000 shares of undesignated preferred
stock (the "Undesignated Preferred Stock") and to determine the price, rights,
preferences, and privileges of those shares without any further vote or actions
by the stockholders. The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any
Undesignated Preferred Stock that may be issued in the future. The issuance of
such shares of Undesignated Preferred Stock, while potentially providing
desirable flexibility in connection with possible acquisitions and serving other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or may discourage a third party from attempting to
acquire, a majority of the outstanding voting stock of the Company. In addition,
the Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law (the "DGCL"), which will prohibit the Company
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder unless the business combination is approved in
a prescribed manner. The application of Section 203 of the DGCL also could have
the effect of delaying or preventing a change of control of the Company. In
addition, the Company's Certificate of Incorporation provides that upon
consummation of the Offering the Board of Directors will be divided into three
classes of directors serving staggered terms and all stockholder actions must be
effected at a duly called meeting and not by a consent in writing. The
classification provision and the prohibition on stockholder action by written
consent could have the effect of discouraging a third party from making a tender
offer or otherwise attempting to gain control of the Company. Additionally,
certain federal regulations require prior approval of certain transfers of
control which could also have the effect of delaying, deferring or preventing a
change of control. See "Description of Capital Stock -- Anti-Takeover
Provisions."
DIVIDEND POLICY; RESTRICTION ON PAYMENT OF DIVIDENDS
The Company does not anticipate paying cash dividends in the foreseeable
future. See "Dividend Policy." The Company's ability to pay dividends is limited
by covenants imposed under the indenture, dated June 24, 1997, under which the
1997 Notes were issued (the "1997 Indenture"), the indenture, dated March 25,
1998, under which the 1998 Notes were issued (the "1998 Indenture"), and the
Bank Facility. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
16
<PAGE> 18
DILUTION
The public offering price may be substantially higher than the tangible
book value of the outstanding Common Stock. Purchasers of Shares in the Offering
will therefore experience immediate and substantial dilution in tangible book
value per share, and the existing stockholders will receive a material increase
in the tangible book value per share of their shares of Common Stock. The
dilution to new investors will be $12.96 per Share after giving effect to the
NTT Investment based upon an assumed initial public offering of 5,000,000 shares
of Common Stock at an assumed Price to Public of $17.50 per share.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop or
be sustained. The offering price has been determined by negotiations between the
Company and the Underwriters and there can be no assurance that the prices at
which the Common Stock will sell in the public market after the Offering will
not be lower than the price at which the Common Stock is sold in the Offering.
See "Underwriting." Historically, the market prices for securities of emerging
companies in the telecommunications industry have been highly volatile. The
trading price of the Common Stock after the Offering could be subject to wide
fluctuations in response to numerous factors, including, but not limited to,
quarterly variations in operating results, competition, announcements of
technological innovations or new products by the Company or its competitors,
product enhancements by the Company or its competitors, regulatory changes, any
differences in actual results and results expected by investors and analysts,
changes in financial estimates by securities analysts and other events or
factors. In addition, the stock market has experienced volatility that has
affected the market prices of equity securities of many companies and that often
has been unrelated to the operating performance of such companies. These broad
market fluctuations may adversely affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, there will be outstanding 31,732,214
shares of Common Stock (or 32,482,214 shares if the Underwriters' over-allotment
option is exercised in full) of which 26,732,214 are "restricted shares". Of
these shares, the 5,000,000 shares (or up to 5,750,000 shares if the
Underwriters' over-allotment option is exercised in full) of Common Stock sold
in the Offering will be freely tradeable without further restriction or further
registration under the Securities Act, except for shares purchased by an
affiliate (as such term is defined in the Securities Act) of the Company, which
will be subject to the limitations of Rule 144 ("Rule 144") under the Securities
Act. Subject to certain contractual limitations, holders of restricted shares
generally will be entitled to sell these shares in the public securities market
without registration either pursuant to Rule 144 (or Rule 145, as applicable) or
any other applicable exemption under the Securities Act.
Within 90 days of the date of this Prospectus, the Company intends to file
a registration statement under the Securities Act to register shares of Common
Stock reserved for issuance under its equity incentive plans. As of April 10,
1998, options to purchase approximately 3,629,928 shares were outstanding under
the Company's stock option plans.
The Company, its directors and its executive officers, and certain
stockholders, who hold, as of April 10, 1998 approximately 11,404,000 shares of
Common Stock (or currently exercisable options to purchase Common Stock), have
agreed not to offer, sell or contract to sell, or otherwise dispose of, directly
or indirectly, or announce an offering of, any shares of Common Stock or any
securities convertible into, or exchangeable for shares of Common Stock for a
period of six months from the date of this Prospectus, without the prior written
consent of Smith Barney Inc., except under limited circumstances. Approximately
shares of Common Stock, and an additional 322,227 shares of Common Stock
issuable upon exercise of outstanding options, will become saleable after the
six-month lock-up period.
In addition, NTT has agreed not to offer, sell or contract to sell, or
otherwise dispose of, directly or indirectly, or announce an offering of, any
NTT Shares for a period of six months from the date of the consummation of the
NTT Investment without the prior written consent of the Company. The Company has
17
<PAGE> 19
agreed in the Underwriting Agreement (as defined) that it will not waive the
sale restrictions imposed on NTT without the prior written consent of Smith
Barney Inc.
In connection with the Buyouts and acquisitions that involved the issuance
of shares of Series D-1 Preferred Stock, the Company has entered into market
standoff agreements with the holders of the Series D-1 Preferred Stock so
issued, which restrictions expire in one-third increments on the six, twelve,
and eighteen month anniversaries of the date of this Prospectus. Following the
six-month, twelve-month and eighteen-month lock-up periods, approximately
745,852, 745,851 and 745,851 additional shares of Common Stock, respectively
will become immediately saleable, subject to the limitations imposed by Rule
144.
Sales of a substantial amount of Common Stock in the public market, or the
perception that such sales may occur, could adversely affect the market price of
the Common Stock prevailing from time to time in the public market and could
impair the Company's ability to raise additional capital through the sale of its
equity securities. See "Shares Eligible for Future Sale."
YEAR 2000 COMPLIANCE
Currently, many computer systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates. As a result, many companies' software and computer systems may need to be
upgraded or replaced in order to comply with such "Year 2000" requirements. The
Company and third parties with which the Company does business rely on numerous
computer programs in their day to day operations. The Company is evaluating the
Year 2000 issue as it relates to the Company's internal computer systems and
third party computer systems with which the Company interacts. The Company
expects to incur internal staff costs as well as consulting and other expenses
related to these issues; these costs will be expensed as incurred. In addition,
the appropriate course of action may include replacement or an upgrade of
certain systems or equipment at a substantial cost to the Company. There can be
no assurance that the Year 2000 issues will be resolved in 1998 or 1999. The
Company may incur significant costs in resolving its Year 2000 issues. If not
resolved, this issue could have a significant adverse impact on the Company's
business, operating results and financial condition.
DISCRETIONARY AUTHORITY OVER USE OF NET PROCEEDS
Management will retain a significant amount of discretion over the
application of the net proceeds of the Offering. Because of the number and
variability of factors that determine the Company's use of the net proceeds of
the Offering, there can be no assurance that such applications will not vary
substantially from the Company's current intentions. Pending such utilization
the Company intends to invest the net proceeds of the Offering in short-term
investment grade and government securities. See "Use of Proceeds."
FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus that are not historical fact
are "forward-looking statements" (as such term is defined in the Reform Act),
which can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by discussions
of strategy that involve risks and uncertainties. The safe harbor provisions
provided in Section 27A of the Securities Act and Section 21E of the Exchange
Act do not apply to forward-looking statements made in connection with an
initial public offering. Management wishes to caution the reader that these
forward-looking statements such as the timing, costs and scope of its
acquisition of, or investments in, existing ISPs, the revenue and profitability
levels of the ISPs in which it invests, the anticipated reduction in operating
costs resulting from the integration and optimization of those ISPs, and other
matters contained above and herein in this Prospectus regarding matters that are
not historical facts, are only predictions. No assurance can be given that the
future results indicated, whether expressed or implied, will be achieved. While
sometimes presented with numerical specificity, these projections and other
forward-looking statements are based upon a variety of assumptions relating to
the business of the Company, which, although considered reasonable by the
Company, may not be realized.
18
<PAGE> 20
Because of the number and range of the assumptions underlying the Company's
projections and forward-looking statements, many of which are subject to
significant uncertainties and contingencies that are beyond the reasonable
control of the Company, some of the assumptions inevitably will not materialize
and unanticipated events and circumstances may occur subsequent to the date of
this Prospectus. These forward-looking statements are based on current
expectations, and the Company assumes no obligation to update this information.
Therefore, the actual experience of the Company and results achieved during the
period covered by any particular projections or forward-looking statements may
differ substantially from those projected. Consequently, the inclusion of
projections and other forward-looking statements should not be regarded as a
representation by the Company or any other person that these estimates and
projections will be realized, and actual results may vary materially. There can
be no assurance that any of these expectations will be realized or that any of
the forward-looking statements contained herein will prove to be accurate.
USE OF PROCEEDS
The Company will receive approximately $80.8 million of net proceeds (after
deducting the Underwriters' discounts and commissions and estimated expenses
related to the Offering) from the Offering. The Company also will receive
approximately $78.5 million in cash from the sale of the NTT Shares based upon
an assumed initial public offering of 5,000,000 shares of Common Stock at an
assumed Price to Public of at $17.50 per share. The combined net proceeds are
expected to be used to further the Company's acquisition and investment
strategy, to continue the development and implementation of the national
backbone, customer care center, network operations center and billing and
accounting services, and to fund the Company's general working capital
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for a discussion of the Company's anticipated funding
requirements.
Management will retain a significant amount of discretion over the
application of the net proceeds of the Offering. Because of the number and
variability of factors that determine the Company's use of the net proceeds of
the Offering, there can be no assurance that such applications will not vary
substantially from the Company's current intentions. Pending such utilization,
the Company intends to invest the net proceeds of the Offering in investment
grade obligations of corporations, financial institutions and U.S. Government
Securities. See "Risk Factors -- Discretionary Authority Over Use of Net
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock
and does not expect to pay dividends in the foreseeable future. The Company's
current policy is to retain all of its earnings to finance future growth and
acquisitions. Furthermore, the terms of the 1997 Indenture, the 1998 Indenture
and the Bank Facility place limitations on the Company's ability to pay
dividends. Future dividends, if any, will be at the discretion of the Board and
will depend upon, among other things, the Company's operations, capital
requirements and surplus, general financial condition, contractual restrictions
and such other factors as the Board may deem relevant. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
19
<PAGE> 21
CAPITALIZATION
(dollars in thousands)
The following table sets forth at December 31, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization adjusted for
the Completed and Proposed Acquisitions and Buyouts, and the conversion of all
the outstanding Preferred Stock into Common Stock upon the completion of the
Offering, and (iii) the pro forma capitalization adjusted to reflect the
Offering, the proceeds from the 1998 Notes, the Refinancing, and the NTT
Investment. This table should be read in conjunction with the Selected
Consolidated Financial Data, the Unaudited Pro Forma Condensed Combined
Financial Statements and the Historical Consolidated Financial Statements and
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA(1) AS ADJUSTED(2)
---------- ------------ --------------
<S> <C> <C> <C>
Cash and cash equivalents................................ $ 72,586 $ 27,299 $314,649
Restricted cash and securities........................... 40,554 40,554 27,822
======== ======== ========
Long-term debt and capital lease obligations, net of
current portions....................................... 142,321 143,651 272,694
-------- -------- --------
Redeemable preferred stock(3):
Series A, par value $0.001 per share; 6,100,000 shares
authorized: 6,033,333 shares outstanding............ 18,080 -- --
Series B, par value $0.001 per share; 10,117,000 shares
authorized: 10,028,334 shares outstanding........... 59,193 -- --
Series C, par value $0.001 per share; 2,500,000 shares
authorized and outstanding.......................... 19,976 -- --
-------- -------- --------
97,249 -- --
-------- -------- --------
Stockholders equity (deficit):
Preferred stock, Series D-1, par value $0.001 per
share; 3,000,000 shares authorized: 680,000 shares
outstanding (2,384,000 shares pro forma)(3)......... 10,200 -- --
Common stock, par value $0.001 per share; 35,133,000
shares authorized; 1,254,533 shares outstanding
historical; 22,200,200 shares pro forma; 31,838,927
shares pro forma -- as adjusted and additional paid
in capital(4)....................................... 1,598 134,607 293,952
Warrants............................................... 12,675 12,675 12,675
Accumulated deficit.................................... (51,474) (51,474) (61,578)
-------- -------- --------
Total stockholders' equity (deficit)........... (27,001) 95,808 245,049
-------- -------- --------
Total capitalization........................... $212,569 $239,459 $517,743
======== ======== ========
</TABLE>
- ---------------
(1) Pro forma for (i) the Completed and Proposed Acquisitions as if they had
occurred on December 31, 1997, (ii) the conversion of the Preferred Stock
into Common Stock upon completion of the Offering and (iii) 1,704,000 shares
of Series D-1 Preferred Stock issued and proposed to be issued in connection
with acquisitions and Buyouts completed or proposed subsequent to December
31, 1997 as if they had occurred on December 31, 1997. See "Unaudited Pro
Forma Condensed Combined Financial Statements."
(2) As adjusted (a) to give effect to (i) the Offering after deducting the
Underwriter's discounts and commissions and estimated expenses, (ii) the
proceeds from the 1998 Notes and the application of the proceeds therefrom
to effect the Refinancing, and (iii) the sale of 4,638,727 shares of Common
Stock to NTT for approximately $78.5 million (based upon an assumed initial
public offering of 5,000,000 shares of Common Stock at an assumed Price to
Public of $17.50 per share) concurrently with the Offering, and (b) to
reflect an extraordinary charge of approximately $10.1 million for the loss
on early extinguishment of $50.0 million of 1997 Notes, representing the
excess of the repurchase price over the carrying value of the 1997 Notes as
of December 31, 1997.
(3) All of the shares of the Company's Preferred Stock are convertible into
Common Stock on a one-for-one basis, subject to certain anti-dilution
adjustments. The shares of Series A, B and C Preferred Stock are subject to
mandatory redemption beginning on October 10, 2004, and are subject to
mandatory conversion into Common Stock upon consummation of the Offering.
(4) Includes 1,704,000 shares of Series D-1 Preferred Stock that as of December
31, 1997 were issued and proposed to be issued in connection with
Acquisitions and Buyouts which have been assumed to have been converted to
Common Stock for pro forma and pro forma as adjusted purposes. Does not
include 2,237,050 shares of Common Stock reserved for issuance pursuant to
outstanding stock options as of December 31, 1997, or 2,112,480 shares of
Common Stock issuable upon exercise of outstanding warrants.
20
<PAGE> 22
DILUTION
The net tangible book value (deficit) of the Company at December 31, 1997,
after giving effect to the conversion of the Preferred Stock into Common Stock
which will occur upon completion of the Offering, was ($22.6) million or ($1.11)
per share of Common Stock. "Net tangible book value" per share represents total
tangible assets of the Company less total liabilities, divided by the total
number of shares of Common Stock outstanding. After giving effect to (i) the
sale of 5,000,000 shares of Common Stock offered hereby at an assumed Price to
Public of $17.50 per share, after deducting the underwriting discounts and
commissions and estimated offering expenses, and, (ii) the sale of 4,638,727
shares of Common Stock pursuant to the NTT Investment (based upon an assumed
initial public offering of 5,000,000 shares of Common Stock at an assumed Price
to Public of $17.50 per share), the pro forma net tangible book value of the
Company as of December 31, 1997 would be $136.7 million or $4.54 per share. This
represents an immediate increase in net tangible book value of $5.65 per share
to existing stockholders and an immediate dilution of $12.96 per share to
purchasers of Common Stock in the Offering.
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $17.50
Net tangible book value (deficit) per share before the
Offering(1)............................................ $(1.11)
Increase per share attributable to new investors in the
Offering and the NTT Investment........................ 5.65
------
Net tangible book value per share after the Offering........ 4.54
------
Dilution per share to investors in the Offering............. $12.96
======
</TABLE>
- ---------------
(1) Based on 20,496,200 shares of Common Stock outstanding as of December 31,
1997 after giving effect to the conversion of all outstanding Preferred
Stock.
The following table summarizes, on a pro forma basis as of December 31,
1997, the actual number of shares of Common Stock purchased from the Company,
the actual total consideration paid and the average price paid per share by the
existing stockholders (assuming conversion of the Preferred Stock into Common
Stock upon completion of the Offering), by NTT and by new investors purchasing
shares of Common Stock in the Offering (at an assumed initial public offering
price of $17.50 per share before deducting underwriting discounts and
commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 20,496,200 68.0% $121,722,385 42.3% $ 5.94
New investors in the
Offering.................... 5,000,000 16.6 87,500,000 30.4 17.50
NTT........................... 4,638,727 15.4 $ 78,539,446 27.3 16.93
---------- ------ ------------ ------
Total............... 30,134,927 100.0% $287,761,831 100.0%
========== ====== ============ ======
</TABLE>
- ---------------
(1) Excludes (i) up to 9,200,000 shares of Common Stock that, effective upon
consummation of the Offering, will be reserved for issuance under the
Company's stock option plans, of which 3,629,928 shares were issuable upon
exercise of outstanding options as of April 10, 1998 at a weighted average
exercise price of $9.14 per share, (ii) 2,112,480 shares of Common Stock
issuable upon exercise of outstanding warrants at a weighted average
exercise price of $.01 per share, and (iii) 3,000,000 shares of Common Stock
reserved for issuance under the Company's 1998 Employee Stock Purchase Plan.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Notes to Consolidated Financial Statements.
21
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except per share amounts)
The selected historical consolidated financial data as of and for the
period from inception (March 1, 1996) to December 31, 1996 and as of and for the
year ended December 31, 1997 have been derived from the audited Consolidated
Financial Statements of the Company included elsewhere in this Prospectus.
The information set forth below should be read in conjunction with the
Unaudited Pro Forma Condensed Combined Financial Statements and the historical
Consolidated Financial Statements of the Company and the notes thereto included
elsewhere in this Prospectus. Results of operations for the year ended December
31, 1997 are not necessarily indicative of results of operations for future
periods. The Company's development and expansion activities, including
acquisitions, during the periods shown below significantly affect the
comparability of this data from one period to another. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)(2)
-------------------------------- ---------------
PERIOD FROM
INCEPTION
(MARCH 1, 1996) YEAR ENDED YEAR ENDED
TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
--------------- ------------ ---------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Dedicated connectivity........................ $ 1,100 $ 16,383 $ 46,330
Dial-up connectivity.......................... 1,139 7,093 16,725
Enhanced services and other................... 126 12,216 25,210
-------- ---------- -----------
Total revenue......................... 2,365 35,692 88,265
Costs and expenses:
Internet services operating costs............. 974 15,974 38,145
Selling, general and administrative and
other...................................... 7,002 49,383 82,070
Depreciation and amortization................. 669 10,624 25,911
-------- ---------- -----------
Total costs and expenses................... 8,645 75,981 146,126
-------- ---------- -----------
Loss from operations....................... (6,280) (40,289) (57,861)
Other income (expense):
Interest income............................... 593 6,080 6,147
Interest expense.............................. (115) (11,826) (12,417)
Equity in losses of affiliates................ -- (1,958) --
Minority interests.............................. 680 1,924 --
-------- ---------- -----------
Net loss.............................. (5,122) (46,069) (64,131)
Accretion of redeemable preferred stock to
liquidation value............................. (23) (260) --
-------- ---------- -----------
Net loss attributable to common
stockholders........................ $ (5,145) $ (46,329) $ (64,131)
======== ========== ===========
Loss per common share -- basic and diluted(3)... $ (5.29) $ (40.47) $ (2.90)
======== ========== ===========
Weighted average common shares
outstanding -- basic and diluted.............. 971,748 1,144,685 22,090,352
======== ========== ===========
OTHER DATA:
EBITDA(4)....................................... $ (5,611) $ (29,665) $ (31,950)
Capital expenditures(5)......................... 3,430 14,547 14,547
Cash flows information:
Net cash used by operating activities......... (2,326) (35,323)
Net cash used by investing activities......... (9,123) (120,329)
Net cash provided by financing activities..... 77,916 161,772
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
AS OF ----------------------------------------
DECEMBER 31, PRO FORMA
1996 ACTUAL PRO FORMA(1) AS ADJUSTED(6)
------------ -------- ------------ --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $66,467 $ 72,586 $ 27,299 $314,649
Restricted cash and securities.............. -- 40,554 40,554 27,822
Goodwill, net............................... 8,736 83,216 152,241 152,241
Total assets................................ 82,628 246,471 276,058 555,888
Long-term debt and capital lease
obligations, net of discount.............. 106 142,321 143,651 272,694
Redeemable preferred stock.................. 76,877 97,249 -- --
Stockholders' equity (deficit).............. (4,055) (27,001) 95,808 245,049
</TABLE>
- ---------------
(1) Pro forma for the Completed and Proposed Acquisitions as if they had
occurred on December 31, 1997 for balance sheet purposes and on January 1,
1997 for statement of operations data purposes and the conversion of the
Preferred Stock into Common Stock upon completion of the Offering. See
"Unaudited Pro Forma Condensed Combined Financial Statements."
(2) Pro forma interest expense, including amortization of debt issuance costs,
assuming that the 1998 Notes had been issued on January 1, 1997 and after
giving effect to the Refinancing, totaled $27.3 million for the year ended
December 31, 1997.
(3) The Company paid no cash dividends on its Common Stock during the period
from inception (March 1, 1996) to December 31, 1996 and the year ended
December 31, 1997.
(4) EBITDA represents earnings (loss) from operations before interest, taxes,
depreciation, amortization and provision for loss on write-offs of
investments in ISPs and fixed assets. The primary measure of operating
performance is net earnings (loss). Although EBITDA is a measure commonly
used in the Company's industry, it should not be construed as an alternative
to net earnings (loss), determined in accordance with generally accepted
accounting principles ("GAAP"), as an indicator of operating performance or
as an alternative to cash flows from operating activities, determined in
accordance with GAAP. In addition, the measure of EBITDA presented herein by
the Company may not be comparable to other similarly titled measures of
other companies.
(5) Excludes equipment and leasehold improvements acquired in business
acquisitions.
(6) As adjusted (a) to give effect to (i) the Offering after deducting the
Underwriters' discounts and commissions and estimated expenses, (ii) the
proceeds from the 1998 Notes and the application of the proceeds therefrom
to effect the Refinancing, and (iii) the sale of 4,638,727 shares of Common
Stock to NTT for $78.5 million (based upon an initial public offering of
5,000,000 shares of Common Stock at an assumed Price to Public of $17.50 per
share), concurrently with the Offering, and (b) to reflect an extraordinary
charge of approximately $10.1 million for the loss on early extinguishment
of $50.0 million of 1997 Notes, representing the excess of the repurchase
price over the carrying value of the 1997 Notes as of December 31, 1997.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis is based on the historical and pro
forma results of the Company and includes a number of ISPs acquired at various
times. See "Unaudited Pro Forma Condensed Combined Financial Statements" for the
basis of presentation and those business acquisitions included therein.
Investments in ISP affiliates in which Verio acquires a minority interest are
accounted for at cost. Investments in ISP affiliates in which Verio acquires a
majority interest through the acquisition of net assets, common stock or
convertible preferred stock, and exercises significant control over the
operations are accounted for using the purchase method of accounting and,
accordingly, the financial results of these ISPs have been consolidated with
those of the Company. Certain statements set forth below constitute
"forward-looking statements" within the meaning of the Reform Act. The safe
harbor provisions provided in Section 27A of the Securities Act and Section 21E
of the Exchange Act do not apply to forward-looking statements made in
connection with an initial public offering. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on such forward-looking statements. See "Risk Factors -- Forward-
Looking Statements."
OVERVIEW
Verio is a leading national provider of Internet connectivity and enhanced
Internet services to small and medium sized businesses. Since its inception in
March 1996, the Company has rapidly established a national presence through the
acquisition, integration, and growth of local ISPs with a business customer
focus. Verio believes that small and medium sized businesses represent an
attractive target market for the provision of Internet services due to this
market's low current penetration levels and customer churn, and the expanding
Internet needs of these businesses. The Company believes it has a unique
competitive advantage in serving small and medium sized business customers
through the combination of the technical competency, hands-on support and
entrepreneurial culture of locally based ISPs with the quality and economic
efficiency of Verio's national network, operational infrastructure and financial
strength. Verio has quickly built critical mass by acquiring the stock or assets
of, or making significant investments in, over 30 ISPs that provide a
comprehensive range of Internet connectivity and enhanced products and services
to over 80,000 customer accounts in 33 of the top 50 MSAs in the country, with
combined revenues of approximately $23.2 million for the three months ended
December 31, 1997.
From March 1996 through September 1997, Verio's strategy was to acquire 51%
to 100% of a large regional ISP, and a minority interest in smaller ISPs within
each region. Verio now seeks to acquire 100% of new ISPs, and is in the process
of bringing its ownership interest in its existing ISPs to 100%. Upon achieving
100% ownership of its ISPs in a region, Verio then consolidates the management
teams, network operations, and marketing efforts within that region. While some
one-time costs are incurred in these consolidation efforts, Verio believes that
the combined organizations will be able to increase revenues faster and more
cost effectively. In addition, 100% ownership facilitates the introduction of
the Verio brand name, a suite of nationwide product offerings, and the
transition of all ISPs onto Verio's national network and financial systems.
In conjunction with the consolidation of its regional operations, as of
December 31, 1997, the Company had completed the Buyout of four of its initially
non-wholly owned ISPs. Since then, the Company has completed eight additional
Buyouts and intends to complete the Buyouts of the four remaining ISPs in which
it did not initially acquire 100% ownership during the remainder of 1998. The
Company expects to consummate two of those four remaining Buyouts prior to or
concurrently with the Offering, and considers those two Buyouts to be probable.
Verio has incurred and expects to incur costs of approximately $50.0 million, in
the aggregate, in 1998 in connection with the Buyouts, which have been and will
be paid with a combination of cash and preferred stock of Verio. As a result of
its acquisitions, and the limited amount of
24
<PAGE> 26
fixed assets required to operate an ISP, Verio has recorded significant amounts
of goodwill, and expects goodwill to increase significantly during 1998.
To fund its acquisitions and operations, Verio has raised approximately
$100.0 million of equity capital primarily from venture capital funds and Brooks
(recently acquired by WorldCom, Inc.). It also issued $150.0 million principal
amount of 1997 Notes to a group of institutional investors and Brooks, $100.0
million of which remain outstanding following the Refinancing. On March 25,
1998, the Company consummated the sale of $175.0 million principal amount of
1998 Notes, a portion of the proceeds of which was used to effect the
Refinancing. See "-- Liquidity and Capital Resources" and "Certain
Transactions."
RESULTS OF OPERATIONS
REVENUE
The Company derives the majority of its revenues from business customers
who purchase Internet connections and enhanced services such as Web hosting.
Verio's ISP affiliates offer a broad range of connectivity options to their
customers including dedicated, dial-up, ISDN, frame relay and point-to-point
connections. Dedicated customers typically sign a contract for one to three
years of service that provides for fixed, recurring monthly service charges, and
pay a one-time setup fee. These charges vary depending on the type of service,
the length of the contract, and local market conditions. Dial-up customers also
typically pay a one-time setup fee and recurring monthly service charges. Fees
and service charges for enhanced services vary from product to product. For
example, Web hosting customers pay a one-time setup fee and fixed monthly
service charges that vary depending on the amount of disk space and bandwidth
required. Additional sources of revenue include e-commerce, virtual private
networks, security services, co-location services, consulting and the sales of
equipment and customer circuits. Revenue related to Internet connectivity and
enhanced services is recognized as the services are provided. Amounts billed
relating to future periods are recorded as deferred revenue and amortized
monthly as services are rendered.
Currently, connectivity services provide a majority of total revenues.
However, revenues from enhanced services, especially Web hosting, are expected
to represent an increasing percentage of total revenues in future periods.
Revenue from business customers currently represents more than 80% of total
revenues and is projected to increase as a percent of total revenues. In
addition to the growth that the Company is achieving through acquisitions,
revenues are also expected to increase due to the internal growth of
consolidated ISPs. For ISPs consolidated for the entire fiscal year of 1997,
revenue increased an average of 16% quarter-over-quarter for the three quarters
ended December 31, 1997.
Year Ended December 31, 1997 Compared to the Period from Inception to December
31, 1996
Total consolidated revenues were $35.7 million for the year ended December
31, 1997, compared to $2.4 million for the period from inception (March 1, 1996)
to December 31, 1996 (the "1996 Period"). Internet connectivity represented 66%
and 95% of total revenue for the year ended December 31, 1997 and the 1996
Period, respectively, with the balance derived from enhanced services and other,
which include Web hosting, consulting, sales of equipment and customer circuits.
The increase in dedicated and dial-up revenues and enhanced services and other
revenues for the year ended December 31, 1997 compared to the 1996 Period was
primarily due to the acquisitions of ISPs subsequent to December 31, 1996 and
the longer period covered. Twenty-two ISPs were included in the consolidated
financial statements at December 31, 1997, three of which were included in the
consolidated financial statements for the entire year ended December 31, 1997.
Three ISPs were included in the consolidated financial statements at December
31, 1996. The increase in enhanced services as a percentage of total revenue is
due to a change in the revenue mix resulting from acquisitions and increased
sales of enhanced services.
COSTS AND EXPENSES
Internet services operating costs consist primarily of local
telecommunication expense, Internet access expense and the cost of equipment and
customer circuits sold. Local telecommunications expense represents the cost of
transporting data between the Company's POPs and a transit provider, or various
Internet access points. Internet access expense includes the cost incurred by
the Company to transport its Internet traffic and for its national network. In
some instances the Company also will pay for the local telecommunications
line(s)
25
<PAGE> 27
from the customer's location to one of the POPs. As of December 31, 1997, 25 ISP
affiliates were utilizing the Verio national network for their Internet access
and paying Verio for these network services based on their bandwidth
requirements. The Company recently signed a long-term long haul capacity
agreement with Qwest in order to reduce the per unit costs of such services.
There will not be a significant effect on the results for 1998 from this
agreement due to the time required to convert from existing circuits; however,
the Company expects that the pricing advantages provided by this agreement will
substantially reduce the cost of these services in future years. Additionally,
the Company has the right to fund its minimum commitment, which would allow the
capitalization of costs (to the extent prepaid) under this contract. Such
capitalized costs would be amortized to operations over the term of the
agreement. The amount of the prepayment currently would be approximately $60.0
million.
Selling, general and administrative and other expenses consist primarily of
salaries and related employment expenses, consulting, travel and entertainment,
rent, and utilities. Depreciation is provided over the estimated useful lives of
the assets ranging from 3 to 5 years using the straight-line method. The excess
of cost over the fair value of net assets acquired, or goodwill, is amortized
using the straight-line method over a ten-year period.
Year Ended December 31, 1997 Compared to the Period from Inception to December
31, 1996
Internet services operating costs were 45% and 41% of total revenues for
the year ended December 31, 1997 and the 1996 Period, respectively. Selling,
general and administrative and other expenses were 138% and 296% of revenues for
the year ended December 31, 1997 and the 1996 Period, respectively. The Company
expects Internet services operating costs to increase in absolute dollars but to
decrease as a percentage of total revenues over time as additional ISP
affiliates are added onto Verio's national network, as enhanced services become
a larger percentage of total revenues, and as the Qwest agreement is
implemented. The Company expects selling, general and administrative expenses to
continue to increase in absolute dollars but to decrease as a percentage of
total revenues as the Company acquires additional ISPs, allowing it to spread
its corporate overhead over a larger revenue base, as its scaleable systems
reduce the incremental costs of additional revenues, as sales force productivity
increases with experience, and as indirect selling channels are expanded. The
anticipated increases in absolute dollar terms will be primarily due to
increased personnel resulting from acquisitions, and additional expenditures in
sales and marketing. Depreciation and goodwill amortization are expected to
continue to increase significantly as a result of the Company's acquisition and
investment strategies. Also, the Company will continue to have non-recurring
expenses related to its strategy of acquiring and regionalizing groups of ISPs.
The significant increase in Internet services operating costs and expenses and
in selling, general and administrative and other expenses, for the year ended
December 31, 1997 compared to the 1996 Period was primarily due to the
acquisitions of ISPs subsequent to December 31, 1996 and the longer period
covered. Twenty-two ISPs were included in the consolidated financial statements
at December 31, 1997, three of which were included in the consolidated financial
statements for the entire year ended December 31, 1997. Three ISPs were included
in the consolidated financial statements at December 31, 1996.
OTHER EXPENSES
During the year ended December 31, 1997, the Company recognized equity in
losses of affiliates in the amount of $1,958,000, representing losses of those
affiliates in excess of the equity of the common shareholders of the affiliates.
See Note 1 to the Consolidated Financial Statements of the Company.
Interest expense increased from $115,000 in the 1996 Period to $11.8
million for the year ended December 31, 1997 primarily as a result of the
completion of the $150.0 million placement of the 1997 Notes on June 24, 1997.
Interest expense is expected to increase in 1998, reflecting a full year's
interest on the 1997 Notes and interest due on the 1998 Notes.
INCOME TAXES
As of December 31, 1997, the Company had a net operating loss carryforward
for federal income tax purposes of approximately $49.9 million which is
available to offset future federal taxable income, if any, through 2011. The
utilization of a portion of the net operating loss carryforwards may be limited
under Section 382 of the Internal Revenue Code. No tax benefit for such losses
has been recorded by the Company in 1996 or 1997 due to uncertainties regarding
the utilization of the loss carryforward.
26
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Dedicated connectivity..................... $ 1,954 $ 3,852 $ 4,314 $ 6,263
Dial-up connectivity....................... 1,106 1,564 1,644 2,779
Enhanced services and other................ 1,354 2,833 3,666 4,363
------- ------- -------- --------
Total revenue...................... 4,414 8,249 9,624 13,405
Costs and expenses:
Internet services operating costs.......... 2,042 3,433 4,029 6,470
Selling, general and administrative and
other................................... 6,718 11,122 13,393 18,150
Depreciation and amortization.............. 1,246 2,548 2,943 3,887
------- ------- -------- --------
Total costs and expenses................ 10,006 17,103 20,365 28,507
------- ------- -------- --------
Loss from operations.................... $(5,592) $(8,854) $(10,741) $(15,102)
======= ======= ======== ========
EBITDA....................................... $(4,346) $(6,306) $ (7,798) $(11,215)
======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
(AS A PERCENTAGE OF TOTAL REVENUE)
<S> <C> <C> <C> <C>
Total revenue................................ 100% 100% 100% 100%
Costs and expenses:
Internet services operating costs.......... 46% 42% 42% 48%
Selling, general and administrative and
other................................... 152% 135% 139% 135%
Depreciation and amortization.............. 28% 31% 31% 29%
Total costs and expenses................ 227% 207% 212% 213%
Loss from operations.................... (127%) (107%) (112%) (113%)
EBITDA....................................... (98%) (76%) (81%) (84%)
</TABLE>
The Company's operating results have fluctuated in the past and may in the
future fluctuate significantly depending upon a variety of factors, including
the incurrence of capital costs and costs associated with the Buyouts and the
introduction of value-added enhanced services and new services by the Company.
Additional factors that may contribute to variability of operating results
include: the pricing and mix of services offered by the Company; customer
retention rate; changes in pricing policies and product offerings by the
Company's competitors; growth in demand for network and Internet access
services; one-time costs associated with regional consolidation; and general
telecommunications services' performance and availability. The Company also has
experienced seasonal variation in Internet use and, therefore, revenue streams
may fluctuate accordingly. As a result, variations in the timing and amounts of
revenues could have a material adverse effect on the Company's quarterly
operating results. Due to the foregoing factors, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and that such comparisons cannot be relied upon as indicators of
future performance.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business has required and will continue to require
substantial capital for investments in ISP affiliates, the acquisition of
additional ISPs, the Buyouts of remaining interests in ISPs, capital
expenditures for expansion of services, operating losses and working capital.
27
<PAGE> 29
Net cash used by operating activities was $35.3 million during the year
ended December 31, 1997, which includes a decrease of $88,000 in working
capital. Net cash used by investing activities was $120.3 million during the
year ended December 31, 1997, which includes the investment of restricted cash
totalling $46.6 million from the proceeds of the 1997 Notes, and approximately
$64.0 million for acquisitions. Net cash provided by financing activities was
$161.8 million during the year ended December 31, 1997, primarily from the sale
of 2,500,000 shares of Series C Preferred Stock for gross proceeds of
approximately $20.0 million and issuance of the 1997 Notes for gross proceeds of
approximately $150.0 million.
Since inception, the Company has financed itself primarily through the
private sale of Preferred Stock and debt and, to a lesser extent, Common Stock.
In 1996, the Company raised approximately $79.2 million (gross) through the
issuance of Common Stock, Series A Preferred Stock and Series B Preferred Stock.
In June 1996, the Company sold 6,033,333 shares of Series A Preferred Stock and
in December 1996, the Company sold 10,000,000 shares of Series B Preferred Stock
for gross proceeds of approximately $18.1 million and approximately $60.0
million, respectively. During the course of 1996, 1,090,000 shares of Common
Stock were sold for gross proceeds of approximately $1.1 million. In 1997, an
additional 164,533 shares of Common Stock were issued for approximately
$508,000. In May 1997, the Company completed the sale of 2,500,000 shares of
Series C Preferred Stock for gross proceeds of approximately $20.0 million. In
December 1997, the Company issued 680,000 shares of Series D-1 Preferred Stock
to fund a portion of the acquisition cost of one affiliate. Each share of
Preferred Stock is convertible into Common Stock on a one-for-one basis.
On June 24, 1997, the Company completed the placement of $150.0 million
principal amount of the 1997 Notes and attached warrants (the "Warrants"). One
hundred fifty thousand units were issued, each consisting of $1,000 principal
amount of the 1997 Notes and eight Warrants, with each Warrant entitling the
holder thereof to purchase 1.76 shares of the Company's Common Stock at a price
of $.01 per share, for a total of 2,112,480 shares of Common Stock. The Warrants
and the 1997 Notes were separated on December 15, 1997. The 1997 Notes mature on
June 15, 2004. Interest on the 1997 Notes, at the annual rate of 13 1/2%, is
payable semi-annually in arrears on June 15 and December 15 of each year.
Concurrent with the completion of the sale of the 1997 Notes, the Company was
required to deposit funds into an escrow account in an amount that together with
interest would be sufficient to fund the first five interest payments on the
1997 Notes. Upon consummation of the sale of the 1998 Notes and the Refinancing,
that portion of the escrowed amount attributable to the principal amount of the
1997 Notes refinanced was released to the Company. The 1997 Notes are redeemable
at the option of the Company commencing June 15, 2002. The 1997 Notes are senior
unsecured obligations of the Company ranking pari passu in right of payment with
all existing and future unsecured and senior indebtedness. The 1997 Notes impose
significant limitations on the Company's ability to incur additional
indebtedness unless the Company's Consolidated Pro Forma Interest Coverage Ratio
(as defined) is greater than or equal to 1.8 to 1.0 prior to June 30, 1999, or
2.5 to 1.0 on or after that date. The Company is also limited in its ability to
pay dividends or make Restricted Payments (as defined), to engage in businesses
other than the internet service business, and to place liens on its assets for
the benefit of persons other than the bondholders, among other restrictions. If
a Change of Control (as defined in the 1997 Indenture) occurs, the Company is
required to make an offer to purchase all of the Notes then outstanding at a
price equal to 101% of the principal amount, plus accrued and unpaid interest.
On March 25, 1998, the Company completed the placement of $175.0 million
principal amount of the 1998 Notes. The 1998 Notes mature on April 1, 2005.
Interest on the 1998 Notes, at the annual rate of 10 3/8%, is payable
semi-annually in arrears on April 1 and October 1 of each year, commencing
October 1, 1998. The 1998 Notes are redeemable at the option of the Company
commencing April 1, 2002. The 1998 Notes are senior unsecured obligations of the
Company ranking pari passu in right of payment with all existing and future
unsecured and senior indebtedness. The 1998 Notes contain terms that are
substantially similar to the 1997 Notes. The Company used approximately $54.5
million of the proceeds plus accrued interest to effect the Refinancing. As a
result of the Refinancing, the Company was refunded approximately $13.3 million
from the escrow account for the 1997 Notes, of which approximately $1.9 million
was used to pay accrued and unpaid interest on the $50.0 million principal
amount of 1997 Notes repurchased from Brooks.
On April 6, 1998, Verio entered into the Bank Facility with a group of
commercial lending institutions that committed to provide a $57.5 million
revolving credit facility secured by the stock of the ISPs that Verio
28
<PAGE> 30
owns currently or may own in the future and the Capacity Agreement (as defined).
See "Business -- Verio National Network." The Chase Manhattan Bank serves as
agent for the Bank Facility. The Bank Facility requires no payments of principal
until its maturity on December 31, 1999. The terms of the Bank Facility provide
for borrowings at LIBOR + 3%, with a 1% decrease in that rate if the Company has
completed a public equity offering of $50.0 million or more. If the Company has
not completed such an offering by December 31, 1998, or by June 30, 1999, there
will be a 2% increase in the rate on each such date. There is a commitment fee
of 1/2% per annum on the undrawn amount of the Bank Facility and a one-time fee
of 1/2% on any amounts drawn. The last $3.0 million of the Bank Facility cannot
be drawn except for the payment of interest.
The Bank Facility sets forth covenants restricting, among other things, the
Company's ability to borrow, to guarantee the debt of others, and to make
borrowings at the subsidiary level. The Company is also limited in its ability
to enter into transactions with affiliates, create liens on its assets, and make
certain investments. In particular, Indebtedness (less cash) may not exceed 2.35
times annualized pro forma revenues for the most recent fiscal quarter.
Dividends and certain types of investments are prohibited, as are liens incurred
for borrowed money. Borrowings under the Bank Facility would be required to be
paid down with the proceeds of new Indebtedness (as defined), certain asset
sales, Excess Cash Flow (as defined), or the net proceeds from insurance claims.
On April 7, 1998, the Company entered into agreements establishing a
strategic relationship with NTT pursuant to which the Company agreed to sell to
NTT, concurrently with and conditioned upon consummation of the Offering, a
number of Common Shares equal to the lesser of (i) 12.5% of the total number of
outstanding shares of Common Stock, on a fully diluted and fully converted basis
(taking into account the Offering and the NTT Investment) or (ii) the quotient
of $100.0 million divided by 96.75% of the Price to Public in the Offering. See
"Business -- NTT Strategic Relationship."
As of December 31, 1997, the Company had approximately $72.6 million in
cash and cash equivalents (excluding restricted cash). The Company's business
plan currently anticipates investments of approximately $175.0 million in 1998
for capital expenditures, ISP acquisitions, operating losses and working
capital. The Company's anticipated expenditures are inherently uncertain and
will vary widely based on many factors including the operating performance and
working capital requirements of the Company and its existing ISP affiliates, the
number and size of additional ISPs acquired or invested in by the Company, the
cost of such additional acquisitions and investments, the operating performance
and working capital requirements of the Company's ISP affiliates including any
additional ISP affiliates and capital expenditure requirements of the Company
and any existing or additional ISPs. Accordingly, the Company may need
significant amounts in excess of its plan, and no assurances can be given as the
actual amounts of the Company's expenditures and additional capital
requirements.
The Company expects to meet its capital needs with cash on hand, proceeds
from the sale, or issuance of capital stock, credit facilities (including the
Bank Facility), and lease financing. There can be no assurance that the Company
will have sufficient resources to fund its investment programs, particularly if
operating losses continue to increase. EBITDA decreased from negative $5.6
million in the 1996 Period to negative $29.7 million in 1997 despite an increase
in revenues from $2.4 million to $34.7 million, respectively. The Company
incurred $49.4 million in selling, general and administrative expenses in 1997
as it invested in scaleable systems, hiring and sales training, and network
improvements, that it expects will result in incremental revenue at reduced
incremental costs. The Company will have to increase revenues without a
commensurate increase in costs to generate sufficient cash to enable it to meet
its debt service obligations as described above. There can be no assurance that
the Company will be able to service its indebtedness. Insufficient funding may
require the Company to delay or abandon some of its planned future expansion or
expenditures, which could have a material adverse effect on the Company's growth
and its ability to compete. In addition, the Company's operating flexibility
with respect to certain business activities is limited by covenants associated
with its indebtedness. There can be no assurance that such covenants will not
adversely affect the Company's ability to finance its future operations or
capital needs or to engage in business activities that may be in the interest of
the Company.
29
<PAGE> 31
FORWARD-LOOKING STATEMENTS
The statements included in the discussion and analysis above that are not
historical fact are "forward-looking statements" (as such term is defined in the
Private Securities Litigation Reform Act of 1995), which can be identified by
the use of forward-looking terminology such as "believes," "expects," "may,"
"will," "should," or "anticipates" or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy that involve
risks and uncertainties. The safe harbor provisions provided in Section 27A of
the Securities Act and Section 21E of the Exchange Act do not apply to
forward-looking statements made in connection with an initial public offering.
Management cautions the reader that these forward-looking statements addressing
the timing, costs and scope of its acquisition of, or investments in, existing
ISPs, the revenue and profitability levels of the ISPs in which it invests, the
anticipated reduction in operating costs resulting from the integration and
optimization of those ISPs, and other statements regarding matters that are not
historical facts, are only predictions. No assurance can be given that future
results indicated, whether expressed or implied, will be achieved. While
sometimes presented with numerical specificity, these projections and other
forward-looking statements are based upon a variety of assumptions relating to
the business of the Company, which, although considered reasonable by the
Company, may not be realized. Because of the number and range of the assumptions
underlying the Company's projections and forward-looking statements, many of
which are subject to significant uncertainties and contingencies that are beyond
the reasonable control of the Company, some of the assumptions will not
materialize and unanticipated events and circumstances may occur subsequent to
the date of this report. These forward-looking statements are based on current
expectations, and the Company assumes no obligation to update this information.
Therefore, the actual experience of the Company and results achieved during the
period covered by any particular projections or forward-looking statements may
differ substantially from those projected. Consequently, the inclusion of
projections and other forward-looking statements should not be regarded as a
representation by the Company, or any other person, that these estimates and
projections will be realized and actual results may vary materially. There can
be no assurance that any of these expectations will be realized or that any of
the forward-looking statements contained herein will prove to be accurate.
30
<PAGE> 32
BUSINESS
OVERVIEW
Verio is a leading national provider of Internet connectivity and enhanced
Internet services to small and medium sized businesses. Since its inception in
March 1996, the Company has rapidly established a national presence through the
acquisition, integration, and growth of local ISPs with a business customer
focus. Verio believes that small and medium sized businesses represent an
attractive target market for the provision of Internet services due to this
market's low current penetration levels and customer churn rates, and the
expanding Internet needs of these businesses. Because of their limited internal
technical resources, small and medium sized businesses also typically require
hands-on local support and highly reliable turnkey solutions for mission
critical applications. Verio further believes that these needs currently are
underserved by both the national and local ISPs. While national ISPs lack the
local presence to provide customized, hands-on service, local ISPs typically
lack the scale and resources required to provide dedicated, high-capacity
Internet access, around-the-clock support and tailored product offerings at
competitive prices.
The Company believes it has a unique competitive advantage in serving small
and medium sized business customers through the combination of the technical
competency, hands-on support and entrepreneurial culture of locally based ISPs
with the quality and economic efficiency of Verio's national network,
operational infrastructure and financial strength. Verio has quickly built
critical mass by acquiring the stock or assets of, or making significant
investments in, over 30 ISPs that provide a comprehensive range of Internet
connectivity and enhanced products and services to over 80,000 customer accounts
in 33 of the top 50 MSAs in the country, with combined revenues of approximately
$23.2 million for the three months ended December 31, 1997. The Company
integrates and optimizes the operations of its ISPs by consolidating their
operations into regional operating units with centralized regional management,
connecting their local networks to Verio's high-speed, highly reliable national
backbone, and providing them with Verio's integrated national support services.
Verio believes that a critical factor in the successful implementation of
its business strategy is the quality of its management team and Board of
Directors. The Company's senior management team and Board of Directors have
previously successfully executed similar consolidation strategies and have
considerable experience in the management and growth of recurring revenue-based
telecommunications businesses. Management believes that its experience in the
deployment of similar systems and services in other emerging telecommunications
industries can be leveraged to significantly improve the quality of services
currently available in the Internet service industry.
INDUSTRY BACKGROUND
Internet connectivity and enhanced Internet services represent two of the
fastest growing segments of the telecommunications services market. Total ISP
revenues in the United States are projected to grow from $3.3 billion in 1996 to
$18.3 billion in 2000, according to IDC, an independent company that prepares
market studies relating to the Internet. The availability of Internet
connectivity, advancements in technologies required to navigate the Internet,
and the proliferation of content and applications available over the Internet
have attracted a rapidly growing number of users. Businesses are increasingly
recognizing that the Internet can significantly enhance communications among
geographically distributed offices and employees as well as with customers and
suppliers. In addition, the Internet presents a compelling profit opportunity
for businesses as it enables them to reduce operating costs, access valuable
information and reach new markets. As a result, businesses increasingly are
utilizing the Internet for mission critical applications such as sales, customer
service and project coordination. IDC estimates that U.S. corporate dedicated
access revenues will grow from $1.1 billion in 1996 to $5.6 billion in 2000,
representing a 50% compounded annual growth rate. There can be no assurance that
the bases for these projections or the results generated thereby will be
realized.
In addition to Internet connectivity, business customers increasingly are
seeking a variety of enhanced products and applications to take full advantage
of the Internet. For example, a growing number of businesses are implementing
secured virtual private networks ("VPNs") over the Internet as a more economical
option
31
<PAGE> 33
than dedicated private networks. Technological advances such as increases in
microprocessor speeds, the introduction of innovative software tools and the
development of higher bandwidth data networking technology have led to rapid
innovation and development of enhanced Internet services. The principal enhanced
services being offered by business-oriented ISPs today include Web hosting,
security, e-commerce, virtual private networks (sometimes called "intranets" and
"extranets"), and advanced Internet applications such as voice and fax, video
conferencing and data storage and retrieval solutions. According to IDC,
enhanced services is the fastest growing segment of the Internet services market
and is expected to grow from $126 million in 1996 to over $7 billion in 2000. As
business users of the Internet adopt enhanced services, they also require
additional bandwidth to support their expanded use of the Internet. The Company
expects this trend to continue as high-bandwidth enhanced services continue to
be developed, improve and proliferate and as Internet usage continues to expand.
Industry analysts have reported that small and medium sized businesses
represent a potential market of over seven million customers in the U.S., and
use of the Internet by this market segment is expected to grow substantially
from its current low level of market penetration. IDC predicts that dedicated
connections to the Internet for small and medium sized businesses will grow from
approximately 90,000 in 1996 to just under 800,000 in 2000, representing a 73%
compounded annual growth rate. Small and medium sized businesses generally seek
an ISP with locally based personnel who are readily available to respond
in-person to technical issues, who can assist in developing and implementing the
customer's effective use of the Internet, and with whom they can establish a
stable and long-term relationship. In addition, they are increasingly reliant on
enhanced product offerings that address their specific business needs on a
cost-effective basis, allowing them to compete with larger companies. For
example, IDC estimates Web hosting revenues from small and medium sized
businesses will grow from $84 million in 1996 to over $3.4 billion in 2000,
representing 95% of the total Web hosting market.
The rapid development and growth of the Internet has resulted in a highly
fragmented industry of over 4,000 national and local ISPs in the United States,
with no dominant ISP serving the needs of small and medium sized businesses. The
large national ISPs have primarily focused on the large business or consumer
markets and lack the local presence to provide the customized, hands-on service
required by small and medium sized businesses. The Company believes that
independent local and regional ISPs generally have been more adept at serving
small and medium sized businesses, and that these ISPs are often the source of
innovative Internet products and services. As a result, independent regional and
local ISPs have successfully captured approximately one-half of this market,
despite the substantially greater resources of the national providers. However,
rising costs and increasing demands from business customers are making it more
difficult for the small ISP to meet its customer's demands on a cost-effective
basis. Facing these competitive pressures, Verio believes that independent
regional and local ISPs will continue to be attracted to and benefit from the
consolidation opportunity provided by Verio.
THE VERIO SOLUTION
Verio is a leading provider of Internet connectivity and enhanced Internet
services to small and medium sized businesses. The Company's business strategy
of combining national scale with local presence was specifically developed to
serve the needs of this market sector. Verio has taken a leading role in
consolidating the fragmented, independent ISP industry, rapidly establishing its
national presence through the acquisition, integration, and growth of
established, well-regarded regional and local ISPs with a business customer
focus. The Company believes it has a unique competitive advantage in serving
small and medium sized business customers. Verio's combination of national scale
with local presence provides distinct and significant value to these customers,
which the Company expects will result in long-term customer loyalty and an
expanding customer base. Verio intends to enhance this value as it continues to
develop, both internally and through strategic vendor relationships, an
expanding array of enhanced, higher margin product and service offerings to
continue to address the business needs of its customers. The Company further
believes that the small and medium sized business market is more attractive than
the consumer or large business market segments for Internet services, in large
part due to the stability of the customer relationship resulting from the
customer's reliance on its service provider's hands-on technical support and
ability to provide a turnkey Internet solution based on customized products and
services designed for the customer's particular business needs. The
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<PAGE> 34
Company's market research indicates that Verio's local presence, providing
around-the-clock, hands-on technical support and tailored Internet service
solutions combined with its high speed, highly reliable national backbone, will
be significant factors in the purchase decision for the small and medium sized
business customer, as well as being a critical factor driving customer loyalty.
THE VERIO STRATEGY
The goal of the Company is to be the dominant, full-service national
provider of Internet connectivity and enhanced Internet services to small and
medium sized businesses. Key elements of the Company's strategy in accomplishing
this goal are to: (a) continue its role as the leading consolidator of
independent ISPs by acquiring additional local and regional ISPs focused on the
Company's target market; (b) integrate the operations of its ISPs and capture
operational economies of scale by leveraging its national infrastructure and
support services; (c) develop and offer additional high-margin enhanced services
to increase revenues from existing and future customers; and (d) build customer
loyalty and gain market share by expanding the Company's local technical,
distribution and service capabilities and establishing national Verio brand name
recognition.
Continue Consolidation Through Acquisitions. Verio has rapidly established
a national presence and critical customer mass by acquiring the stock or assets
of, or making significant investments in, established, well-regarded independent
ISPs in selected regions throughout the U.S. The Company intends to continue its
consolidation strategy, acquiring additional business-focused ISPs to deepen and
broaden its market presence and to expand its strength in targeted product areas
such as Web hosting. Given the increasing competitive pressures facing the
independent local and regional ISPs, Verio believes that these ISPs will
continue to be attracted to and benefit from the consolidation opportunity
provided by Verio. As part of its integration strategy, the Company now seeks to
acquire 100% of new ISP affiliates and expects to effect the Buyouts of the
remaining non-wholly owned Verio ISPs during 1998. See "-- ISP Ownership
Structure." The Company's decentralized regional management structure and equity
incentive programs that are tied to regional performance foster continued
entrepreneurial culture, local responsiveness and internal growth.
Integrate Operations and Capture Economies of Scale. The Company integrates
and optimizes the operations of the ISPs it acquires by consolidating their
operations into regional operating units with centralized regional management,
connecting their local networks to Verio's high-speed, highly reliable national
backbone, and providing them with Verio's integrated national support services.
These services include national network transit, 7-day X 24-hour network
monitoring and management, customer technical support, a sophisticated billing
and collections system, financial information management through a central,
standardized accounting system, and national marketing and product development
programs. Through this integration of its national infrastructure with its local
ISP operations, the Company believes that it has achieved a significant degree
of operational control and efficiency and has improved the quality, consistency,
and scalability of its services. The Company also has leveraged its national
scale to establish peering relationships, to obtain favorable national
purchasing contracts and to establish strategic relationships with key hardware
and software providers. These providers view Verio's ISPs as a powerful
distribution channel. For example, Verio has entered into an agreement with
Microsoft whereby Verio is offered as an "in the box" Web hosting program for
Microsoft's FrontPage product and for Microsoft's Small Business Server Referral
program, which facilitates small businesses' entry to the Internet using Verio's
network. In addition, Verio has negotiated advantageous volume purchase
agreements with key vendors such as Cisco and Raptor. In addition, Verio has
obtained public and private peering arrangements with every major ISP other than
UUNet, including MCI, Sprint and GTE Internetworking (formerly BBN), as well as
with over 90 smaller domestic and international networks. Furthermore, the
Company's scale also allows it to support a high quality national network and
invest in leading edge systems for network management, billing, customer
service, and financial information.
Develop and Offer Enhanced Products and Services to Increase
Revenues. Small and medium sized businesses are purchasing an increasing number
of enhanced products and services as these businesses deploy mission critical
applications on the Internet. As a result, the Company believes that it will be
able to derive incremental revenue from these customers by selling an expanding
array of enhanced services and additional bandwidth to support these services.
The Company accelerated its ability to provide sophisticated Web hosting
33
<PAGE> 35
on a national scale through its acquisition of Internet Servers, Inc.
("iServer"). While Internet connectivity and Web hosting constitute the
predominant services offered by Verio today, a number of additional high-margin
enhanced services are being offered by the Company. These additional services
include VPN, security services, electronic commerce, intranet services and other
advanced Internet applications. Verio encourages continued innovation within its
regional operations, and supports the identification and transfer of products,
services and "best practices" among its regional operations. In addition, the
Company's product development groups are focused on additional services to be
developed both internally, through acquisition, and in conjunction with
strategic partners. Verio has entered into, and expects to continue to enter
into, relationships with selected Internet hardware, software, service and
distribution companies to enhance the Company's ability to deliver
cost-effective solutions to its customers, to gain early access to new
technology, to cooperatively market and sell these new products, and to gain
access to their distribution channels for the purpose of lead generation and
customer acquisition.
Build Customer Loyalty and Brand Name Recognition. The Company's goal is to
achieve national recognition as the leading provider of Internet services to
small and medium sized businesses by rebranding its ISPs under the Verio name.
The Company intends to leverage its local presence by continuing to expand and
enhance local technical, distribution and customer support capabilities. By
combining the quality of local service offered through the Company's regional
operations with the Company's national backbone and support services, the
Company expects to generate increased customer loyalty and expanding market
share at the local level while enhancing its national brand. In conjunction with
the consolidation of its ISPs into integrated regional operating units, the
Company has branded these regional operations under the Verio name, with a
regional or local geographical identifier to emphasize its local presence. As
the Company continues to expand, its acquisition strategy will be to continue to
identify and select ISPs that have developed a strong local presence through
quality service, hands-on customer support, local market knowledge and an
entrepreneurial culture.
THE VERIO ORGANIZATION
To date, the Company has pursued a regional acquisition strategy, acquiring
independent, locally based ISPs in selected geographic regions. In each region,
the Company typically sought a larger regional ISP to serve as the focal point
for the region and as the vehicle for integrating and optimizing the networks
and operations in that region. The Company also has invested in smaller ISPs to
increase its local presence and market share. Having established a presence in
each of its initially targeted regions, the Company has expanded its target
markets to encompass all of the top 50 MSAs and is continuing to add
incrementally to its presence within its existing regions. It is also in the
process of consolidating most of the Verio ISP operations within each region
into single, integrated operating units.
The Company conducts its operations with both a national and regional
approach. As of April 10, 1998, the Company had acquired the stock or assets of,
or invested in, ISPs in eight regions of the country, and now has substantial
operations in: the Pacific Northwest, serving the primary MSAs in Washington,
Oregon and Idaho; Northern California, serving the greater Bay Area, Stockton
and Sacramento; Southern California, serving the Los Angeles area, Orange County
and San Diego; Texas and Louisiana, serving all of the major cities in Texas as
well as New Orleans; the Northeast, serving the major MSAs from New Jersey to
Boston and Upstate New York; the Mid-Atlantic, serving the Washington DC,
Baltimore, Richmond and the I-95 corridor; and the Midwest, serving Chicago,
Detroit, Ann Arbor, Kansas City, St. Louis, Omaha, Tulsa and Des Moines. In
addition, the Company has funded a start-up operation in the Rocky Mountain
region, which is in the early stages of establishing a presence in the Denver
area and along the Front Range. Verio also has substantially increased its
national Web hosting presence with its acquisition of iServer, based on which
Verio has established a national operating division through which it can offer
Web hosting services to ISP customers throughout its regions. The Company is now
focusing its efforts on seeking greater coverage in the Midwest and establishing
a presence in the Southeast. As of April 10, 1998, the Company had executed
definitive agreements to acquire four additional ISPs. Two of these ISPs will
expand the Company's Midwest presence, one will join the Northeast operations,
and one is located in Florida and is the Company's first acquisition in the
Southeast region. With these four additional ISPs, the Company will serve 36 of
the top 50 MSAs. The revenue attributable to these four proposed ISPs is
estimated to be approximately $2.3 million for the three
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<PAGE> 36
months ended December 31, 1997, which would bring the Company's total revenue
for that three month period to $25.5 million. The Company believes that
consummation of each of these acquisitions is probable. Accordingly, financial
information for these acquisitions is reflected in the pro forma financial
statements contained herein. Nonetheless, there can be no assurance that all of
the closing conditions will be satisfied or that the Company will consummate any
or all of these acquisitions. In addition, the Company has executed a
non-binding letter of intent to acquire an additional ISP located in Michigan
which, if consummated, would further enhance the Company's market presence in
the Midwest region.
The following chart identifies, by operating region, the 33 ISPs acquired
or invested in by Verio, or from which Verio has acquired significant assets, as
of April 10, 1998. It also includes the four ISPs subject to definitive
acquisition agreements as of April 10, 1998, the consummation of which the
Company believes to be probable. The chart provides certain summary information
concerning Verio's revenues for the three months ended December 31, 1997 as if
all such ISPs had been owned by the Company at such date.
<TABLE>
<CAPTION>
REVENUE FOR THE
THREE MONTHS ENDED
OPERATING REGION PRIMARY MSAS SERVED VERIO ISPS DECEMBER 31, 1997(1)
---------------- ------------------- ---------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C>
VERIO NORTHWEST $ 5,667
- Seattle, WA - NorthWestNet, Inc.
- Portland, OR - AccessOne, Inc.
- RAINet, Inc.
- Internet Engineering
Associates, Inc.
- Pacific Rim Network, Inc.
- Structured Network
Systems, Inc.(2)
VERIO NORTHERN CALIFORNIA 2,411
- San Francisco - Aimnet Corporation
- Sacramento - CCnet Inc.
- San Jose - West Coast Online, Inc.
- Oakland - NSNet, Inc.
VERIO SOUTHERN CALIFORNIA 2,892
- Los Angeles - Compute Intensive Inc.(3)
- San Diego - ATMnet, Inc.
- Riverside/San
Bernardino
- Orange County
VERIO TEXAS/GULF SOUTH 4,284
- Houston, TX - On-Ramp Technologies, Inc.
- Dallas, TX - Signet Partners, Inc.
- San Antonio, TX - National Knowledge
- Ft. Worth, TX Networks, Inc.
- New Orleans, LA - Communique, Inc.
- Sesquinet
VERIO MID-ATLANTIC 2,259
- Washington, DC - Clark Internet Services,
- Baltimore, MD Inc.
- Monumental Network
Systems, Inc.
- Internet Online, Inc.(4)
VERIO NORTHEAST 2,264
- New York, NY - Global Enterprise Services
- Boston, MA - Pioneer Global
- Philadelphia, PA Telecommunications, Inc.
- Pittsburgh, PA - ServiceTech, Inc.
- Hartford, CT - Surf Network, Inc.
- Newark, NJ - PREPnet
- Buffalo/Niagara, NY - Wingnet
- Providence, RI - LI Net, Inc.
- Nassau/Suffolk, NY - Matrix Online Media Inc.(5)
- Bergen/Passaic, NJ
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
REVENUE FOR THE
THREE MONTHS ENDED
OPERATING REGION PRIMARY MSAS SERVED VERIO ISPS DECEMBER 31, 1997(1)
---------------- ------------------- ---------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C>
VERIO MIDWEST 3,070
- Chicago, IL - Verio Chicago(6)
- St. Louis, MO - Global Internet Network
- Detroit, MI Services, Inc.
- Kansas City, MO - RustNet, Inc.
- Milwaukee/Waukesha - Branch Information
Services, Inc.
- STARnet, L.L.C.(7)
- Computing Engineers Inc.
(d/b/a Worldwide Access)(8)
VERIO ROCKY MOUNTAIN 49
- Denver, CO - Verio Colorado(9)
- Salt Lake City, UT
VERIO SOUTHEAST 394
- Miami - Florida Internet
- Fort Lauderdale Corporation (10)
VERIO WEB HOSTING 1,155
- National Product - Internet Servers, Inc.
Offering
$25,506(11)
=======
</TABLE>
- ---------------
(1) These amounts reflect the full amount of revenues generated by all of the
ISPs in each region, including (i) ISPs which are subject to definitive
acquisition agreements (the consummation of which the Company believes is
probable) and (ii) ISPs in which the Company has not yet completed a
Buyout, in which cases these amounts do not necessarily reflect the
Company's percentage interest in such ISP.
(2) Verio currently owns approximately 20% of the fully diluted equity of this
ISP and expects to consummate the Buyout of the remaining equity prior to
or concurrent with the consummation of the Offering.
(3) Verio currently owns approximately 55% of the fully diluted equity of this
ISP and expects to consummate the Buyout of all of the remaining fully
diluted equity interests not currently owned by Verio prior to or
concurrent with the consummation of the Offering.
(4) Verio currently owns approximately 33% of the fully diluted equity of this
ISP.
(5) Verio and Matrix Online Media, Inc. (d/b/a SpaceLab) have executed a
definitive agreement pursuant to which Verio expects to acquire 100% of the
stock of this ISP. Closing is expected to occur prior to consummation of
the Offering subject to satisfaction of certain closing conditions.
(6) Funded as a start up to oversee Midwest operations and initiate operations
in Chicago.
(7) Verio and STARnet L.L.C. have executed a definitive agreement pursuant to
which Verio expects to acquire 100% of the member interests in this ISP.
Closing is expected to occur prior to consummation of the Offering subject
to satisfaction of certain closing conditions.
(8) Verio and the shareholders of Computing Engineers Inc. (d/b/a Worldwide
Access) have executed a definitive agreement pursuant to which Verio
expects to acquire 100% of the stock of this ISP. Closing is expected to
occur prior to consummation of the Offering subject to satisfaction of
certain closing conditions.
(9) Funded as a start up to oversee Rocky Mountain operations and initiate
operations in the primary Colorado business centers, Verio Rocky Mountain
(d/b/a Verio Colorado) is owned 69% by Verio.
(10) Verio and the shareholders of Florida Internet Corporation have executed a
definitive agreement pursuant to which Verio will acquire 100% of the stock
of this ISP. Closing is expected to occur prior to consummation of the
Offering subject to satisfaction of certain closing conditions.
(11) Includes $2.3 million of revenues attributable to the four ISPs subject to
definitive acquisition agreements, the consummation of which the Company
believes is probable.
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<PAGE> 38
PRODUCTS AND SERVICES
The Company currently offers, through its regional ISP operations, a
comprehensive range of Internet connectivity and enhanced products and services.
The specific products offered in each market are determined by the needs of the
market and local telco tariffs. The Company intends to continue to develop a
broad range of enhanced products and services independently, through
acquisition, and through strategic relationships with key vendors.
Connectivity Services. Verio offers a variety of connectivity solutions,
which include Internet access and third-party software and hardware
implementations and configuration services, which are offered in bundled and
unbundled packages. Internet access currently includes ISDN, frame relay, leased
line access and dial-up connectivity. The Company is participating in trials for
the deployment of new access technologies, such as xDSL and wireless access. The
Company also offers a full range of customer premise equipment ("CPE") hardware
required to connect to the Internet, including routers, CSU/DSUs, servers and
other products as needed. Verio's regional operating units are able to take
advantage of the Company's national purchasing and leasing relationships with a
variety of partners in order to realize improved hardware pricing, lower cost
leasing arrangements and bundled service offerings. Verio also offers a
selection of software products including browsers, electronic mail, news and
other solutions that permit customers to navigate and utilize the Internet.
Additionally, Verio provides turnkey configuration solutions encompassing such
services as domain name server ("DNS") support, telco line provisioning, IP
address space assignment, router set-up, e-mail configuration, router security
configuration and other set-up services.
Enhanced Services. The Company believes that its small and medium sized
business customers will continue to increase their use of the Internet as a
business tool and, as a result, will require an expanding range of enhanced
services. The Company currently offers a variety of enhanced services. In
addition, the Company's national marketing group is focused on developing new
enhanced services through both internal development, acquisition and strategic
relationships with software, hardware and content providers. The Company's
current and planned enhanced services offerings include the following:
- Web Hosting and Co-location. Web hosting offers business customers a
presence on the Internet, enabling them to take advantage of the
marketing, customer service, internal company information ("intranets")
and other benefits offered by such presence. Verio offers its customers
Web hosting services on a national basis as well as through local data
centers. The services include the full range of Web hosting, Web design,
Web site maintenance and ongoing consulting services through a
combination of internal efforts and the use of independent partners. The
Company also offers Web site co-location, where a customer-owned Web
server is located at a Verio ISP POP for higher reliability. This
solution allows the customer to own its own Web server without having to
maintain and manage the data center environment. The Company's
acquisition of Utah-based iServer gives the Company access to proprietary
Web server technology, an extensive network of Web hosting resellers and
over 25,000 hosted Web sites. The Company believes it will be able to
leverage iServer's proprietary "virtual server" technology across its
regional operations to accelerate the growth and increase the
profitability of its Web hosting product line. In addition to offering
Web hosting services, the Company has established national Web hosting
and co-location services by operating high-end, highly reliable data
centers positioned close to major network access points. The Company is
consolidating the majority of its Web hosting capability into its
regional data centers across the country, strategically located near the
Company's public and private peering points. The Company also intends to
implement emerging content distribution technologies such as content
replication ("mirroring") and caching for enhanced end user performance.
Currently, the Company supports over 35,000 domains and provides hosting
services to over 1,600 resellers.
- Security. Security solutions are a vital component for most businesses
connected to the Internet. These solutions, which include firewalls,
packet filter and proxy servers, give the customer (i) an ability to
prevent intruders from accessing its corporate network, (ii)
authentication of users attempting to gain access, and (iii) encryption
services, providing secured transmission of company data through the
Internet. The Company currently offers a comprehensive set of firewall
products from Raptor,
37
<PAGE> 39
including the sophisticated Eagle Firewall(TM) and the more simplified
products known as The Wall(TM). The Company also offers proxy server
solutions such as the Microsoft Proxy Server. Additionally, the Company
offers a "managed" security solution that provides ongoing detection and
prevention of intrusions. The Company plans to expand its security
product line with new solutions that simplify, reduce cost, or offer
greater functionality as they become commercially available.
- Virtual Private Network ("VPN"). Many companies today have private data
communication networks, which are often referred to as wide area networks
("WANs") and built on expensive leased lines, to transfer proprietary
data between office locations. The Internet offers companies a cost-
effective replacement alternative to WANs through VPNs, which are meant
to provide secure transmission of private Internet Protocol ("IP")
traffic through the Internet. Additionally, many companies require that
their employees have remote access to these private networks from home or
while traveling. VPN products are available in hardware, software,
firewall and service provider formats. VPN products are also the basis
for offering intranet and extranet services. Intranets are
corporate/organizational networks that rely on Internet-based
technologies to provide secure links between corporate offices. Extranets
expand the network to selected business partners through secured links on
the Internet. Increasingly, companies are finding that intranets and
extranets can enhance corporate productivity more easily and less
expensively than proprietary systems. The Company currently offers its
customers a number of VPN solutions, including Raptor's VPN products and
is in the process of evaluating additional products to meet the needs of
customers.
- National Roaming. Employees of small and medium businesses are
increasingly dependent on accessing their e-mail while on the road.
Currently, many users either cannot do so because of the limitations of
their local ISP, or they are required to pay expensive long distance
access charges. The Company is in the process of implementing a national
dial-up access roaming product to enable dial-up business customers to
access the Internet locally as they travel throughout the country and
abroad.
- Electronic Commerce Solutions. Electronic commerce provides users the
ability to sell products and services on the Internet. The Company
currently provides e-commerce capability to over 500 customers by
providing the three principle functions of electronic commerce: secure
socket layer, shopping cart support, and transaction processing
capability. Secure socket layer ("SSL") is provided through its Premier
Business Partner relationship with Verisign for digital certificates. The
Company supports a large variety of shopping carts, including Shop Site
by Icentral, and provides support for third party transaction processing
through Cybercash and AuthorizeNet. The e-commerce solutions are packaged
according to the complexity of the individual customer's needs. The
Company also intends to provide enhanced e-commerce hosting environments,
as well as to make use of third party software development partners to
provide certain turnkey e-commerce applications, such as an on-line
catalogs.
- Professional Services. The Company's target customers typically do not
have the internal resources or personnel to design and maintain Internet
services. As more businesses utilize the Internet for mission critical
applications, the Company expects its customers to rely on their ISP for
support of many of their information technology applications. As a
result, the Company believes it will be increasingly important for ISPs
to offer onsite, technical consulting to customers. The Company currently
offers a full complement of professional services to its customers,
including network and system design, Web content creation, security
system needs analysis and implementation, virtual private network design
and implementation, and other Internet-related consulting projects. The
Company intends to invest in additional professional services
capabilities as they are required to provide customers with turnkey
Internet solutions.
- Enhanced Products and Services. Customers are increasingly seeking to
tailor the use of the Internet to their business. Verio intends to serve
these needs through the packaging and configuration of third party
applications, such as data storage and retrieval, IP telephony (which
permits users to make voice calls on the Internet), Internet faxing,
Internet audio and video conferencing solutions, and other applications
that may be developed. As businesses commit to using the Internet, the
Company believes that the advanced applications product category will
continue to expand, offering additional revenue
38
<PAGE> 40
opportunities. For example, the Company currently provides mail list
services to customers that have a need to send out hundreds of thousands
of e-mail messages to their customers, suppliers and prospects.
Verio has and intends to continue to enter into agreements with Internet
companies to leverage their products, brand names, distribution channels and
other assets. Verio believes that its existing Internet product and service
partners have been attracted to the Company because of its broad geographic
coverage, ability to influence purchase decisions of its business customers, and
the ability of the Verio sales forces to sell complex Internet solutions. The
Company has established strategic relationships with software providers such as
Microsoft, Oracle and Raptor, and equipment providers such as Cisco and
Farallon, and intends to expand its strategic relationships with additional
providers of key products and services. These relationships provide the Company
with benefits including preferred pricing, access to the latest products,
co-marketing with the vendors, tailored product training and access to the
vendor's distribution channels to generate leads for new customers.
SALES AND MARKETING
Verio offers its products and services through a consultative sales
approach which makes use of local technical talent to understand customer
applications and provide bundled Internet applications solutions consisting of
hardware, software, access and value-added services. Verio believes that this
localized approach will allow it to provide end-to-end customer solutions and
ongoing support. Verio and its ISPs have significant distribution capabilities
both through a direct sales force and indirect channels. The direct sales forces
offer a core base of technically competent, locally based and experienced
Internet sales representatives. Verio is focusing efforts on expanding the
direct sales force, further developing indirect channels and optimizing lead
generation techniques to reduce the cost of new customer acquisitions.
The Company currently provides Internet services to over 80,000 customer
accounts. Over 5,000 of these customer accounts receive dedicated connectivity
services from Verio, and over 12,000 represent Web hosting or Web site server
co-location services provided by Verio. Through the Company's Web services, over
35,000 domains (i.e. Verio.net) are hosted. The over 60,000 remaining accounts
are provided dial-up connectivity services, the majority of which are used for
business purposes.
Direct Sales. Verio's ISPs have a direct sales force of more than 100
individuals. These local sales representatives have a strong Internet technical
background and understand the local telecommunications tariffs as well as the
needs of their local business community. Additionally, these representatives are
familiar with local companies to assist in implementing customized solutions
such as Web page content development. The Company has developed programs at the
national level to attract and train high quality, motivated sales
representatives that have the necessary technical skills, consultative sales
experience and knowledge of their local markets. These programs include
technical sales training, consultative selling techniques, sales compensation
plan development, and sales representative recruiting profile identification.
Through the effective use of these initiatives, Verio plans to continue to
expand its direct sales force. At the local level, direct marketing techniques
are being employed to target customer segments that would achieve substantial
benefit from the business applications afforded by the Internet. Some direct
marketing tactics include direct mail, telemarketing, seminars and trade show
participation. The Company is working with key vendors to assist in these direct
marketing efforts. Verio co-markets with these vendors through direct mail
programs, joint seminar development and joint trade show involvement.
Resellers and Indirect Sales. The Company has an authorized reseller and
referral program that permits the regional operating units to adapt a formal
indirect distribution program to their markets. The Company believes indirect
channels are a significant contributor to its growth. The Company already has
over 1,600 formal and informal reseller arrangements established. The authorized
reseller program offers reseller partners the ability to share in the on-going
revenue stream of customers they bring to Verio. Reseller partners include
system integrators, value-added resellers and other companies that have an
established relationship with the prospective customer base, and have a sales
force capable of selling Internet services as a part of the reseller's suite of
services. Referral partners, including organizations such as Web designers,
advertising agencies or property managers, are another source of customer leads.
The referral program targets organizations that are
39
<PAGE> 41
less capable of selling Internet services or where Internet services fall
outside their core business interests. The benefits of these programs to Verio
include greater market reach without fixed overhead costs and the ability to use
the partners to assist in the delivery of complete solutions to meet customer
needs. In addition to local resellers, Verio is working with several national
companies to expand its indirect sales capability.
Branding. The Company's branding approach is intended to transfer Verio's
national strength to its ISPs while transferring each ISP's local presence and
support to the Verio brand. In conjunction with the consolidation of its ISPs
into integrated regional operating units, the Company is branding these regional
operations under the Verio name, with a regional or local geographical
identifier to emphasize its local presence. Additionally, the Company's national
public relations efforts serve to raise the awareness of Verio, which the
Company expects will continue to generate leads.
VERIO NATIONAL NETWORK
Overview. Verio owns and operates a national network, providing a high
bandwidth, highly reliable data transmission path connecting Verio's customers
to the Internet, which the Company believes is adequate for the provision of
current and future planned access and enhanced services needs. The Company's
national network interconnects more than 15 national nodes and over 180 local
POPs across the United States. The Company believes that aggregating the
bandwidth and capacity requirements of its regional operations onto one national
network provides operational control and efficiency, reduces costs, provides
redundancy, and results in a higher quality service, thereby addressing some of
the most significant challenges that an ISP faces in supporting its customers.
Verio's national infrastructure also incorporates several other elements
critical to maintaining the highest quality Internet service, including a high
capacity and reliable national network, peering relationships with other
national ISPs, sophisticated network management tools and engineering support
services. The reliability of the national network is the result of many factors,
including but not limited to redundant routers and other critical hardware,
carrier class facilities at POP locations (such as back up power, fire
suppression and climate control), and redundant telecommunications lines.
Network Infrastructure. As of February 1998, the national network carried
traffic for 25 of the Verio ISPs and the remaining ISPs' traffic will be added
as growth drives the need for additional capacity, as private and public peering
is implemented and as their current transit contracts expire. It is currently
anticipated that by the end of the second quarter of 1998, five additional Verio
ISPs will deliver traffic to the Verio network.
Following is a diagram of the Company's national network as of February
1998:
[graphic to be inserted showing diagram of the Company's national network
infrastructure]
40
<PAGE> 42
Currently, the national network architecture includes a presence at
selected national exchange points and redundant network nodes to link the
Company's regional networks to the national network. As of February 1998,
Verio's network included connectivity at MAE West, MAE East and the NY NAP, each
of which is a major national exchange point for ISPs. The Company also has a
presence at the Palo Alto Internet Exchange (PAIX), NASA Ames and a number of
other regional connecting points, including Seattle, Washington; Portland,
Oregon; Sacramento and San Diego, California; Denver, Colorado; Dallas and
Houston, Texas; Chicago, Illinois; Ann Arbor, Michigan; Philadelphia,
Pennsylvania; and Boston, Massachusetts. Each of these Verio locations features
leading router technology. The equipment is located in facilities leased from a
variety of telecommunications providers, including MCI, Sprint, MFS, Brooks and
others. These access points are linked, using a nationwide, high-speed DS-3 (45
Mbps) and OC-3 (155 Mbps) ATM, and DS-3 and OC-3 clear line network
infrastructure, utilizing capacity leased from a variety of national telco
providers, including Sprint, MCI, WorldCom and Qwest. The ATM portion of the
network relies on Sprint's 4-fiber ring SONET network. Sprint's SONET
architecture is designed to survive multiple failures with near instant
restoration to full capacity, thereby providing highly reliable performance.
This combination of clear channel circuits, ATM and router architecture provides
reliability to the network through path diversity and redundancy. Verio's
regional operating units either co-locate at these access nodes or lease
connectivity from a local service provider such as an RBOC or other LEC to
connect to the Verio equipment.
Work has begun to add national access nodes to serve additional parts of
the Midwest, Southern California, Texas, the Northeast and the Southeast which
the Company currently plans to put on-line during the second and third quarters
of 1998. Multiple national access nodes facilitate connection to Verio's
national network by its regional operations. The Company plans to add additional
private peering points and access nodes as it acquires more ISPs and expands
operations, and to further increase network capacity as the need for additional
bandwidth arises.
The national network is planned to allow for rapid expansion of bandwidth
through scaleable design supported by multiple local access and interexchange
carriers to provide the required bandwidth. The Company has begun the migration
of selected links from ATM to clear line. It is anticipated that the Company
will require nationwide OC-3 capacity in late 1998 to handle its projected
traffic requirements. The Company anticipates the potential need to exceed OC-3
speeds in 1999.
On March 31, 1998, the Company entered into a 15-year Capacity and Services
Agreement (the "Capacity Agreement") with Qwest, under which the Company will
have access to long haul capacity and ancillary services on Qwest's planned
16,285 mile MacroCapacity(SM) Fiber Network. Over the first seven years of the
term of the Capacity Agreement (the "Commitment Term"), the Company must
purchase, and Qwest must provide, not less than $100.0 million, in the
aggregate, of such capacity and services (the "Commitment"), at agreed upon
prices. The amount of capacity represented by the minimum Commitment would
satisfy less than 50% of the Company's projected long haul capacity requirements
over the Commitment Term. However, the Company has the right to order capacity
and services in excess of the Commitment level, and after the expiration of the
Commitment Term, at the same agreed upon prices. The Company also currently is
party to a number of other long haul capacity agreements with additional
telecommunication providers. These agreements are for various terms (of up to 5
years), and have varied pricing. Verio anticipates that it will satisfy a
substantial portion of its capacity and ancillary services needs under the
Capacity Agreement, because it believes that the agreed upon pricing levels will
significantly reduce the per unit costs that it otherwise would pay under its
other existing long haul capacity agreements.
The Company believes that the currently installed Cisco routers will be
sufficient to support its traffic routing needs up to and including OC-3 speeds.
To handle the routing at speeds higher than OC-3, new technology will be
required. The Company is investigating various options to support these higher
speeds and bandwidth requirements. Verio's options include switching, higher
capacity and faster routers, or hybrid routing and switching solutions.
Peering Relationships. By implementing its own national network and
establishing peering relationships with other national ISPs, the Company
believes it can lower the cost of its Internet transit and increase the
performance and reliability of its network operations. Peering is the Internet
practice under which ISPs
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exchange each other's traffic without the payment of settlement charges. The
basis on which the large national ISPs make peering available or impose
settlement charges is evolving as the provision of Internet access and related
services has expanded and the dominance of a small group of national ISPs has
driven industry peering policy. Recently, companies that have previously offered
peering have cut back or eliminated peering relationships and are establishing
new, more restrictive criteria for peering. The Company believes that
substantial traffic volume and national scale will continue to be the focal
criteria necessary to establish and maintain peering relationships. As a result,
it has become increasingly important for companies seeking to take advantage of
peering to have significant traffic, a national network and monitoring
capability.
The Company has established peering relationships with nearly all of the
major national ISPs, as well as with over 90 smaller domestic and international
networks, and is evaluating further private peering relationships with other
national ISPs. Some large network providers now prefer to peer at private
exchange points rather than at national exchange points. This preference
represents the desire to accomplish the exchange of high bandwidth traffic in a
more efficient manner rather than to risk congestion and equipment failure at
public exchange points. The Company has moved its GTE Internetworking and DIGEX
public peering points to private peering locations and is in the process of
moving its MCI public peering points to private peering locations. Verio also is
evaluating additional private peering proposals from other national ISPs. The
Company currently anticipates that, as Verio's traffic grows, more peering
relationships can be obtained. However, no assurance can be given that peering
relationships will continue to be made available to the Company. Even if these
relationships are not maintained or established, Verio believes that it will be
more economical for Verio to maintain an exchange point transit agreement than
to pay other national ISPs for transit. See "Risk Factors -- Dependence upon
Implementation of Network Infrastructure; Establishment and Maintenance of
Peering Relationships."
National Network Management. The Company considers world-class network
management an essential capability for network monitoring and expansion,
maintaining high customer satisfaction and improving network quality. The
Company has established a 7-day X 24-hour NOC to allow continuous monitoring of
the network and to provide a single point of contact for real-time network
status information and customer technical problem resolution. The NOC is
designed to provide real-time alarming, event correlation, traffic management
and forecasting, and distributed notification of the network events and network
status. The Company utilizes many leading edge systems to provide the NOC
capabilities. The Company currently monitors the national network and the local
networks of approximately 17 of the ISPs it has acquired. The Company plans to
provide network and customer monitoring throughout its regional operations by
the end of 1998.
Engineering Support Services. The Company has negotiated national level
telecommunications contracts with LECs, such as MFS/WorldCom, providing
favorable terms for local transport. The Company plans to expand national
purchasing and leasing benefits as well as technical planning and support to
improve the performance, reliability and economics of its regional networks.
National level purchasing benefits include both cost and vendor performance
issues as well as the provisioning of spare equipment and additional technical
support from the suppliers. National level distribution agreements have been
negotiated with a number of additional national-scope suppliers. The Company's
relationships with Sprint and MCI provide discounted services including leased
line, local access and long distance. Co-location agreements have also been
established with companies such as Sprint, MCI, Brooks, MFS/WorldCom and Digital
Equipment Corporation. The Company is pursuing additional vendor and
telecommunication relationships in an effort to reduce the cost of equipment and
improve network quality.
Technical Planning and Support. The national engineering team provides
engineering support for routing configurations, telecommunications management
and pricing, development of local networks and purchasing and contract
negotiation. The national engineering team also works with the regional
engineering teams to nationalize certain network elements, improve performance
and reduce network costs. Support includes Internet protocol addressing support,
training and technology. This effort of sharing ideas and best practices among
the national team and the regions is intended to enhance the engineering talent
available locally and to share best practices nationally.
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NATIONAL SUPPORT SERVICES
In addition to its national network and network monitoring capability,
Verio has developed and implemented three critical national support services
designed to increase operational efficiencies and enhance the quality,
consistency and scalability of the Company's services. These support services
include 7-day X 24-hour customer technical support and service, financial
information management through a central, standardized accounting system, and a
sophisticated billing and collections system. The strategy of creating a
partnership between local support teams and Verio's established national support
services enables the Company to capture economies of scale, improve quality and
responsiveness, and increase productivity, while allowing local personnel to
focus on relationships with customers.
Customer Technical Support. Verio's customer care combines the
responsiveness and on-site capabilities of local ISP presence with the scale
economies of a national customer support center in order to deliver customer
care to businesses. While local, independent ISPs bring the benefits of
understanding customer needs and providing hands-on support demanded by their
customers, they lack the ability to cost-effectively scale internal resources to
independently support their growing customer base. The Company's national
customer support center (located in Dallas, Texas) enables Verio to provide
7-day X 24-hour responsiveness while maintaining the ability to provide on-site
installation assistance, hands-on troubleshooting and access to local experts
who understand the customer's business. The Company is currently providing
customer care services to 21 of the ISPs it has acquired and will offer services
to all of the Verio regional operations as the national customer support center
continues to expand throughout 1998. The support center team is utilizing a
leading customer support trouble ticketing and workflow management system
offered by the Vantive Corporation. The system offers the Company the ability to
track, route, and report on customer issues and provides significant benefit in
ensuring quality and timely care to customers. The Company believes that the
market for ISP services, as a whole, is evolving towards the provision of
credits to customers for service outages as a result of ISP network failures.
While the Company has not provided general service warranties or instituted a
uniform policy to date relating to the extent or the provision of service
credits, certain of the Verio ISPs have done so and continue to do so in certain
circumstances.
Financial Information Management. The Company is in the process of
converting all of its ISPs to the PeopleSoft(TM) financial reporting system and
the ADP payroll/human resources system, in order to provide a central,
standardized accounting system. Currently, 20 of the Verio ISPs are utilizing
the financial reporting system and eight are utilizing the payroll human
resources system. These systems enable Verio to cost effectively increase the
productivity and quality of administrative support by standardizing operational
systems such as payroll, payables, purchasing and financial reporting. These
enhancements are part of the Company's initiative to implement continuous
improvement methodology and to create a learning organization.
Billing and Collections. The Company has implemented the Kenan Systems' EC
Arbor billing solution which offers high quality, flexibility,
cost-effectiveness and scalability. Kenan is a leading billing solutions
provider to the telecommunications industry, providing accurate, timely, and
easy-to-understand invoicing. This system currently serves 16 of the Verio ISPs.
The Company is aggressively rolling out this billing platform to all of its
regional operations and will continue on the path toward centralized management
of billing operations.
NTT STRATEGIC RELATIONSHIP
On April 7, 1998, the Company entered into agreements establishing a
strategic relationship with NTT. These agreements provide for an investment by
NTT or one of its affiliates in the Company, concurrent with and conditioned
upon the consummation of the Offering, for up to 12.5% of Company's fully
diluted Common Stock (after giving effect to the Offering and the issuance of
the NTT Shares) up to a maximum investment of $100.0 million, at a 3.25%
discount to the Price to Public. In connection with the NTT Investment, NTT is
entitled to designate one member to serve on the Company's Board of Directors.
See "Principal Stockholders -- NTT Investment."
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In addition, the Company and NTT America entered into a three year Outside
Service Provider Agreement (the "OSP Agreement"), which will take effect upon
the closing of the NTT Investment. Pursuant to the OSP Agreement, the Company
will be designated as the preferred provider of Internet access and related
services to customers of NTT America on a reseller basis. Verio and NTT will
connect their backbones and establish a peering and transit relationship. During
the term of the OSP Agreement, NTT America will pay the Company for the services
provided by the Company at predetermined rates reflective of the strategic
relationship between the parties. Within 30 days after the IPO Closing, NTT
America and the Company have agreed to establish certain working groups to
develop the details for implementation of the specific technical and
administrative aspects arising under the OSP Agreement.
ISP OWNERSHIP STRUCTURE
While the Company now typically seeks to acquire 100% of new ISPs, the
Company's early acquisition strategy was to rapidly build mass and scale by
acquiring less than 100% of its ISPs. In each case where the Company acquired
less than 100% of an ISP initially, it obtained the right to acquire the
remaining equity in the future at a price based on either agreed upon revenue
multiples or the fair market value of the ISP. As part of its integration
strategy, the Company is in the process of effecting the Buyouts of most of its
remaining non-wholly owned ISPs through the use of cash on hand and the issuance
of equity. As of April 10, 1998, Verio had consummated the Buyout of 12 ISPs.
Verio currently expects to effect the Buyouts of the remaining four ISPs that it
did not initially acquire 100% during the remainder of 1998. However, there can
be no assurance that the Company will be able to complete these additional
Buyouts at the times, or on the terms and conditions, that it currently
contemplates.
As the Company completes the Buyouts, in general, the ISPs in each region
are consolidated into a single, integrated regional operating subsidiary which
is wholly owned by the Company. In certain instances, some of the ISPs may
continue to exist as separate, indirect, wholly owned subsidiaries of Verio, but
operated as part of the particular integrated operating region.
Verio also currently holds a 20% interest in V-I-A Internet, Inc., a
start-up company which was formed to pursue a consolidation strategy similar to
that of the Company in international markets. Other investors in that entity
include certain of Verio's current stockholders. Justin L. Jaschke, Chief
Executive Officer of the Company, currently serves as the Chairman of the Board
of V-I-A Internet, and Steven C. Halstedt, Chairman of the Board of the Company,
currently serves as the acting President of V-I-A Internet. See "Management."
COMPETITION
The market for Internet connectivity and related services is extremely
competitive. The Company anticipates that competition will continue to intensify
as the use of the Internet grows. The tremendous growth and potential market
size of the Internet access market has attracted many new start-ups as well as
existing businesses from different industries. Current and prospective
competitors include, in addition to other national, regional and local ISPs,
long distance and local exchange telecommunications companies, cable television
companies, direct broadcast satellite and wireless communications providers, and
on-line service providers. The Company believes that a reliable national
network, knowledgeable salespeople and the quality of technical support
currently are the primary competitive factors in the Company's target market,
and that price is usually secondary to these factors.
ISPs. According to Boardwatch magazine's directory of Internet Service
Providers, there are currently over 4,000 ISPs in the United States, consisting
of national, regional and local providers. The Company's current primary
competitors include other ISPs with a significant national presence which focus
on business customers, such as UUNet, GTE Internetworking (formerly BBN),
PSINet, Concentric Network and DIGEX. While the Company believes that its level
of local service and support and target market focus distinguish it from these
competitors, some of these competitors have significantly greater market
presence, brand recognition, and financial, technical and personnel resources
than the Company, and have extensive
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coast-to-coast Internet backbones. The Company also competes with unaffiliated
regional and local ISPs in its targeted geographic regions.
Telecommunications Carriers. All of the major long distance companies (also
known as interexchange carriers or IXCs), including AT&T, MCI, and Sprint, offer
Internet access services and compete with the Company. The recent sweeping
reforms in the federal regulation of the telecommunications industry have
created greater opportunities for LECs, including the RBOCs, to enter the
Internet connectivity market. In order to address the Internet connectivity
requirements of the current business customers of long distance and local
carriers, the Company believes that there is a move toward horizontal
integration through acquisitions of, joint ventures with, and the wholesale
purchase of connectivity from, ISPs. The WorldCom/MFS/UUNet consolidation, the
NETCOM/ICG merger, the Intermedia/DIGEX merger and GTE's acquisition of BBN are
indicative of this trend. Accordingly, Verio expects that it will experience
increased competition from the traditional telecommunications carriers. Many of
these telecommunications carriers, in addition to their substantially greater
network coverage, market presence, and financial, technical and personnel
resources, also have large existing commercial customer bases. Furthermore,
telecommunications providers may have the ability to bundle Internet access with
basic local and long distance telecommunications services. Such bundling of
services may have an adverse effect on the Company's ability to compete
effectively with the telecommunications providers and may result in pricing
pressure on the Company that would have an adverse effect on the Company's
business, financial condition and results of operations. The Company believes
that its local presence and its strong technical and data-oriented sales force
is an important feature distinguishing it from the centralized voice-oriented
sales approach typified by the current Internet connectivity services offered by
the IXCs and LECs.
Cable Companies, Direct Broadcast Satellite and Wireless Communications
Companies. Many of the major cable companies have announced that they are
exploring the possibility of offering Internet connectivity, relying on the
viability of cable modems and economical upgrades to their networks. MediaOne
Group and TCI have recently announced trials to provide Internet cable service
to their residential customers in select areas. However, the cable companies are
faced with large-scale upgrades of their existing plant equipment and
infrastructure in order to support connections to the Internet backbone via
high-speed cable access devices. Additionally, their current subscriber base and
market focus is residential which requires that they partner with
business-focused providers or undergo massive sales and marketing and network
development efforts in order to target the business sector. Several
announcements also have recently been made by other alternative service
companies approaching the Internet connectivity market with various wireless
terrestrial and satellite-based service technologies. These include Hughes
Network System's DirecPC product that provides high-speed data through direct
broadcast satellite technology; CAI Wireless System's announcement of an MMDS
wireless cable operator launching data services via 2.5 to 2.7 GHz and
high-speed wireless modem technology; Cellularvision's announcement that it is
offering Internet access via high-speed wireless LMDS technology; and Winstar,
which currently offers high-speed internet access to business customers over the
38 GHz spectrum.
On-line Service Providers. The predominant on-line service providers,
including America Online, CompuServe, Microsoft Network, and Prodigy, have all
entered the Internet access business by engineering their current proprietary
networks to include Internet access capabilities. The Company competes to a
lesser extent with these on-line service providers.
Recently, there have been several announcements regarding the planned
deployment of broadband services for high speed Internet access by cable and
telephone companies through new technologies such as cable modems and xDSL.
While these providers have initially targeted the residential consumer, it is
likely that their target markets will expand to encompass the Company's targeted
markets, which may significantly affect the pricing of the Company's service
offerings.
PROPERTIES
The Company's corporate headquarters is located in Englewood, Colorado
where the Company leases approximately 39,200 square feet of office space. The
Company's lease agreement, which commenced
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February 1, 1998, is for a term of five years. The Company also has executed a
lease covering 12,600 square feet of space in the InfoMart in Dallas, Texas,
where the Company maintains its network operations center and customer support
center. That lease expires on June 30, 2002. The Company also leases space,
typically less than 200 square feet, in various geographic locations to house
network infrastructure and telecommunications equipment. Operational functions
are principally located in the offices of its regional operations. The Verio
ISPs typically are party to lease agreements for administrative office space
sufficient for their respective personnel, as well as smaller site leases to
house their network equipment.
EMPLOYEES
As of March 31, 1998, the Company employed approximately 901 people,
including full-time and part-time employees at its corporate headquarters in
Colorado, its network operations and customer support center in Texas and at its
controlled ISPs. The Company considers its employee relations to be good. None
of the employees of the Company is covered by a collective bargaining agreement.
TRADEMARKS AND TRADE NAMES
The Company filed for federal trademark protection of "Verio" on November
29, 1996. This application is pending and the Company has no assurance that it
will be granted. Trademark protections for the Verio mark also have been applied
for in the European Economic Community, as well as in Japan. Additionally,
corporate name reservations for the name "Verio Inc." have been filed in all
fifty states. In conjunction with the consolidation of its ISPs into regional
operating entities, the ISPs have migrated to the Verio brand name, with a
regional or local geographical identifier appended.
LEGAL PROCEEDINGS
The Company is not currently party to any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages as of April 10, 1998, and
positions of the executive officers and the directors of the Company. Their
respective backgrounds are described below.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Steven C. Halstedt(3)(4)............................. 52 Chairman of the Board
Justin L. Jaschke(3)(4).............................. 40 Chief Executive Officer, Director
James C. Allen(2).................................... 51 Director
Trygve E. Myhren(1)(2)(4)............................ 61 Director
Paul J. Salem........................................ 34 Director
Stephen W. Schovee(1)(2)............................. 38 Director
George J. Still, Jr.(4).............................. 40 Director
Sean G. Brophy....................................... 39 Vice President of Corporate Development
James F. B. Browning................................. 43 Vice President of Operations
Chris J. DeMarche.................................... 41 Chief Technical Officer
Carla Hamre Donelson................................. 42 Vice President, General Counsel and
Secretary
Peter B. Fritzinger.................................. 40 Chief Financial Officer
Deb Mayfield Gahan................................... 43 Vice President of Finance and
Administration
James M. Kieffer..................................... 36 Vice President of Customer Operations
John R. Viviani...................................... 43 Vice President of Sales and Marketing
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Executive Committee
(4) Member of Finance Committee
Mark D. Johnson, who served as the Company's President, Chief Operating
Officer and a director of the Company, died on March 9, 1998. While Mr. Johnson
played an important role in overseeing the Company's operations, the Company
does not expect that his death will adversely affect the Company's operations,
growth or financial prospects, because of the strength of the Company's core
management team. On March 18, 1998, Mr. Jaschke was appointed to serve as the
Company's President while the Company conducts and executive search to seek a
replacement for the positions that were held by Mr. Johnson. See
"Summary -- Recent Developments."
All of the officers identified above serve at the discretion of the Board
of Directors of the Company. There are no family relationships between any
persons identified above. The following are brief biographies of the persons
identified above.
Steven C. Halstedt has served as Chairman of the Board of Directors of
Verio since the Company's inception in March 1996. Mr. Halstedt is a co-founder
of The Centennial Funds. Mr. Halstedt has 17 years of direct venture capital
experience and serves as a general partner of each of the Centennial Holdings'
partnerships. Prior to co-founding The Centennial Funds in 1981, he was
Executive Vice President and Director of Daniels & Associates, Inc., a private
communications service company involved in cable television system operations.
Mr. Halstedt is a member of the Board of Directors of Formus Communications,
Inc., Pluto Technologies International, Inc. and V-I-A Internet, Inc. where Mr.
Halstedt also serves as acting President. Mr. Halstedt was recently a director
of Centennial Communications Corp., Masada Security Holdings, Inc. and Triax
Communications Corp. He is also former Chairman of the Board of OneComm
Corporation ("OneComm"), PageAmerica Group, Inc. and Orion Network Systems,
Inc., all publicly traded telecommunications companies. Mr. Halstedt received a
Bachelor of Science with distinction in management engineering from Worcester
Polytechnic Institute, and earned a Master of Business Administration from the
Amos Tuck School of Business Administration at Dartmouth College, where he was
named an Edward Tuck
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Scholar. He attended the University of Connecticut School of Law. He was a
Platoon Leader and Battalion Operations Officer in a U.S. Army Combat Engineer
Battalion in Vietnam.
Justin L. Jaschke has served as Chief Executive Officer of Verio since the
Company's inception in March 1996. He is also a member of the Company's Board of
Directors. Prior to forming Verio, Mr. Jaschke served as Chief Operating Officer
for Nextel Communications ("Nextel") following its merger with OneComm in July
of 1995. Mr. Jaschke served as OneComm's President and a member of its Board of
Directors from the time that he joined that company in April 1993 until the
merger with Nextel. Mr. Jaschke currently serves as Chairman of the Board of
Directors of V-I-A Internet and also serves on the Board of Directors of
Metricom, a leading wireless data communications provider, and on the Board of
Directors of Dobson Communications, a rural cellular and local exchange
provider. From May 1990 to April 1993, Mr. Jaschke served as President and CEO
of Bay Area Cellular Telephone Company. From November 1987 to May 1990, Mr.
Jaschke was Vice President of Corporate Development of PacTel Cellular, and from
1985 to 1987 was Director of Mergers and Acquisitions for PacTel Corporation.
Prior to that, Mr. Jaschke was a management consultant with Marakon Associates.
Mr. Jaschke received a Bachelor of Science degree summa cum laude in mathematics
from the University of Puget Sound and a Master of Science degree in management
from the Sloan School of Management at MIT.
James C. Allen has served as a director of Verio since May 1996. Mr. Allen
served as CEO of Brooks Fiber Properties, Inc. until its recent acquisition by
WorldCom. Mr. Allen has twenty-five years of experience as an entrepreneur,
operator, financier, expert witness and advisor in cable television and
broadband telecommunications. Prior to joining Brooks, he served as Chief
Financial Officer and Chief Operating Officer of David Lipscomb University from
which he holds a Bachelor of Science degree. Mr. Allen was a founder and former
President, CFO and COO of Cencom Cable Associates, which was purchased by a
subsidiary of Hallmark Cards, and a former Vice President of Operations of
Telcom Engineering, Inc., a telecommunications engineering and consulting firm
with clients in both the telephone and cable television industries. Mr. Allen
previously held positions as Vice President of Operations of United Cable
Television, Divisional Manager of Continental Telephone Corporation, and Vice
President of Finance for National Communications Service Corporation. Mr. Allen
also is a director of MetroNet Communications Corp. ("MetroNet"), an LEC.
Trygve E. Myhren has served as a director of Verio since April 1997. Mr.
Myhren is President of Myhren Media, Inc. which invests in and advises media,
communications and consumer products companies. From 1990 to 1996, Mr. Myhren
was President and a director of The Providence Journal Company. From 1975 until
1988, Mr. Myhren was an officer of American Television and Communications
Corporation (ATC), the cable television subsidiary of Time, Inc. (now
Time/Warner Cable), serving as Chairman and CEO from 1980 to 1988. Mr. Myhren
also serves on the boards of The Providence Journal Company, Advanced Marketing
Services, Peapod, Ltd., CableLabs, J.D. Edwards, Inc., Founders Funds and The
University of Denver. Previously, Mr. Myhren served as chairman of the National
Cable Television Association (NCTA), and also served on the boards of Turner
Broadcasting Systems, Continental Cablevision, Inc., Citizens Bank and several
internal Time, Inc. boards, including Home Box Office, Temple-Eastex and Time
Magazine Group. He also served on the FCC's Advisory Committee on High
Definition TV. Mr. Myhren has an undergraduate degree in political science and
philosophy from Dartmouth and a Master of Business Administration from the Amos
Tuck Graduate School at Dartmouth. He served three and one-half years as a naval
officer with the U.S. Pacific Fleet.
Paul J. Salem has served as a director of Verio since December 1996. Mr.
Salem is a Managing Director of Providence Equity Partners, Inc., and is a
partner of the general partner of Providence's private equity funds. Providence
manages over $500 million in equity and specializes in communications and media
investments. Mr. Salem has been responsible for many of Providence's investment
activities, including its investments in competitive local exchange companies,
enhanced specialized mobile radio, wireless data networks, radio representation,
telecommunications infrastructure and other areas. He is currently a director of
Interep National Radio Sales, Inc., MetroNet, Wired Ventures, Inc. and UniSite,
Inc. Prior to joining Providence, Mr. Salem worked for Morgan Stanley & Co. in
corporate finance and mergers and acquisitions. Previously, Mr. Salem spent four
years with Prudential Investment Corporation, an affiliate of Prudential
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Insurance, where his responsibilities included private placement financings,
leveraged buyout transactions and establishing Prudential's European investment
office. Mr. Salem received a Bachelor of Arts in business from Brown University
and a Master of Business Administration from Harvard Business School.
Stephen W. Schovee has been a director of the Company since the Company's
inception in March 1996. Mr. Schovee serves as Managing Member of Telecom
Partners, L.P. and Telecom Partners II, L.P. Mr. Schovee was previously
co-founder, Chief Executive Officer and a Director of OneComm from its inception
until its merger with Nextel. Prior to that, Mr. Schovee was a Vice President of
Centennial Holdings, the manager of the Centennial Funds, a Denver based venture
capital fund with over $400 million of subscribed capital. Mr. Schovee was a
partner in two of the Centennial Funds where he focused on telecommunications
investments. Mr. Schovee is a special limited partner of Centennial Fund IV,
L.P. and Centennial Fund V, L.P. He is a director of SMR Direct, Intergram
International, and Infobeat. Mr. Schovee received a Bachelor of Science degree
in mechanical engineering from Bucknell University and a Master of Business
Administration from The Wharton School.
George J. Still, Jr. has been a director of the Company since the Company's
inception in March 1996. Mr. Still, based in Palo Alto, California, is a
Managing Partner of Norwest Venture Partners VI, L.P. and Norwest Equity
Partners V, L.P., and a General Partner of Norwest Equity Partners IV. From July
1984 until October 1989, he was a General Partner with the Centennial Funds
based in Denver, Colorado. Prior to Centennial, Mr. Still was with Ernst &
Whinney (now Ernst & Young) in San Francisco. Currently, he is a Director of
PeopleSoft, Inc. and 3Dfx Interactive, Inc., both public companies. In addition,
he serves on the board of several private companies, including Metapath Software
Corporation, Intrepid Systems, ObjectStream, Inc., and Chordiant Software.
Further, Mr. Still serves as a Director of the National Venture Capital
Association. He holds a Bachelor of Science degree in business administration
from Pennsylvania State University and a Master of Business Administration from
the Amos Tuck School at Dartmouth College.
Sean G. Brophy has served as Vice President of Corporate Development since
November 1997, and prior to that served as Vice President of Marketing and
Business Development for the Company since joining Verio in May 1996. Mr. Brophy
served as Vice President of Marketing for OneComm and then Nextel from 1994 to
1996. He worked at Northern Telecom from 1990 through 1994 in a variety of
capacities, including strategic planning and product management, where he had
global responsibilities for new products for Personal Communications Services.
Prior to that he worked at Bell Northern Research, the research and development
arm of Northern Telecom, designing telephone equipment and services ranging from
the DMS-100 to key systems. While there he was awarded patent and design
excellence awards. Mr. Brophy holds a Bachelor of Science degree in computer
engineering from McMaster University, a Master of Science degree in electrical
engineering from Carleton University and a Master of Science degree in
management from the Sloan School of Management at MIT.
James F. B. Browning was appointed Vice President of Network Operations for
the Company in January 1998, having previously served as President and CEO of
ATMnet, a company he founded in 1995 to provide integrated digital
communications services to businesses with broadband networking requirements.
Verio acquired ATMnet in November 1997. Mr. Browning has 20 years of experience
managing high technology development and operations. From 1988 to 1994, as
co-founder, he served as Chief Financial Officer and Chief Operating Officer of
VisiCom Laboratories, Inc., a systems engineering firm specializing in digital
satellite communications and operating system level software development. From
1983 to 1988, Mr. Browning served as Executive Vice President and then President
of Pacific Microcomputers, Inc., which developed and produced Single Board
Computers for use in Unix workstations and real time embedded computing
environments. Previously, Mr. Browning held financial and operational management
positions with Advanced Digital Systems and Tetra Tech, a subsidiary of
Honeywell. Mr. Browning holds a Bachelor of Science degree in accounting from
San Diego State University.
Chris J. DeMarche has been Chief Technical Officer of the Company since
joining the Company in May 1996. From 1995 to 1996, Mr. DeMarche was CTO and
Senior Vice President of Nextel, where he was credited with addressing many
critical technology issues. From 1993 to 1995, he was Senior Vice President of
Engineering and Technology at OneComm, where he was responsible for building a
national engineering team
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<PAGE> 51
and designing and implementing wireless communication networks. Mr. DeMarche
also worked in advanced technology areas at PacTel Corporation and Hughes
Aircraft Corporation and served in the U.S. Naval Submarine Force. Mr. DeMarche
received his Master of Business Administration from UCLA in 1990, his Master of
System Management from University of Southern California in 1986, and his
Bachelor of Science from the United States Naval Academy in 1978.
Carla Hamre Donelson has served as Vice President, General Counsel and
Secretary of the Company since joining Verio in October 1996 from the law firm
of Morrison & Foerster LLP, where she had practiced law since March 1987. She
served as a partner in that firm's business department from 1990 and as head of
the Denver business practice from 1993. While in private practice, Ms. Donelson
was engaged in a general corporate and transactional practice, focused primarily
on the communications and related technology industries, representing domestic
and foreign entities in numerous financing, merger, acquisition, investment, and
licensing transactions. She served as regular outside corporate counsel to
OneComm and represented OneComm in connection with a variety of its SMR
acquisitions as well as its merger with Nextel. Ms. Donelson received her
Bachelor of Arts degree in molecular biology from the University of Colorado,
her Juris Doctor degree from the University of Denver College of Law, and is a
member of the Colorado Bar Association.
Peter B. Fritzinger has served as Chief Financial Officer of the Company
since June 1997. From September 1993 until June 1997, Mr. Fritzinger served as
Chief Financial Officer of Louis Dreyfus Natural Gas Corp., an independent,
publicly held oil and gas company headquartered in Oklahoma City. From 1991 to
1993, he was Vice President-Finance and Treasurer of Louis Dreyfus Energy Corp.,
a diversified, global enterprise with investments in oil and gas reserves and
other petroleum-related industries. Mr. Fritzinger joined Louis Dreyfus Energy
Corp. from J.P. Morgan, where he was a Vice President in its corporate finance
group, having held various positions with Morgan Guaranty Trust Company of New
York since 1980. Mr. Fritzinger received his Bachelor of Arts degree in math and
psychology from Amherst College.
Deb Mayfield Gahan has served as Vice President of Finance and
Administration for the Company since joining the Company in May 1996. She brings
with her ten years of extensive start-up and telecommunications experience. From
1994 to 1996, Ms. Gahan served as Vice President of Business Services and
Controller for OneComm and then for Nextel following its acquisition of OneComm.
From 1987 to 1994, she was Director of Business Operations and Controller for
American Cellular Communications and then BellSouth Cellular Corp., a leading
provider of cellular service in 15 states. In these positions, she was
responsible for implementing cost-effective financial control systems, asset
protection, revenue assurance, financial reporting, treasury and business
process development. Ms. Gahan is a Certified Public Accountant and holds a
Master of Business Administration from Mississippi College, as well as a
Bachelor of Science in accounting from Mississippi State University.
James M. Kieffer has served as Vice President of Customer Operations for
the Company since joining the Company in July 1996. Previously, Mr. Kieffer
served as Nextel's Vice President of Customer Operations responsible for
customer care, billing, accounts receivable, and inventory management from
August 1996. Prior to OneComm's merger with Nextel, Mr. Kieffer led the
development of OneComm's customer care as Director of Customer Operations from
January 1994 to August 1995. Prior to that, Mr. Kieffer served as National
Customer Service Manager for Motorola's Land Mobile Products Sector. During his
six years with Motorola, he held several key roles while developing a
consolidated national customer care organization from March 1990 until January
1994. Prior to joining Motorola, Mr. Kieffer managed customer relations and
accounts receivable for IBM. He received his Master of Business Administration
from DePaul University and holds a Bachelor of Science in management from
Illinois State University.
John R. Viviani joined the Company in December 1997 and serves as its Vice
President of Sales and Marketing. Prior to that time, Mr. Viviani was most
recently Sales Director of Worldwide Channels for IBM Networking Hardware
Division. In that capacity, he was responsible for developing worldwide indirect
channels. Prior thereto from 1992 to 1996, Mr. Viviani implemented and directed
national sales and marketing teams responsible for launching IBM U.S. into the
internetworking solution market place and establishing the IBM Networking
division in the indirect channels. Mr. Viviani was employed by IBM since 1978,
serving as a
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business unit executive, account executive and marketing manager. Mr. Viviani
received his Master of Business Administration from St. Thomas Aquinas College
and his Bachelor of Science degree in management and finance from Marymount
College.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board has established an Executive Committee, a Finance
Committee, a Compensation Committee and an Audit Committee. The Executive
Committee is responsible for reviewing and, where appropriate, authorizing
corporate action with respect to the conduct of the business of the Company
between Board meetings. The Executive Committee is composed of Messrs. Halstedt
and Jaschke. The Finance Committee is responsible for reviewing and, where
appropriate, authorizing certain corporate actions with respect to the finances
of the Company. Actions taken by the Finance Committee are regularly submitted
to the Board for review and ratification at the next meeting, except in those
cases when the Board has specifically delegated final decision-making authority
to the Finance Committee. The Finance Committee is composed of Messrs. Halstedt,
Jaschke, Still and Myhren. The Compensation Committee is responsible for
reviewing and establishing the compensation structure for the Company's officers
and directors, including salary rates, participation in incentive compensation
and benefit plans, 401(k) plans, stock option and purchase plans and other forms
of compensation. The Compensation Committee is composed of Messrs. Allen, Myhren
and Schovee.
The Board has also established an Audit Committee consisting of Messrs.
Myhren and Schovee. The Audit Committee will be comprised solely of independent
directors and will be responsible for recommending the firm to be appointed as
independent accountants to audit the Company's financial statements, discussing
the scope and results of the audit with the independent accountants, reviewing
the functions of the Company's management and independent accountants with
respect to the Company's financial statements and performing such other related
duties and functions as are deemed appropriate by the Audit Committee and the
Board.
DIRECTORS COMPENSATION
From and after the consummation of the Offering, each non-employee director
of the Company will receive an annual retainer fee of $5,000 and a fee of $1,000
for each meeting of the Board attended in person or $500 for each meeting
attended by telephone. The fee for Board committee meetings is $500 per meeting.
A director may elect to receive these payments in the form of Common Stock. In
addition, upon consummation of the Offering, each non-employee director
automatically will be granted an option to acquire 30,000 shares of Common Stock
at an exercise price per share equal to the fair market value of the Common
Stock at the date of grant. Such options will vest and become exercisable in
three equal installments on each yearly anniversary of the grant date.
Non-employee directors elected or appointed to the Board following the Offering
also will be granted automatically at the time of election or appointment an
option to acquire 30,000 shares of Common Stock with the same terms and
conditions at an exercise price equal to the then fair market value of the
Common Stock. After the initial three year vesting period for such options,
non-employee directors will receive automatic annual grants of vested options to
acquire an additional 3,000 shares of Common Stock at an exercise price equal to
the fair market value of the Common Stock at the date of grant.
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<PAGE> 53
EXECUTIVE COMPENSATION
The following table sets forth certain summary information for the years
ended December 31, 1997 and 1996, respectively, concerning the compensation paid
and awarded to: (a) the Company's Chief Executive Officer and (b) the Company's
four most highly compensated executive officers whose salaries and bonuses
exceeded $100,000 who were serving as executive officers as of December 31, 1997
(collectively, with the Chief Executive Officer, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION -----------------------
-------------------------------- RESTRICTED SECURITIES
FISCAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY($) BONUS($) AWARDS($) OPTIONS(#) COMPENSATIONS($)
- --------------------------- ------- --------- -------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Justin L. Jaschke........... 1997 175,003 66,500 85,000 -- --
Chief Executive Officer 1996 124,631(2) 44,867 -- 240,000 --
Mark D. Johnson............. 1997 113,337 50,603 -- 200,000 --
President and Chief 1996 -- -- -- -- --
Operating Officer(3)
Chris J. DeMarche........... 1997 160,004 60,800 25,000 20,000 --
Chief Technical Officer 1996 106,666(4) 38,215 -- 70,000 --
Carla Hamre Donelson........ 1997 160,004 57,760 -- 20,000 --
Vice President, General 1996 26,320(5) 13,680 50,000 60,000 42,678(7)
Counsel and Secretary
Peter B. Fritzinger......... 1997 89,443(6) 31,287 -- 75,000 70,267(8)
Chief Financial Officer 1996 -- -- -- -- --
</TABLE>
- ---------------
(1) Fiscal year 1996 covers the period from inception (March 1, 1996) to
December 31, 1996.
(2) Reflects compensation paid to Mr. Jaschke commencing with his appointment as
Chief Executive Officer in April 1996.
(3) Mr. Johnson, who served as the Company's President and Chief Operating
Officer beginning in March 1997, died on March 9, 1998. See
"Summary -- Recent Developments."
(4) Reflects compensation paid to Mr. DeMarche commencing with his appointment
as Chief Technical Officer in May 1996.
(5) Reflects compensation paid to Ms. Donelson commencing with her appointment
as Vice President, General Counsel and Secretary in October 1996.
(6) Reflects compensation paid to Mr. Fritzinger commencing with his appointment
as Chief Financial Officer in June 1997.
(7) Represents the cost to the Company of tax reimbursements.
(8) Represents the cost to the Company of providing relocation benefits.
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<PAGE> 54
STOCK OPTIONS GRANTED IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options by Verio under the Company's stock option plans to the Named Executive
Officers during the year ended December 31, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM ($)(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE)(1) DATE 5% 10%
---- ----------- -------------- ------------ ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Justin L. Jaschke....... -- -- -- -- -- --
Mark D. Johnson......... 200,000 13.28% 6.00 May 11, 2007 754,674 1,912,491
Chris J. DeMarche....... 20,000 1.38% 6.75 Nov. 24, 2007 84,901 215,155
Carla Hamre Donelson.... 20,000 1.38% 6.75 Nov. 24, 2007 84,901 215,155
Peter B. Fritzinger..... 75,000 5.18% 6.00 May 21, 2007 283,003 717,184
</TABLE>
- ---------------
(1) All options were granted at an exercise price per share equal to at least
the fair market value of the Common Stock on the date of grant, as
determined by the Board of Directors.
(2) The potential realizable value is calculated based on the fair market value
on the date of grant, which is equal to the exercise price of the options,
assuming that the stock appreciates in value from the date of grant
compounded annually until the end of the option term at the rate specified
(5% or 10%) and that the option is exercised and sold on the last day of the
option term for the appreciated stock price. Potential realizable value is
net of the option exercise price. The assumed rates of appreciation are
specified in the rules and regulations of the Commission and do not
represent the Company's estimate or projection of future stock price. Actual
gains, if any, resulting from stock option exercises and Common Stock
holdings are dependent on the future performance of the Common Stock and
overall stock market conditions. There can be no assurance that the amounts
reflected in this table will be achieved.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table sets forth certain information with respect to the
Named Executive Officers regarding the stock options exercised during the last
fiscal year, the aggregate number of unexercised options to purchase Common
Stock granted in all years and held by them as of December 31, 1997, and the
value of unexercised in-the-money options (i.e., options that had a positive
spread between the exercise price and the fair market value of the Common Stock)
as of December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Justin L. Jaschke.......... 60,000 -- 20,000 160,000 290,000 2,320,000
Mark D. Johnson............ -- -- -- 200,000 -- 2,300,000
Chris J. DeMarche.......... -- -- 14,000 76,000 203,000 1,027,000
Carla Hamre Donelson....... -- -- 12,000 68,000 174,000 911,000
Peter B. Fritzinger........ -- -- -- 75,000 -- 862,500
</TABLE>
- ---------------
(1) The value of options at year-end is based on an assumed fair market value of
$17.50 per share of Common Stock (the mid-point of the assumed price range
per Share in the Offering).
EMPLOYMENT AGREEMENTS
As a general matter, the Company does not enter into employment agreements,
and has not entered into employment agreements with any of its executive
officers. Rather, the employment relationships with each executive officer are
"at will." However, in connection with the initial employment of each executive
officer, the Company and the executive executed an offer letter, in which the
general compensation and benefits
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<PAGE> 55
provided to the executive are outlined, including base salary, targeted annual
bonus, option grants and employee benefits. The base salary and targeted bonus
levels for each of the executive officers remains the same in 1998 as in 1997.
However, upon consummation of the Offering, the base salary for Mr. Jaschke will
be increased to $260,000, which will result in an increase in his annual
targeted bonus level of 30% to 40% of his base salary.
COMPENSATION PROTECTION AGREEMENTS
The Company has entered into compensation protection agreements (the
"Compensation Protection Agreements") with all of the Named Executive Officers
and certain additional officers (collectively, the "Protected Officers") of the
Company. Each of the Compensation Protection Agreements contain substantially
similar terms. The form of Compensation Protection Agreement has been filed as
an exhibit to the Company's Registration Statement of which this Prospectus is a
part. The Compensation Protection Agreements will be for a term of three years
from April 1, 1998 (the "Effective Date"), subject to automatic yearly
extensions. In no event will the Compensation Protection Agreements terminate
within 12 months of a Change in Control of the Company. "Change in Control"
includes the following:
(a) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any Person
(as defined in the Exchange Act) immediately after which such Person has
Beneficial Ownership (as defined in the Exchange Act) of 40% or more of the
combined voting power of the Company's then outstanding Voting Securities.
In determining whether a Change in Control has occurred, Voting Securities
which are acquired in a "Non-Control Acquisition," as defined in the
Compensation Protection Agreements, do not constitute an acquisition which
would cause a Change in Control.
(b) The individuals who, as of date the Compensation Protection
Agreements were approved by the Board, are members of the Board (the
"Incumbent Board"), cease for any reason to constitute at least a majority
of the Board (subject to certain provisos);
(c) Approval by stockholders of the Company of: (1) a merger,
consolidation or reorganization involving the Company, unless such merger,
consolidation or reorganization ("event") satisfies certain specified
conditions;
(d) Any other event that at least two-thirds of the Incumbent Board
determines constitutes a Change in Control; and
(e) If a Protected Officer's employment is terminated prior to a
Change in Control and the Board determines that such termination was at the
request of a third party who has indicated an intention or taken steps to
effect a Change in Control and who subsequently effectuates a Change in
Control, or occurred in connection with, or in anticipation of, a Change in
Control which actually occurs, then a Change in Control is considered to
have occurred with respect to that Protected Officer.
Upon termination within 12 months of a Change in Control, each Protected
Officer will receive the following severance benefits:
(i) If a Protected Officer's employment is terminated within 12 months
of a Change in Control for Cause (as defined in the Compensation Protection
Agreements) or by reason of the Protected Officer's Disability (as defined
in the Compensation Protection Agreements), death, retirement, or by the
Protected Officer other than for Good Reason (as defined in the
Compensation Protection Agreements), then the Company must pay to the
Protected Officer the Accrued Compensation (as defined below) due through
the date of termination (the "Termination Date"). Accrued Compensation
includes base salary, reimbursement for reasonable and necessary expenses
incurred by the Protected Officer on behalf of the Company during the
period ending on the Termination Date, and vacation pay.
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<PAGE> 56
(ii) If a Protected Officer's employment is terminated within 12
months of a Change of Control for any other reason than specified above,
the Protected Officer will receive:
(A) his or her Accrued Compensation;
(B) an amount equal to the product of a fraction, the numerator of
which is the number of days in the Company's fiscal year through the
Termination Date and the denominator of which is 365, and the bonus
amount, which will be the greater of 100% of the last annual incentive
payment paid or payable to the Protected Officer prior to the
Termination Date, and the Protected Officer's incentive target for the
fiscal year in which the Change in Control occurs (the "Bonus Amount");
(C) an amount equal to two (2) times the sum of the Protected
Officer's annual base salary in effect immediately prior to the Change
in Control, plus the Bonus Amount. However, the amount paid to Mr.
Jaschke will be three (3) times that sum;
(D) until the third anniversary of the Termination Date, the same
rights with respect to benefits provided by the Company, as were
provided to the Protected Officer as of the Effective Date, or, if
greater, at any time within 90 days preceding the date of the Change in
Control; and
(E) the immediate vesting and removal of all restrictions on any
outstanding incentive awards granted to the Protected Officer under the
Company's stock option and other stock incentive plans or arrangement.
The Compensation Protection Agreements will further provide that the
Protected Officers will not be required to mitigate the amount of any payment by
seeking employment or otherwise. Protected Officers may be entitled to
additional compensation or benefits in accordance with the Company's employee
benefit plans and other applicable programs, policies and practices then in
effect. The Compensation Protection Agreements will contain a "gross-up"
provision pursuant to which any Severance Payment, which would be subject to
certain excise taxes occurring as a result of Change of Control, would include
an additional gross-up payment resulting in the Protected Officer retaining an
additional amount equal to excise tax.
STOCK OPTION AND INCENTIVE PLANS
1996 Stock Option Plan
The 1996 Stock Option Plan was adopted and approved by the Board of
Directors in May 1996 and by the stockholders of the Company in June 1996. In
February 1998, the 1996 Stock Option Plan was amended, with the approval of the
Board, to reserve a total of 2,205,300 shares of Common Stock for issuance under
this plan. As of April 10, 1998, options to purchase 115,933 shares of Common
Stock granted under the 1996 Stock Option Plan had been exercised, options to
purchase 2,043,967 shares of Common Stock were outstanding and options to
purchase 45,400 additional shares of Common Stock remained available for grant.
The outstanding options were exercisable at a weighted average exercise price of
$6.59 per share. Outstanding options to purchase an aggregate of 1,480,667
shares were held by employees who are not officers or directors of the Company.
Of the 115,933 shares issued upon exercise of options, a total of 47,500 were
issued upon exercise prior to their respective exercise vesting dates, as
permitted by the terms of the 1996 Stock Option Plan. As a result, these shares
are subject to repurchase by the Company at their respective exercise prices,
until the date on which they would have become exercisable. The 1996 Stock
Option Plan will terminate in 2006, unless sooner terminated by the Board of
Directors.
The Board of Directors has delegated administration of the 1996 Stock
Option Plan to its Compensation Committee (the "Committee"). The Committee is
constituted to comply with the rules under Rule 16b-3 of the Securities Exchange
Act of 1934 (the "Exchange Act"). Awards under the 1996 Stock Option Plan may
consist of (i) options to purchase Common Stock that are designed to qualify,
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
as "incentive stock options" ("Incentive Stock Options") or (ii) options to
purchase Common Stock that are not described in Sections 422 or 423 of the Code
("Non-Qualified Stock Options" and, collectively with Incentive Stock Options,
"Options").
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<PAGE> 57
The Committee has discretion to grant Incentive Stock Options to employees
and officers (including directors who are employees) of the Company or any
Affiliate (as defined in the Plan) of the Company and Non-Qualified Stock
Options to employees, officers, directors or consultants of the Company and its
Affiliates. The Committee may set the terms of such grants, subject to
applicable restrictions in the 1996 Stock Option Plan. Incentive Stock Option
grants are subject to the following limitations: (i) the term of any Incentive
Stock Option may not be longer than ten years, provided that the term of any
Incentive Stock Option granted to an individual possessing more than 10% of the
combined voting power of the Company or an Affiliate (a "10% Holder") may not be
longer than five years; (ii) the aggregate fair market value of all shares
underlying Incentive Stock Options granted to an individual that first become
exercisable in any calendar year may not exceed $100,000; and (iii) the exercise
price of Incentive Stock Options may not be less than the fair market value of
the underlying shares on the grant date, provided that the exercise price of any
Incentive Stock Option granted to a 10% Holder may not be less than 110% of the
fair market value of the underlying shares on the grant date. With respect to
Non-Qualified Stock Options, the exercise price may not be less than 85% of the
fair market value of the underlying shares on the grant date. As of February 27,
1998, no such below-market grant has been made.
During an optionee's lifetime, an Incentive Stock Option is exercisable
only by the optionee and no Incentive Stock Option may be transferred by the
optionee other than by will or the laws of descent and distribution. During an
optionee's lifetime (or a transferee pursuant to a qualified domestic relation
order), a Non-Qualified Stock Option is exercisable only by the optionee and no
Non-Qualified Stock Option may be transferred by the optionee other than by will
or the laws of descent and distribution or pursuant to a qualified domestic
relation order satisfying the requirements of the prior version of Rule 16b-3
under the Exchange Act. An optionee whose continuous status as an employee,
director or consultant of the Company terminates for any reason (other than
termination because of death or disability) may exercise, in the three-month
period following such cessation (unless such Options terminate or expire sooner
by their terms), or such longer or shorter period as specified in the Option,
that portion of the optionee's Options that is exercisable at the time of such
cessation. In the event the optionee becomes disabled, the Options vested as of
the date of disability may be exercised prior to the earlier of such Option's
specified expiration date or 12 months from the date of the optionee's
disability, or such longer or shorter period as specified in the Option. In the
event the optionee dies, the Options vested as of the date of disability may be
exercised prior to the earlier of such Option's specified expiration date or 18
months from the date of the optionee's disability, or such longer or shorter
period as specified in the Option.
In the event of (i) a dissolution or liquidation of the Company, (ii) a
merger or consolidation in which the Company is not the surviving corporation,
(iii) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's outstanding common stock immediately prior to such
merger are converted into other property, whether in the form of securities,
cash or otherwise, or (iv) any other capital reorganization in which the
Company's shareholders receive less than 50% of the outstanding voting shares of
the surviving corporation: (a) any surviving corporation shall assume any
Options outstanding under the 1996 Stock Option Plan, (b) such Options shall
continue in full force and effect, or (c) the Options shall terminate if not
exercised prior to such event.
1997 California Stock Option Plan
The Company's 1997 California Stock Option Plan (the "1997 California
Plan") was adopted by the Board of Directors in February 1997, and approved by
the Company's stockholders in April 1997. In February 1998, the 1997 California
Plan was amended, with the approval of the Board, to reserve a total of 795,400
shares of Common Stock for issuance under this plan. This amendment has been
submitted to the Company's stockholders for approval. As of April 10, 1998, no
options to purchase shares of Common Stock had been exercised under the 1997
California Plan, options to purchase 447,850 shares of Common Stock were
outstanding and options to purchase an additional 347,550 shares of Common Stock
remained available for grant. The outstanding options were exercisable at a
weighted average exercise price of $9.16 per share. Outstanding options to
purchase an aggregate of 341,140 shares were held by employees who are not
officers or directors of the Company.
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<PAGE> 58
The 1997 California Plan may be administered by the Board of Directors or
the Committee (either, the "Plan Administrator"). The 1997 California Plan
provides for the granting to employees of the Company and of its subsidiaries or
parent corporations of Incentive Stock Options, and for the granting to
employees and independent contractors of Non-Qualified Stock Options. The Plan
Administrator has the power to determine the terms of the Options granted,
including the exercise price, number of shares subject to the Option and the
exercisability thereof, and the form of consideration payable upon exercise.
Options granted under the 1997 California Plan are not transferable by the
optionee other than by will or by the laws of descent or distribution, and each
Option is exercisable during the lifetime of the optionee only by such optionee.
The exercise price of all Incentive Stock Options granted under the 1997
California Plan must be at least equal to the fair market value, as determined
by the Board of Directors, of the Common Stock on the grant date. The exercise
price of all Non-Qualified Stock Options granted under the 1997 California Plan
must be at least 85% of the fair market value, as determined by the Plan
Administrator, of the Common Stock on the grant date. With respect to any
participant who owns stock possessing more than 10% of the voting power or value
of all classes of the Company's outstanding capital stock, the exercise price of
any Incentive Stock Option or Non-Qualified Stock Option granted must equal at
least 110% of the fair market value of the Common Stock on the grant date and
the term of the Option must not exceed five years. The term of all other Options
granted under the 1997 California Plan may not exceed ten years. The
consideration for exercising any Option may consist of cash, check, shares of
Common Stock, a promissory note, the assignment of part of the proceeds from the
sale of shares acquired upon exercise of the Options or any combination thereof
as specified in the agreement evidencing the Option.
The 1997 California Plan provides that in the event of a merger of the
Company with or into another corporation or a consolidation, sale of
substantially all of the Company's assets or like transaction involving the
Company in which the Company's stockholders before the transaction do not retain
a majority interest in the Company, each Option may be assumed or an equivalent
Option may be substituted by a successor corporation. If the successor
corporation chooses not to assume the Options under the 1997 California Plan,
the Options not otherwise exercisable will terminate immediately prior to the
consummation of the transaction.
Unless terminated sooner, the 1997 California Plan will terminate
automatically in 2007. The Board has the authority to amend, suspend or
terminate the 1997 California Plan, subject to stockholder approval of certain
amendments and provided no such action may affect any share of Common Stock
previously issued and sold or any Option previously granted under the 1997
California Plan without the optionees consent.
1998 Stock Incentive Plan
The Company's 1998 Stock Incentive Plan (the "1998 Stock Incentive Plan"),
which was adopted by the Board of Directors in February 1998, was amended and
restated as of March 19, 1998 and has been approved by the Company's
stockholders. From and after the Offering, all further option grants will be
made solely under the 1998 Stock Incentive Plan. As of April 10, 1998, no
options to purchase shares of Common Stock had been exercised under the 1998
Stock Incentive Plan, options to purchase 1,138,123 shares of Common Stock were
outstanding and options to purchase an additional 611,189 shares of Common Stock
remained available for grant. The outstanding options were exercisable at a
weighted average exercise price of $12.02 per share. The purpose of the 1998
Stock Incentive Plan is to attract and retain the best available personnel, to
provide additional incentive to employees, directors and consultants of the
Company and its related entities and to promote the success of the Company's
business. The 1998 Stock Incentive Plan provides for the granting to employees
of Incentive Stock Options and the granting of nonstatutory stock options, stock
appreciation rights, dividend equivalent rights, restricted stock, performance
units, performance shares, and other equity-based rights ("Awards") to
employees, directors and consultants of the Company and its related entities.
Initially, 165,000 shares of Series D-1 Preferred Stock and 1,749,300 shares of
Common Stock, together with any shares of Common Stock represented by Awards
under the 1996 Stock Option Plan which are forfeited, expire or are cancelled
following the adoption of the 1998 Stock Incentive Plan, will be reserved for
issuance under the 1998 Stock Incentive Plan. Upon and after the Offering,
6,199,300 shares of Common Stock will be reserved for issuance under the 1998
Stock Incentive Plan, together with (a) any shares of
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<PAGE> 59
Common Stock available for future awards under the 1997 California Plan as of
the Offering and (b) any shares of Common Stock represented by Awards under the
1996 Stock Option Plan and the 1997 California Plan (the "Prior Plans"), that
are forfeited, expire or are cancelled following the Offering. In connection
with the adoption of the 1998 Stock Incentive Plan, the Board determined that
the Company will limit the issuance of Awards under the 1998 Stock Incentive
Plan such that the aggregate number of shares subject to Awards granted under
the 1998 Stock Incentive Plan and the Prior Plans will not at any time exceed
15% of the Company's outstanding fully-diluted equity.
With respect to Awards granted to directors or officers, the 1998 Stock
Incentive Plan is administered by the Board of Directors or a committee
designated by the Board of Directors constituted to permit such Awards to be
exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3
thereunder. With respect to Awards granted to other participants, the 1998 Stock
Incentive Plan is administered by the Board of Directors or a committee
designated by the Board of Directors. In each case, the Plan Administrator shall
determine the provisions, terms and conditions of each Award, including, but not
limited to, the Award vesting schedule, repurchase provisions, rights of first
refusal, forfeiture provisions, form of payment (cash, shares of Common Stock,
or other consideration) upon settlement of the Award, payment contingencies and
satisfaction of any performance criteria.
Incentive Stock Options are not transferable by the optionee other than by
will or the laws of descent or distribution, and each Incentive Stock Option is
exercisable during the lifetime of the optionee only by such optionee. Other
Awards shall be transferable to the extent provided in the agreement evidencing
the Award.
The exercise price of Incentive Stock Options must be at least equal to the
fair market value of the Common Stock on the date of grant, and the term of the
option must not exceed ten years. The term of other Awards will be determined by
the Plan Administrator. With respect to an employee who owns stock possessing
more than 10% of the voting power of all classes of the Company's outstanding
capital stock, the exercise price of any Incentive Stock Option must equal at
least 110% of the fair market value of the Common Stock on the grant date and
the term of the option must not exceed five years. The exercise price or
purchase price, if any, of other Awards will be such price as determined by the
Plan Administrator, but not less than 85% of the fair market value of the stock.
The consideration to be paid for the shares of Common Stock upon exercise or
purchase of an Award will be determined by the Plan Administrator and may
include cash, check, shares of Common Stock, or the assignment of part of the
proceeds from the sale of shares acquired upon exercise or purchase of the
Award.
Where the Award agreement permits the exercise or purchase of the Award for
a certain period of time following the recipient's termination of service with
the Company, disability, or death, the Award will terminate to the extent not
exercised or purchased on the last day of the specified period or the last day
of the original term of the Award, whichever occurs first.
Unless terminated sooner, the 1998 Stock Incentive Plan will terminate
automatically in 2008. The Board has the authority to amend, suspend or
terminate the 1998 Stock Incentive Plan subject to stockholder approval of
certain amendments and provided no such action may affect Awards previously
granted under the 1998 Stock Incentive Plan.
1998 Employee Stock Purchase Plan
The Company's 1998 Employee Stock Purchase Plan (the "Stock Purchase Plan")
was approved by the Board of Directors in February 1998 and has been approved by
the Company's stockholders. The Stock Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Code in order to provide
employees of the Company with an opportunity to purchase Common Stock through
payroll deductions. An aggregate of 3,000,000 shares of the Company's Common
Stock has been reserved for issuance under the Stock Purchase Plan and available
for purchase thereunder, subject to adjustment in the event of a stock split,
stock dividend or other similar change in the Common Stock or the capital
structure of the Company. All employees of the Company (and employees of
"subsidiary corporations" and "parent corporations" of the Company (as defined
by the Code) designated by the administrator of the Stock
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<PAGE> 60
Purchase Plan) whose customary employment is for more than five months in any
calendar year and more than 20 hours per week are eligible to participate in the
Stock Purchase Plan. Employees hired after the consummation of the Offering are
eligible to participate in the Stock Purchase Plan, subject to a six-month
waiting period after hiring. Non-employee directors, consultants, and employees
subject to the rules or laws of a foreign jurisdiction that prohibit or make
impractical the participation of such employees in the Stock Purchase Plan are
not eligible to participate in the Stock Purchase Plan.
The Stock Purchase Plan designates Purchase Periods, Accrual Periods and
Exercise Dates. Purchase Periods are generally overlapping periods of 12 months.
The initial Purchase Period will begin on the effective date of the Stock
Purchase Plan, which is the effective date of the Company's Registration
Statement relating to the Company's initial public offering of its Common Stock,
and end on May 14, 1999. Additional Purchase Periods will commence each May 15
and November 15. Accrual Periods are generally six month periods, with the
initial Accrual Period commencing on the effective date of the Stock Purchase
Plan and ending on November 14, 1998. Thereafter, Accrual Periods will commence
each May 15 and November 15. Exercise Dates are the last day of each Accrual
Period. In the event of a merger of the Company with or into another
corporation, the sale of all or substantially all of the assets of the Company,
or certain other transactions in which the stockholders of the Company before
the transaction own less than 50% of the total combined voting power of the
Company's outstanding securities following the transaction, the administrator of
the Stock Purchase Plan may elect to shorten the Purchase Period then in
progress.
On the first day of each Purchase Period, a participating employee is
granted a purchase right which is a form of option to be automatically exercised
on the forthcoming Exercise Dates within the Purchase Period during which
deductions are to be made from the pay of participants (in accordance with their
authorizations) and credited to their accounts under the Stock Purchase Plan.
When the purchase right is exercised, the participant's withheld salary is used
to purchase shares of Common Stock of the Company. The price per share at which
shares of Common Stock are to be purchased under the Stock Purchase Plan during
any Accrual Period is the lesser of (a) 85% of the fair market value of the
Common Stock on the date of the grant of the option (the commencement of the
Purchase Period) or (b) 85% of the fair market value of the Common Stock on the
Exercise Date (the last day of an Accrual Period). The participant's purchase
right is exercised in this manner on both Exercise Dates arising in the Purchase
Period unless, on the first day of any Accrual Period, the fair market value of
the Common Stock is lower than the fair market value of the Common Stock on the
first day of the Purchase Period. If so, the participant's participation in the
original Purchase Period is terminated, and the participant is automatically
enrolled in the new Purchase Period effective the same date.
Payroll deductions may range from 1% to 10% (in whole percentage
increments) of a participant's regular base pay and bonuses, exclusive of
overtime, shift-premiums or commissions. Participants may not make direct cash
payments to their accounts. The maximum number of shares of Common Stock which
any employee may purchase under the Stock Purchase Plan during an Accrual Period
is 1,250 shares. Certain additional limitations on the amount of Common Stock
which may be purchased during any calendar year are imposed by the Code.
The Stock Purchase Plan will be administered by the Board of Directors or a
committee designated by the Board, which will have the authority to terminate or
amend the Stock Purchase Plan (subject to specified restrictions) and otherwise
to administer the Stock Purchase Plan and to resolve all questions relating to
the administration of the Stock Purchase Plan.
401(k) PLAN
In January 1997, the Company implemented an employee savings and retirement
plan (the "401(k) Plan") covering certain of the Company's employees who have at
least one month of service with the Company and have attained the age of 21.
Pursuant to the 401(k) Plan, eligible employees may elect to reduce their
current compensation by up to the lesser of 20% of such compensation or the
statutorily prescribed annual limit ($10,000 in 1998) and have the amount of
such reduction contributed to the 401(k) Plan. The Company may make
contributions to the 401(k) Plan on behalf of eligible employees. Employees
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<PAGE> 61
become 20% vested in these Company contributions after one year of service, and
increase their vested percentages by an additional 20% for each year of service
thereafter. The 401(k) Plan is intended to qualify under Section 401 of the
Internal Revenue Code of 1986, as amended, so that contributions by employees or
by the Company to the 401(k) Plan, and income earned on the 401(k) Plan
contributions, are not taxable to employees until withdrawn from the 401(k)
Plan, and so that contributions by the Company, if any, will be deductible by
the Company when made. The trustee under the 401(k) Plan, at the direction of
each participant, invests the 401(k) Plan employee salary deferrals in selected
investment options. The Company made no contributions to the 401(k) Plan in 1996
or in 1997. The Company does not presently expect to make any contributions to
the 401(k) Plan during the fiscal 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Chairman of the Compensation Committee is Mr. Schovee. No member of the
Compensation Committee was at any time during the fiscal year ended December 31,
1997, or at any other time, an officer or employee of the Company. No member of
the Compensation Committee of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors or Compensation
Committee. See "Certain Transactions" for a description of transactions between
the Company and entities affiliated with members of the Compensation Committee.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation and bylaws provide that
the Company shall indemnify to the fullest extent permitted by Section 145 of
the DGCL, as it now exists or as amended, all directors and officers pursuant
thereto. The Company's Restated Certificate of Incorporation and bylaws also
authorize the Company to indemnify its employees and other agents, at its
option, to the fullest extent permitted by Section 145, as it now exists or as
amended. The Company intends to enter into agreements to indemnify its directors
and officers, in addition to indemnification provided for in the Company's
charter documents. These agreements, among other things, provide for the
indemnification of the Company's directors and officers for certain expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred by
any such person in any action or proceeding, including any action by or in the
right of the Company, arising out of such person's services as a director or
officer of the Company, any subsidiary of the Company or any other company or
enterprise to which such person provides services at the request of the Company
to the fullest extent permitted by applicable law. The Company believes that
these provisions and agreements will assist the Company in attracting and
retaining qualified persons to serve as directors and officers.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders 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 the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
or (iv) for any transaction from which the director derived an improper personal
benefit. The Company's Restated Certificate of Incorporation will provide for
the elimination of personal liability of a director for breach of fiduciary
duty, as permitted by Section 102(b)(7) of the DGCL.
The Underwriting Agreement provides for indemnification by the Underwriters
under certain circumstances of directors, officers and controlling persons of
the Company against certain liabilities, including liabilities under the
Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions contained in the Certificate of Incorporation and
Bylaws of the Company, the DGCL, the Underwriting Agreement, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any
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<PAGE> 62
action, suit, or proceeding) is asserted by such director, officer or
controlling person in connection with the Common Stock being registered
hereunder, the Company 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 Securities Act and will be governed by the final
adjudication of such issue.
The Company intends to purchase and maintain insurance on behalf of the
officers and directors insuring them against liabilities that they may incur in
such capacities or arising out of such status.
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<PAGE> 63
CERTAIN TRANSACTIONS
SERIES A PURCHASE AGREEMENT
Pursuant to a Series A Preferred Stock purchase agreement by and among
Centennial Fund IV, L.P., Centennial Holdings, Inc., Telecom Partners, L.P.,
Norwest Equity Partners, V and Brooks Fiber Properties, Inc. (together, the
"Series A Purchasers") and the Company, dated as of June 25, 1996 (the "Series A
Purchase Agreement"), the Series A Purchasers made their initial investments in
the Company. The Series A Purchasers purchased, in the aggregate, 5,250,000
shares of Series A Preferred Stock for an aggregate purchase price of
$15,750,000. Pursuant to Amendment No. 1 to the Series A Stock Purchase
Agreement, dated as of July 3, 1996, the Company sold an additional 756,666
shares of Series A Preferred Stock to certain of the Series A Purchasers and to
certain additional purchasers for the aggregate purchase price of $2,270,000.
Subsequently, the Company sold an additional 26,667 shares of Series A Preferred
Stock to certain members of the Company's management for an aggregate purchase
price of $80,001. In connection with the Series A Purchase Agreement, the
Company, the Series A Purchasers and certain members of the Company's management
entered into a stockholders agreement, dated as of June 25, 1996 (the "Series A
Stockholders Agreement"), which provided the Series A Stockholders with certain
demand and piggyback registration rights. The parties to Amendment No. 1 to the
Series A Stock Purchase Agreement became parties to the Series A Stockholders
Agreement. The Series A Stockholders Agreement was replaced by the Series B
Stockholders Agreement which, in turn was replaced by the Stockholders
Agreement. See "-- Series B Purchase Agreement" and "-- Series C Purchase
Agreement."
SERIES B PURCHASE AGREEMENT
The Company, certain of the Series A Purchasers and several additional
purchasers (together, the "Series B Purchasers") entered into a Series B
Preferred stock purchase agreement, dated as of December 5, 1996 (the "Series B
Stock Purchase Agreement"), pursuant to which the Series B Purchasers acquired,
in the aggregate, 10,000,000 shares of Series B Preferred Stock for the
aggregate purchase price of $60,000,000. In connection with the Series B Stock
Purchase Agreement, the Company, the Series A Purchasers, the Series B
Purchasers and members of the Company's management entered into a stockholders
agreement, dated as of December 5, 1996 (the "Series B Stockholders Agreement").
The Series B Stockholders Agreement replaced the Series A Stockholders Agreement
and was later replaced by the Stockholders Agreement. See "-- Series C Purchase
Agreement."
SERIES C PURCHASE AGREEMENT
The Company, certain of the Series A Purchasers and certain of the Series B
Purchasers (together, the "Series C Purchasers") entered into a Series C
Preferred stock purchase agreement, dated as of May 20, 1997 (the "Series C
Stock Purchase Agreement"), pursuant to which the Series C Purchasers acquired,
in the aggregate, 2,500,000 shares of Series C Preferred Stock for the aggregate
purchase price of $20,000,000. In connection with the Series C Stock Purchase
Agreement, the Company, the Series A Purchasers, the Series B Purchasers, the
Series C Purchasers, and members of the Company's management entered into a
Stockholders Agreement (the "Stockholders Agreement"), which replaced the Series
B Stockholders Agreement. See "-- Stockholders Agreement."
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The following table sets forth the number of shares of Series A, Series B
and Series C Preferred Stock, and Common Stock purchased by the Company's
directors, five percent stockholders and their respective affiliates.
<TABLE>
<CAPTION>
COMMON SERIES A SERIES B SERIES C
HOLDERS STOCK PREFERRED PREFERRED PREFERRED
- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C>
Brooks Fiber Properties, Inc.(1)................. -- 1,666,667 2,500,000 498,304
Norwest Equity Partners V(2)..................... 270,000 1,666,667 2,083,333 281,250
Providence Equity Partners(3).................... -- -- 2,083,333 972,360
Centennial Fund V, L.P.(4)....................... -- -- 1,627,983 674,320
Centennial Fund IV, L.P.(4)...................... 250,000 1,543,210 353,395 12,500
Centennial Entrepreneurs Fund V, L.P.(4)......... -- -- 50,350 20,855
Centennial Holdings I, LLC(4).................... 14,452 89,208 37,289 316
Justin L. Jaschke................................ 50,000 33,333 22,501 --
Estate of Mark D. Johnson........................ 60,000 -- -- --
James C. Allen................................... 25,000 -- -- --
Trygve E. Myhren................................. -- -- 10,000 --
</TABLE>
- ---------------
(1) As a result of the acquisition of Brooks by WorldCom, which resulted in
Brooks becoming a wholly owned subsidiary of WorldCom, WorldCom may be
deemed to indirectly beneficially own the shares owned by Brooks. James C.
Allen served as CEO of Brooks until the acquisition. Mr. Allen serves on the
Company's Board of Directors.
(2) George J. Still, Jr. is a general partner of Itasca Partners V. ("Itasca"),
which is the sole general partner of Norwest Equity Partners, V ("Norwest").
Mr. Still serves on the Company's Board of Directors.
(3) Paul J. Salem, a member of Providence Equity Partners LLC ("PEPLLC"), which
is the sole general partner of Providence Equity Partners ("Providence"),
serves on the Company's Board of Directors.
(4) The sole General Partner of Centennial Fund IV, L.P. ("Centennial IV") is
Centennial Holdings IV, L.P. ("Holdings IV"), the sole General Partner of
Centennial Fund V, L.P. ("Centennial V") and Centennial Entrepreneurs Fund
V, L.P. ("Centennial Entrepreneurs") is Centennial Holdings V, L.P.
("Holdings V"). Steven C. Halstedt is a general partner of Holdings IV and
Holdings V, and a unit holder of Centennial Holdings I, L.L.C. ("Holdings
LLC"). Mr. Halstedt serves as the Chairman of the Board of Directors of the
Company.
SERIES D-1 AGREEMENTS
In connection with the acquisitions of iServer and NSNet, the Company
issued a total of 797,642 shares of Series D-1 Preferred Stock to former
stockholders of iServer and NSNet. The Company has issued or expects to issue a
total of approximately 1,439,912 additional shares of Series D-1 Preferred Stock
pursuant to Buyouts completed or probable as of April 9, 1998. In addition,
options to acquire 164,977 shares of Series D-1 Preferred Stock were issued in
connection with the Buyout of NorthWestNet, Inc.
The Series D-1 Preferred Stock will be converted into Common Stock upon
completion of the Offering. The recipients of the shares of Series D-1 Preferred
Stock issued in the Buyouts and the acquisition of NSNet have been granted
certain registration rights with respect to the shares of Common Stock issuable
upon conversion of the Series D-1 Preferred Stock and have agreed to certain
market standoff provisions following the Offering in the agreements pursuant to
which the Series D-1 Preferred Stock is issued (the "Series D-1 Agreements").
See "Description of Capital Stock -- Registration Rights" and "Shares Eligible
for Future Sale."
STOCKHOLDERS AGREEMENT
Pursuant to the terms of the Stockholders Agreement, the holders of the
Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock (together, the "Investors") acquired certain registration rights
with respect to the Company. At any time after the effective date of the first
registration statement filed by the Company under the Securities Act of 1933, as
amended (the "Securities Act"), holders
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<PAGE> 65
of 25% or more of the Registrable Securities (as defined in the Stockholders
Agreement) may require the Company to effect registration under the Securities
Act of their Registrable Securities, subject to the Board of Directors' right to
defer such registration for a period of up to 180 days. In addition, if the
Company proposes to register securities under the Securities Act (other than a
registration relating either to the sale of securities to employees pursuant to
a stock option, stock purchase or similar plan or a transaction under Rule 145
of the Securities Act), then any of the Investors has a right (subject to
quantity limitations determined by underwriters if the offering involves an
underwriting) to request that the Company register such holder's Registrable
Securities. All registration expenses incurred in connection with up to two
long-form and all short-form and piggyback registrations will be borne by the
Company. Each Investor will pay for selling expenses pro rata on the basis of
the number of shares sold by such Investor. The Company has agreed to indemnify
the Investors (including the officers, directors, partners, agents, employees
and representatives, and each person controlling such Investor within the
meaning of Section 15 of the Securities Act) against all expenses, claims,
losses, damages and liabilities (or actions, proceedings or settlements in
respect thereof) arising out of or based on any untrue or alleged untrue
statement of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Investor for any legal
and any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission based upon written information
furnished to the Company by such Investor and stated to be specifically for use
therein. This indemnification does not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company.
Subject to certain exceptions, the Company has a right of first refusal to
purchase shares of Common Stock held by Management Holders (as defined in the
Stockholders Agreement) which, to the extent not purchased by the Company, are
subject to an additional right of first refusal by the Investors according to
their respective pro rata shares. In addition, transfers of Common Stock held by
Investors are subject to a right of first refusal by other Investors who are
also holders of Common Stock. Subject to certain exceptions, upon the issuance
by the Company of any Common Stock or any other equity securities, each of the
Specified Investors (as defined in the Stockholders Agreement) has the
preemptive right to purchase its pro rata share of up to 80% of the securities
so offered according to their respective pro rata interests. If any Specified
Investor declines to exercise such right in full, the remaining electing
specified Investors are entitled to purchase such Specified Investor's
unpurchased portion of the offered securities on a pro rata basis. All
preemptive rights and rights of first refusal contained in the Stockholders
Agreement terminate upon consummation of the Offering.
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
On June 16, 1997, the Company made a loan in the amount of $100,000 to
Peter Fritzinger, which Mr. Fritzinger repaid on July 21, 1997 with interest at
the then current market rate.
OTHER TRANSACTIONS
On March 18, 1998, in response to an offer by Brooks, the Company and
Brooks reached an agreement pursuant to which the Company agreed to repurchase
the $50.0 million principal amount of the Company's 1997 Notes held by Brooks
for an aggregate net purchase price of approximately $54.5 million, plus accrued
interest. A portion of the proceeds from the sale of the 1998 Notes was used to
effect the Refinancing. See "Summary -- Recent Developments."
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<PAGE> 66
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of April 10, 1998
with respect to the beneficial ownership of the Company's Common Stock by (i)
each stockholder known by the Company to own beneficially more than five
percent, in the aggregate, of the outstanding shares of the Company's
outstanding Common Stock, (ii) each director and Named Executive Officer of the
Company and (iii) all executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED(1)
------------------------------------
NUMBER OF
SHARES
BENEFICIALLY PRIOR TO AFTER
HOLDERS OWNED OFFERING OFFERING
------- ------------ -------- --------
<S> <C> <C> <C>
Brooks Fiber Properties, Inc.(2)............................ 5,064,971 22.52% 15.76%
425 Woods Mill Road South
Suite 300
Town & Country, Missouri 63017
Nippon Telegraph and Telephone Corporation.................. 4,638,727 -- 14.62%
Global Communications Headquarters
Tokyo Opera City Tower
20-2 Nishi-Shinjuku 3-chome
Shinjuku-ku
Tokyo 163-14, Japan
Norwest Equity Partners, V.................................. 4,301,250 19.47% 13.56%
245 Lytton Avenue
Palo Alto, California 94301
Providence Equity Partners.................................. 3,055,693 13.83% 9.63%
50 Kennedy Plaza
Providence, Rhode Island 02903
Centennial Fund V, L.P.(3).................................. 2,302,303 10.42% 7.26%
1428 Fifteenth Street
Denver, Colorado 80202
Centennial Fund IV, L.P.(3)................................. 2,159,105 9.77% 6.80%
1428 Fifteenth Street
Denver, Colorado 80202
Steven C. Halstedt(4)....................................... -- -- --
Justin L. Jaschke(5)........................................ 188,834 * *
Estate of Mark D. Johnson(6)................................ 130,000 * *
James C. Allen.............................................. 25,000 * *
Trygve E. Myhren(7)......................................... 18,000 * *
Paul J. Salem(8)............................................ -- -- --
Stephen W. Schovee.......................................... -- -- --
George J. Still, Jr.(9)..................................... -- -- --
Chris J. DeMarche(10)....................................... 88,833 * *
Carla Hamre Donelson(11).................................... 29,917 * *
Peter B. Fritzinger......................................... 25,000 * *
All executive officers and directors as a group (15
persons)(12).............................................. 495,584 2.23% 1.56%
</TABLE>
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<PAGE> 67
- ---------------
* Less than 1%
(1) Percentage of beneficial ownership prior to the Offering is based on (i)
1,294,266 shares of Common Stock outstanding at April 10, 1998; (ii)
18,561,667 shares of Common Stock issuable upon conversion of the Series A,
B, and C Preferred Stock outstanding at April 10, 1998; (iii) 2,237,554
shares of Common Stock issuable upon conversion of the Series D-1 Preferred
Stock issued and expected to be issued in connection with the acquisitions
and Buyouts completed or probable as of April 10, 1998, totalling
22,093,487 shares of capital stock of the Company. Percentage of beneficial
ownership after the Offering is based on 31,732,214 total shares of capital
stock outstanding, which includes the shares of capital stock outstanding
prior to the Offering identified above plus (i) 4,638,727 shares of Common
Stock to be sold by the Company to NTT for approximately $78.5 million
(based upon an assumed initial public offering of 5,000,000 shares of
Common Stock at an assumed Price to Public of $17.50 per share)
concurrently with the Offering and (ii) 5,000,000 shares of Common Stock to
be sold pursuant to the Offering. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options or warrants that are currently
exercisable or exercisable within 60 days of April 10, 1998 are deemed
outstanding; provided, however that such shares are not deemed outstanding
for the purpose of computing the percentage of ownership of any other
person. Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each of the persons named in this table
has sole voting and investment power with respect to the shares set forth
opposite such stockholder's name.
(2) Includes warrants for 400,000 shares of Common Stock exercisable within 60
days. As a result of the acquisition of Brooks by WorldCom, which resulted
in Brooks becoming a wholly owned subsidiary of WorldCom, WorldCom may be
deemed to indirectly beneficially own the shares owned by Brooks.
(3) Does not include 71,205 shares of the Company's capital stock held by
Centennial Entrepreneurs Fund V, L.P. ("Entrepreneurs Fund"). Holdings V is
the sole general partner of Entrepreneurs Fund and may be deemed to
indirectly beneficially own such shares by virtue of its authority to make
decisions regarding the voting and disposition of shares beneficially owned
by Entrepreneurs Fund. Centennial V disclaims beneficial ownership of the
shares held by Entrepreneurs Fund and Entrepreneurs Fund disclaims
beneficial ownership of the shares held by Centennial V. In addition,
Centennial V disclaims beneficial ownership of the shares held by
Centennial IV, and Centennial IV disclaims beneficial ownership of the
shares held by Centennial V.
(4) The sole General Partner of Centennial IV is Holdings IV and the sole
General Partner of Centennial V is Holdings. Holdings IV and Holdings V may
be deemed to indirectly beneficially own the shares owned by Centennial IV
and Centennial V, respectively. Mr. Halstedt is a general partner of
Holdings IV and Holdings V and may be deemed to be the indirect beneficial
owner of the shares owned by Centennial IV and Centennial V. Mr. Halstedt
disclaims beneficial ownership of shares held by Centennial IV and
Centennial V. In addition, this amount does not include 141,265 shares of
the Company's capital stock held by Holdings LLC, of which Mr. Halstedt is
a unit holder. Centennial Holdings, Inc. ("Holdings Inc."), of which Mr.
Halstedt is an officer and director, is the sole Managing Member of
Holdings LLC and may be deemed to beneficially own shares directly
beneficially owned by Holdings LLC. However, Mr. Halstedt, acting alone,
does not have voting or investment power with respect to any of the shares
directly held by either Holdings Inc. or Holdings LLC, and as a result, Mr.
Halstedt disclaims beneficial ownership of the shares held by Holdings LLC.
(5) Includes options for 20,000 shares of Common Stock exercisable within 60
days.
(6) Includes options exercisable for 70,000 shares of Common Stock exercisable
within 60 days.
(7) Includes options exercisable for 8,000 shares of Common Stock exercisable
within 60 days.
(8) The sole general partner of Providence is PEPLLC. Mr. Salem is a member of
PEPLLC and may be deemed to indirectly beneficially own the shares owned by
Providence. Mr. Salem disclaims beneficial ownership of these shares.
(9) The sole general partner of Norwest is Itasca . Mr. Still is a general
partner of Itasca and may be deemed to indirectly beneficially own the
shares owned by Norwest. Mr. Still disclaims beneficial ownership of these
shares.
(10) Includes options exercisable for 28,000 shares of Common Stock exercisable
within 60 days.
(11) Includes options exercisable for 12,000 shares of Common Stock exercisable
within 60 days.
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(12) Includes options exercisable for 98,000 shares of Common Stock exercisable
within 60 days (not including options held by Mr. Johnson's estate).
NTT INVESTMENT
NTT Stock Purchase Agreement and NTT Investment Agreement. Pursuant to a
Stock Purchase and Master Strategic Relationship Agreement, dated as of April 7,
1998, between the Company and NTT (the "NTT Stock Purchase Agreement"), NTT
agreed to purchase, concurrent with and conditioned upon the consummation of the
Offering (the "IPO Closing"), a number of shares of the Company's Common Stock
equal to the lesser of (i) 12.5% of the total number of shares of Common Stock,
on a fully diluted and fully converted basis (calculated as of the IPO Closing
after giving effect to the Offering and the sale to NTT), or (ii) the quotient
of $100.0 million divided by the "Per Share Price" payable by NTT. The "Per
Share Price" to be paid by NTT will be equal to the Price to Public in the
Offering multiplied by 96.75% (subject to certain adjustments in the event that
shares of Common Stock are issued at less than the Per Share Price prior to the
IPO Closing). In the event that the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), with respect to the purchase of the Common Stock by NTT shall not have
expired or been terminated prior to the IPO Closing, then, in lieu of shares of
Common Stock, NTT will purchase from the Company shares of the Company's Series
X Junior Convertible Preferred Stock (the "Convertible Preferred Shares"). The
Convertible Preferred Shares, which are not entitled to any voting rights except
as required by applicable corporate law, will convert automatically into Common
Stock upon the expiration or termination of the applicable waiting period,
including any extension thereof, under the HSR Act.
The Company and NTT also entered into an Investment Agreement, dated as of
April 7, 1998 (the "NTT Investment Agreement"), providing for certain
arrangements generally effective from and after the purchase of shares by NTT
under the NTT Stock Purchase Agreement. Pursuant to the NTT Investment
Agreement, the Company agreed to appoint an individual designated by NTT to the
Board of Directors of the Company. The NTT designee will serve for an initial
term ending as of the third annual stockholder meeting following the IPO
Closing. Thereafter, the Company has agreed, subject to certain exceptions, to
nominate as a member of the Board of Directors at each subsequent election of
the applicable class of directors a person designated by NTT who will be subject
to election by the stockholders of the Company. Additionally, NTT will have the
right to designate up to three individuals to be employed by the Company in
corporate development, technical and/or marketing positions to assist in
implementing and carrying out the commercial relationship between Verio and NTT.
The Investment Agreement imposes certain limitations on NTT's ability to
dispose of the shares of Common Stock that it acquires. In particular, NTT has
granted to the Company certain rights of first offer and rights of first refusal
which apply, under certain circumstances, in the event that NTT proposes to sell
some or all of the shares that it acquires. The specific terms of these rights
vary depending upon the quantity of shares proposed to be sold and other terms
of the proposed sale. In addition, NTT has agreed on behalf of itself and its
affiliates to certain "standstill" restrictions pursuant to which NTT and its
affiliates may make open market or privately negotiated purchases of additional
voting securities (including Common Stock) so long as the total holdings of NTT
and its affiliates do not exceed 17.5% of the Company's fully diluted Common
Stock after taking into account such acquisition. The Company also granted NTT
certain registration rights with respect to the Common Stock it acquires. See
"Certain Transactions -- Description of Capital Stock -- Registration Rights."
The NTT Stock Purchase Agreement may be terminated prior to the IPO Closing
only in certain limited circumstances, including in the event that the sale of
shares to NTT has not occurred by July 31, 1998. The NTT Investment Agreement
will terminate automatically upon any termination of the NTT Stock Purchase
Agreement.
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DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Company's Certificate of Incorporation and Bylaws is a summary
and is qualified in its entirety by the provisions of the Certificate of
Incorporation and Bylaws, which have been filed as exhibits to the Company's
Registration Statement of which this Prospectus is a part.
Upon the closing of the Offering, the authorized capital stock of the
Company, after giving effect to the conversion of all outstanding Preferred
Stock into Common Stock will be 137,500,000 shares of capital stock, consisting
of 125,000,000 shares of Common Stock, par value $0.001 per share, and
12,500,000 shares of Preferred Stock, par value $0.001 per share (the
"Undesignated Preferred Stock").
COMMON STOCK
As of April 10, 1998 there were 1,294,266 shares of Common Stock
outstanding held of record by 26 stockholders.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preferences of any outstanding shares of
Preferred Stock, if any. Holders of Common Stock have no preemptive rights or
rights to convert their Common Stock into any other securities. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and all shares of Common Stock to be
outstanding upon completion of the Offering will be, fully paid and
nonassessable. The rights of holders of Common Stock are subject to, and may be
adversely affected by, the rights of any series of Preferred Stock which the
Company may issue in the future.
PREFERRED STOCK
Following completion of the Offering and the conversion of all outstanding
shares of Preferred Stock into Common Stock, the Board of Directors will have
the authority to issue from time to time up to 12,500,000 shares of Undesignated
Preferred Stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences (any or all of which may be greater than the rights of
the Common Stock) and the number of shares constituting each such series,
without any further vote or action by the Company's stockholders. The issuance
of such Undesignated Preferred Stock could adversely affect the rights of
holders of Common Stock and could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plans
to issue any shares of such Undesignated Preferred Stock after the Offering.
The Company has designated 25,000 shares of Preferred Stock as Series X
Junior Convertible Preferred Stock (the "Junior Preferred Stock"). Pursuant to
the NTT Stock Purchase Agreement, the Company has agreed, if the applicable
waiting period under the HSR Act has not expired or been terminated as of the
date of the consummation of the Offering, to issue to NTT, in lieu of shares of
Common Stock, shares of Junior Preferred Stock. Each share of Junior Preferred
Stock will convert automatically into five hundred (500) shares of Common Stock
(as adjusted after the issuance of the Junior Preferred Stock for stock splits
and other similar changes in the Company's capitalization) upon the expiration
or termination of the applicable waiting period under the HSR Act. Shares of
Junior Preferred Stock have no voting rights, except as required by the General
Corporation Law of the State of Delaware. Each share of Junior Preferred Stock
is entitled to receive dividends in the amount of 1.1 times the amount of the
dividends, if any, declared on each share of Common Stock into which such share
of Junior Preferred Stock would be converted on any
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conversion. Each share of Junior Preferred Stock also is entitled to receive, in
the event of any liquidation , dissolution or winding up of the Company, an
amount of cash or property equal to the cash or property distributable with
respect to the number of shares of Common Stock into which the Junior Preferred
Stock would be converted upon any conversion. Shares of the Junior Preferred
Stock are not redeemable.
WARRANTS
As of January 31, 1998, the Company had warrants outstanding to purchase an
aggregate of 2,112,480 shares of Common Stock at an exercise price per share of
$0.01 (the "Warrants"). The Warrants were issued in connection with the issuance
of the 1997 Notes and will become exercisable after the Offering. Holders of the
Warrants are entitled to certain registration rights. See "-- Registration
Rights."
REGISTRATION RIGHTS
Pursuant to the Stockholders Agreement between the Company and the
Investors, the Investors are entitled to certain demand and piggyback
registration rights with respect to the registration of certain Registrable
Securities (as defined in the Stockholders Agreement) under the Securities Act.
At any time after the effective date of the first registration statement filed
by the Company under the Securities Act, Investors owning 25% or more of the
Registrable Securities may require the Company to effect registration under the
Securities Act of their Registrable Securities, subject to the Board of
Directors' right to defer such registration for a period of up to 180 days. In
addition, if the Company proposes to register securities under the Securities
Act (other than a registration statement on Form S-8 or S-4), whether or not for
its own account, then any of the Investors has a right (subject to quantity
limitations determined by underwriters if the offering involves an underwriting)
to request that the Company register such Investor's Registrable Securities. All
registration expenses incurred in connection with up to two long-form and all
short-form and piggyback registrations will be borne by the Company. Each
Investor will pay for its own Selling Expenses (as defined in the Stockholders
Agreement) on a pro rata basis. These registration rights are subject to certain
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares included in such registration. See
"Certain Transactions -- Stockholders Agreement."
In connection with the Series D-1 Agreements the Company entered into
certain investment agreements (the "Investment Agreements") with the holders
(the "Series D-1 Holders") of shares of Series D-1 Preferred Stock. Pursuant to
the Investment Agreements, some of the Series D-1 Holders are entitled to
certain piggyback registration rights with respect to the registration of
certain Registrable Securities (as defined in the Investment Agreements) under
the Securities Act. At any time after a Lock-Up Termination Date (as defined in
the Investment Agreements), the Company proposes to register any of its
securities under the Securities Act (other than a registration statement on Form
S-8 or S-4), whether or not for its own account, such Series D-1 Holders are
entitled to notice of such registration and are entitled to include such Series
D-1 Holder's Registrable Securities therein. All such rights granted under the
Investment Agreements shall terminate with respect to the Registrable Securities
of a Series D-1 Holder upon the earliest to occur of (i) the second anniversary
of the initial public offering of the Company, (ii) such time as all such
Registrable Securities may be immediately sold pursuant to Rule 144 under the
Securities Act within any 90-day period, or (iii) upon any sale of such
Registrable Securities pursuant to a registration statement or Rule 144 under
the Securities Act. The Company is required to bear all registration expenses
(other than underwriting discounts and commissions) incurred in connection with
any such registrations. The Company is not responsible for any expenses of any
counsel retained to act on behalf of Series D-1 Holder participating in such
registration. All of these registration rights are subject to certain conditions
and limitations including, in particular, if the underwriters of an offering
seek to limit the number of shares included in such offering, all holders of
demand and piggyback registration rights (other than the piggyback registration
rights held by the Series D-1 Holders) shall include their shares in such
offering in priority to the Series D-1 Holders.
In connection with the issuance of the 1997 Notes, the holders of a number
of the Warrants, Warrant Shares and Registrable Securities (as defined in a
registration rights agreement entered into in connection with the issuance of
the 1997 Notes) (the "Subject Equity") equivalent to a majority of the Warrant
Shares subject to the originally issued Warrants, will be entitled to require
the Company to effect one registration
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<PAGE> 71
under the Securities Act of the Subject Equity, subject to certain limitations.
Holders of such Registrable Securities will also have the right to include such
Registrable Securities in any registration statement under the Securities Act
filed by the Company (other than (a) a registration statement on Form S-8 or
S-4, (b) a registration statement filed in connection with an offer of
securities solely to existing securityholders or (c) a Demand Registration (as
defined in the registration rights agreement)), whether or not for its own
account. These registration rights are subject to certain conditions and
limitations, among them the right of the underwriters of an offering to limit
the number of shares included in such registration.
Pursuant to the NTT Investment, after the first anniversary of the
consummation of the Offering, NTT may require, on up to three occasions, that
the Company effect a registration statement under the Securities Act for the
sale of the shares of Common Stock issued to NTT, subject, in certain
circumstances, to the Company's right to defer any such demand for registration
for specified periods. In addition, if the Company proposes to register its
securities under the Securities Act, or another holder of the Company's Common
Stock exercises its demand registration rights, then NTT has a right (subject to
certain cutbacks determined by the underwriters in the event of an underwritten
offering) to include shares of NTT's Common Stock in any such offering. All
registration expenses will be borne by the Company subject to certain
exceptions, other than selling expenses which must be paid by NTT. In the event
that any shares of NTT's Common Stock are included in a registration statement,
the Company has agreed to indemnify NTT against certain losses for which NTT may
become liable under the Securities Act.
ANTI-TAKEOVER PROVISIONS
General
Certain provisions of the DGCL and the Company's Certificate of
Incorporation and Bylaws could have the effect of delaying, deterring or
preventing a future takeover or change in control of the Company unless such
takeover or change in control is approved by the Company's Board of Directors.
Such provisions also may render the removal of directors and management more
difficult. Such provisions could limit the price that certain investors might be
willing to pay in the future for shares of the Company's Common Stock. These
provisions of Delaware law and the Company's Certificate of Incorporation and
Bylaws also may have the effect of discouraging or preventing certain types of
transactions involving an actual or threatened change of control of the Company
(including unsolicited takeover attempts), even though such a transaction may
offer the Company's stockholders the opportunity to sell their stock at a price
above the prevailing market price. See "Risk Factors -- Anti-Takeover
Provisions."
Certificate of Incorporation and Bylaws
Certain provisions of the Certificate of Incorporation and Bylaws could
have the effect of discouraging potential acquisition proposals or delaying or
preventing a change of control of the Company. In particular, effective upon
consummation of the Offering, all stockholder actions must be effected at a duly
called meeting and not by a consent in writing, and an affirmative vote of the
holders of 80% of the Company's capital stock would be required to amend such
provision.
The Certificate of Incorporation and Bylaws of the Company also provide
that, upon consummation of the Offering, the Board of Directors will be divided
into three classes of directors, as nearly equal in number as is reasonably
possible, serving staggered terms so that directors' initial terms will expire
at the first, second and third succeeding annual meeting of the stockholders
following the Offering, respectively. At each such succeeding annual meeting of
stockholders, directors elected to succeed those directors whose terms are
expiring at such meeting shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders following such election. A vote
of at least 80% of the Company's capital stock would be required to amend such
provision.
The Company believes that a classified board of directors will help to
assure the continuity and stability of the Board of Directors and the Company's
business strategies and policies as determined by the Board of
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Directors, since a majority of the directors at any given time will have had
prior experience as directors of the Company. The Company believes that this, in
turn, will permit the Board of Directors to more effectively represent the
interest of stockholders. With a classified board of directors, at least two
annual meetings of stockholders, instead of one, will generally be required to
effect a change in the majority of the Board of Directors. As a result, a
provision relating to a classified Board of Directors may discourage proxy
contests for the election of directors or purchases of a substantial block of
the Common Stock because its provisions could operate to prevent obtaining
control of the Board of Directors in a relatively short period of time. The
classification provision and the prohibition on stockholder action by written
consent could also have the effect of discouraging a third party from making a
tender offer or otherwise attempting to obtain control of the Company. Under the
DGCL, a director on a classified board may be removed by the stockholders of the
corporation only for cause.
The Company's Bylaws provide that special meetings of the stockholders of
the Company may be called only by the President or, at the direction of the
Board of Directors, the Secretary of the Company. The Company's Bylaws require
advance written notice, which generally must be received by the Secretary of the
Company not less than 30 days nor more than 60 days prior to the meeting, by a
stockholder of a proposal or director nomination which such stockholder desires
to present at a meeting of stockholders. Any amendment of this provision would
require a vote of at least 80% of the Company's capital stock.
The Company's Certificate of Incorporation does not include a provision for
cumulative voting in the election of directors. Under cumulative voting, a
minority stockholder holding a sufficient number of shares may be able to ensure
the election of one or more directors. The absence of cumulative voting may have
the effect of limiting the ability of minority stockholders to effect changes in
the Board of Directors and, as a result, may have the effect of deterring
hostile takeover or delaying or preventing changes in control or management of
the Company.
The Company's Bylaws and, effective upon consummation of the Offering, the
Company's Certificate of Incorporation provide that vacancies in the Board of
Directors may be filled by a majority of directors in office, although less than
a quorum, and not by the stockholders.
The Certificate of Incorporation allows the Company to issue up to
12,500,000 shares of Undesignated Preferred Stock with rights senior to those of
the Common Stock and that otherwise could adversely affect the interests of
holders of Common Stock, which could decrease the amount of earnings or assets
available for distribution to the holders of Common Stock or could adversely
affect the rights and powers, including voting rights, of the holders of Common
Stock. In certain circumstances, such issuance could have the effect of
decreasing the market price of the Common Stock, as well as having the
anti-takeover effect discussed above.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of the
Company. These provisions are designed to reduce the vulnerability of the
Company to an unsolicited acquisition proposal and to discourage certain tactics
that may be used in proxy fights. However, such provisions could have the effect
of discouraging others from making tender offers for the Company's shares and,
as a consequence, they also may inhibit fluctuations in the market price of the
Company's shares that could result from actual or rumored takeover attempts.
Such provisions also may have the effect of preventing changes in the management
of the Company. See "Risk Factors -- Anti-Takeover Provisions."
Delaware Takeover Statute
The Company is subject to Section 203 of the DGCL ("Section 203"), which,
subject to certain exceptions, prohibits a Delaware corporation from engaging in
a "business combination" with an "interested stockholder" for a period of three
years following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder; (ii) upon consummation of the
transaction that resulted in the stockholder becoming an interested
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stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
(x) by persons who are directors and also officers and (y) by employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock that is not owned by
the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, National Association has been appointed as the
transfer agent and registrar for the Company's Common Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
The Shares sold in the Offering will be freely tradeable without
restriction or further registration under the Securities Act, except for any
Shares purchased by an affiliate of the Company, which will be subject to the
limitations of Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her restricted
securities (as that term is defined in Rule 144) for at least one year from the
date such securities were acquired from the Company or an affiliate of the
Company would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) one percent of the then
outstanding shares of the Common Stock and (ii) the average weekly trading
volume of the common stock during the four calendar weeks preceding a sale by
such person. Sales under Rule 144 are also subject to certain manner-of-sale
provisions, notice requirements and the availability of current public
information about the Company. Under Rule 144, however, a person who has held
shares for a minimum of two years from the later of the date such securities
were acquired from the Company or an affiliate of the Company and who is not,
and for the three months prior to the sale of such shares has not been, an
affiliate of the Company is free to sell such shares without regard to the
volume, manner-of-sale and certain other limitations contained in Rule 144.
In general, under Rule 701 of the Securities Act as currently in effect,
any employee, officer, director, consultant or advisor of the Company who
purchased shares from the Company in connection with a compensatory stock or
option plan or written employment agreement is eligible to resell such shares 90
days after the effective date of this offering in reliance on Rule 144, but
without compliance with certain restrictions, including the holding period,
contained in Rule 144.
Within 90 days of the date of this Prospectus, the Company intends to file
a registration statement under the Securities Act to register shares of Common
Stock reserved for issuance under its equity incentive plans, thus permitting
the resale of such shares by non-affiliates in the public market without
restriction under the Securities Act. Such registration statement will become
effective immediately upon filing. As of April 10, 1998, options to purchase
approximately 3,629,940 shares of Common Stock were outstanding under the
Company's stock option plans.
The Company, its directors and its executive officers, and certain
stockholders, who hold, as of April 10, 1998 approximately 11,404,000 shares of
Common Stock (or currently exercisable options to purchase Common Stock), have
agreed not to offer, sell or contract to sell, or otherwise dispose of, directly
or indirectly, or announce an offering of, any shares of Common Stock or any
securities convertible into, or exchangeable for shares of Common Stock for a
period of six months from the date of this Prospectus, without the prior written
consent of Smith Barney Inc., except under limited circumstances. In addition,
NTT has agreed not to offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, or announce an offering of, any NTT Shares for a period
of six months from the date of this Prospectus without the prior written consent
of the Company. The Company has agreed in the Underwriting Agreement (as
defined) that it will not waive the sale restrictions imposed on NTT without the
prior written consent of Smith Barney Inc. An additional 322,227 shares of
Common Stock issuable upon exercise of outstanding options, will become saleable
after the six-month lock-up period.
In connection with the Buyouts and acquisitions that involved the issuance
of shares of Series D-1 Preferred Stock, the Company has entered into market
standoff agreements with the holders of the Series D-1 Preferred Stock so
issued, which restrictions expire in one-third increments on the six, twelve and
eighteen month anniversaries of the date of this Prospectus. Following the
six-month, twelve-month and eighteen-month lock-up periods, approximately
745,852, 745,851 and 745,851 additional shares of Common Stock, respectively,
will become immediately saleable subject to the manner of sale, volume, notice
and information requirements of Rule 144 of the Securities Act.
In addition, the Company has granted certain holders of its capital stock
rights to require the registration for sale of such capital stock under the
Securities Act. See "Certain Transactions -- Stockholders Agreement" and
"Description of Capital Stock -- Registration Rights."
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Prior to the Offering, there has been no established market for the Common
Stock and no predictions can be made about the effect, if any, that market sales
of Common Stock or the availability of such shares for sale will have on the
market price prevailing from time to time. Nevertheless, the actual sale of, or
the perceived potential for the sale of, Common Stock in the public market may
have an adverse effect on the market price for the Common Stock.
After the closing of the Offering, the holders of approximately 23,700,000
shares of Common Stock, including approximately 2,112,480 shares of Common Stock
issuable upon exercise of outstanding Warrants, will be entitled to certain
rights with respect to the registration of such shares under the Securities Act.
See "Description of Capital Stock -- Registration Rights."
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among the Company and the Underwriters (the "Underwriting Agreement"), the
Company has agreed to sell to each of the Underwriters named below (the
"Underwriters"), and each of the Underwriters, for whom Smith Barney Inc.,
Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette
Securities Corporation are acting as the representatives (the
"Representatives"), has severally agreed to purchase the number of Shares set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Smith Barney Inc............................................
Credit Suisse First Boston Corporation......................
Donaldson, Lufkin & Jenrette Securities Corporation.........
---------
Total............................................. 5,000,000
=========
</TABLE>
The Company has been advised by the Representatives that the several
Underwriters initially propose to offer such Shares to the public at the Price
to Public set forth on the cover page of this Prospectus and part of the Shares
to certain dealers at such price less a concession not in excess of $
per Share under the Price to Public. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per Share to
certain other dealers. After the Offering, the Price to Public and such
concessions may be changed.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 750,000
additional shares of Common Stock from the Company at the Price to Public less
the Underwriting Discount, solely to cover over-allotments. To the extent that
the Underwriters exercise such option, each Underwriter will be committed,
subject to certain conditions, to purchase a number of option shares
proportionate to such Underwriter's initial commitment.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities and expenses, including liabilities
under the Securities Act, or contribute to payments the Underwriters may be
required to make in respect thereof.
Subject to certain exceptions, the Company, its directors, officers and
certain stockholders, have agreed not to offer, sell, contract to sell or
otherwise dispose of, directly or indirectly, or announce the offering of any
shares of Common Stock, including any such shares beneficially or indirectly
owned or controlled by any such person, or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock, for six months from the
date of this Prospectus, without the prior written consent of Smith Barney Inc.
NTT has agreed not to offer, sell, contract to sell, or otherwise dispose
of, directly or indirectly, or announce an offering of, any NTT Shares for a
period of six months from the date of this Prospectus without the prior written
consent of the Company. The Company has agreed in the Underwriting Agreement not
to waive the sale restrictions imposed on NTT without the prior written consent
of Smith Barney Inc.
At the Company's request, the Underwriters have reserved up to
shares of Common Stock (the "Directed Shares") for sale at the Price to Public
to persons who are directors, officers or employees of, or otherwise associated
with, the Company and its affiliates and who have advised the Company of their
desire to purchase such Shares. The number of Shares of Common Stock available
for sale to the general public will be reduced to the extent of sales of
Directed Shares to any of the persons for whom they have been reserved. Any
Shares not so purchased will be offered by the Underwriters on the same basis as
all other Shares offered hereby.
The Underwriters will not confirm sales to any discretionary account
without the prior specific written approval of the customer.
During and after the Offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include overallotment
and stabilizing transactions and purchases to cover
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syndicate short positions created in connection with the Offering. The
Underwriters also may impose a penalty bid, whereby selling concessions allowed
to syndicate members of other broker-dealers in respect of the Shares of Common
Stock sold in the Offering for their account may be reclaimed by the syndicate
if such Shares are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Common Stock which may be higher than the price that might
otherwise prevail in the open market. The Underwriters are not required to
engage in these activities and may end these activities at any time.
Prior to the Offering, there has been no public market for the Common
Stock. The Price to Public was determined by negotiations between the Company
and the Representatives. Among the factors considered in determining the Price
to Public were prevailing market conditions, the market values of publicly
traded companies that the Underwriters believed to be somewhat comparable to the
Company, the demand for the Shares and for similar securities of publicly traded
companies that the Underwriters believed to be somewhat comparable to the
Company, the future prospects of the Company and its industry in general, sales,
earnings and certain other financial and operating information of the Company in
recent periods, and other factors deemed relevant. There can be no assurance
that the prices at which the Shares will sell in the public market after the
Offering will not be lower than the Price to Public.
Salomon Brothers Inc, an affiliate of Smith Barney Inc., was an Initial
Purchaser of the 1998 Notes. In addition, Smith Barney Inc. or certain of its
affiliates may provide financial advisory services to the Company, for which it
expects to receive customary compensation.
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LEGAL MATTERS
The validity of the Shares offered hereby and general corporate legal
matters will be passed upon for the Company by Morrison & Foerster LLP, San
Francisco, California. Certain legal matters relating to the sale of Shares in
the Offering will be passed upon by Cahill Gordon & Reindel (a partnership
including a professional corporation), New York, New York.
EXPERTS
The consolidated financial statements of Verio Inc. and Subsidiaries as of
December 31, 1996 and 1997 and for the period from inception (March 1, 1996) to
December 31, 1996, and the year ended December 31, 1997 and the financial
statements of On-Ramp Technologies, Inc. as of and for the nine months ended
July 31, 1996; Global Enterprise Services -- Network Division (a Division of
Global Enterprise Services, Inc.) as of December 31, 1995 and 1996, and for each
of the years in the three-year period ended December 31, 1996 and the period
ended January 17, 1997; Compute Intensive Inc. as of December 31, 1995 and 1996,
and for each of the years in the two-year period ended December 31, 1996, and
the period ended February 18, 1997; NorthWestNet, Inc. as of and for the six
months ended June 30, 1996 and the eight months ended February 28, 1997,
Northwest Academic Computing Consortium, Inc. as of and for the year ended June
30, 1995 and the six months ended December 31, 1995; Aimnet Corporation as of
and for the year ended March 31, 1997 and the period ended May 19, 1997; West
Coast Online, Inc. as of and for the nine months ended September 30, 1997; Clark
Internet Services, Inc. as of and for the year ended September 30, 1997 and the
period ended October 17, 1997; ATMnet, Corporation as of and for the years ended
October 31, 1996 and 1997; Global Internet Network Services, Inc. as of December
31, 1996 and November 26, 1997 and for the year and period then ended;
Pennsylvania Research Partnership Network as of and for the years ended November
30, 1996 and 1997 and the period ended December 24, 1997; Monumental Network
Systems, Inc. as of and for the years ended December 31, 1996 and 1997; Internet
Servers, Inc. as of December 31, 1996 and 1997 and for the period from inception
(August 23, 1995) to December 31, 1995 and the years ended December 31, 1996 and
1997; Access One, Inc. as of and for the year ended December 31, 1997; NSNet,
Inc. as of and for the years ended December 31, 1996 and 1997; STARnet, L.L.C.
as of and for the year ended December 31, 1997; Computing Engineers Inc. as of
and for the years ended December 31, 1996 and 1997; and LI Net, Inc. as of April
30, 1997 and January 31, 1998 and for the years ended April 30, 1996 and 1997
and the nine months ended January 31, 1998, have been included herein and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is not currently subject to the information requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of the Offering, the Company will be required to file reports and other
information with the Securities and Exchange Commission (the "Commission")
pursuant to the informational requirements of the Exchange Act. The Company
intends to furnish its stockholders with Annual Reports containing Consolidated
Financial Statements audited by independent certified public accountants and
with quarterly reports containing unaudited financial information for each of
the first three quarters of each year.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus, which is a part of the
Registration Statement, omits certain information, exhibits, schedules and
undertakings set forth in the Registration Statement. For further information
pertaining to the Company and the securities offered hereby, reference is made
to such Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents or provisions of any
documents referred to herein are not necessarily complete, and in each instance,
reference is made to the copy of the document filed as an exhibit to the
Registration Statement. The Company will issue annual and quarterly reports.
Annual reports will include audited financial statements
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prepared in accordance with accounting principles generally accepted in the
United States and a report of its independent auditors with respect to the
examination of such financial statements. In addition, the Company will issue to
its securityholders such other unaudited quarterly or other interim reports as
it deems appropriate.
The Registration Statement may be inspected without charge at the office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the
Registration Statement may be obtained from the Commission at prescribed rates
from the Public Reference Section of the Commission at such address, and at the
Commission's regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048, and at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are publicly
available through the Commission's site on the Internet's World Wide Web,
located at http://www.sec.gov.
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GLOSSARY OF TERMS
ATM Asynchronous Transfer Mode. An information transfer standard
for routing traffic which uses packets (cells) of a fixed
length.
Backbone A centralized high-speed network that interconnects smaller,
independent networks.
Bandwidth The number of bits of information which can move through a
communications medium in a given amount of time; the
capacity of a telecommunications circuit/ network to carry
voice, data and video information. Typically measured in
kbps and Mbps.
caching Temporary storage or replication of a Web server content at
one or more locations throughout the Internet to provide a
quicker response to a browser request.
CPE Customer Premise Equipment.
CSU/DSU Channel Service Unit/Digital Service Unit. A device used to
terminate telephone company equipment and prepare data for
router interface.
DNS Domain Name Server.
DS-3 or T-3 A data communications circuit capable of transmitting data
at 45 Mbps. Equivalent to 28 T-1's of data capacity.
Currently used only by businesses/institutions and carriers
for high end applications.
Ethernet A common method of networking computers in a LAN. Ethernet
will handle about 10 Mbps and can be used with almost any
kind of computer.
FDDI Fiber Distributed Data Interface. A standard for
transmitting data on fiber-optic cables at a rate of 100
Mbps.
Firewall A system placed between networks that filters data passing
through it and prevents unauthorized traffic, thereby
enhancing the security of the network.
Frame Relay An information transfer standard for relaying traffic based
on an address contained in the six-byte header of a variable
length packet that is up to 2,106 bytes long.
Hertz The dimensional unit for measuring the frequency with which
an electromagnetic signal cycles through the zero-value
state between lowest and highest states. One Hertz
(abbreviated Hz) equals one cycle per second. KHz
(KiloHertz) stands for thousands of Hertz; MHz (MegaHertz)
stands for millions of Hertz; GHz (GigaHertz) stands for
billions of Hertz.
Internet A global collection of interconnected computer networks
which use a specific communications protocol.
IP Internet Protocol. Network protocols that allow computers
with different architectures and operating system software
to communicate with other computers on the Internet.
ISDN Integrated Services Digital Network. An information transfer
standard for transmitting digital voice and data over
telephone lines at speeds up to 128 Kbps.
ISPs Internet Service Providers. Companies formed to provide
access to the Internet to consumers and business customers
via local networks.
IXC Interexchange Carrier. A telecommunications company that
provides telecommunications services between local exchanges
on an interstate or intrastate basis.
kbps Kilobits per second. A transmission rate. One kilobit equals
1,024 bits of information.
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LAN Local Area Network. A data communications network designed
to interconnect personal computers, workstations,
minicomputers, file servers and other communications and
computing devices within a localized environment.
Leased Line Telecommunications line dedicated to a particular customer
along predetermined routes.
LEC Local Exchange Carrier. A telecommunications company that
provides telecommunications services in a geographic area in
which calls generally are transmitted without toll charges.
LECs include both RBOCs and competitive local exchange
carriers.
LMDS Local Multipoint Distribution Service. Two blocks of
spectrum with total bandwidth of 1150 MHz and 150 MHz to be
auctioned and used for various wireless services.
MAE-East A major exchange point among ISPs, located in Falls Church,
Virginia.
MAE-West A major exchange point among ISPs, located in Santa Clara,
California.
Mbps Megabits per second. A transmission rate. One megabit equals
1,024 kilobits.
MMDS Microwave Multipoint Distribution Service.
Modem A device for transmitting digital information over an analog
telephone line.
MSAs Metropolitan Statistical Areas. A designation by the U.S.
Census Bureau for Metropolitan areas with a central city or
an urbanized area having a minimum population of 50,000 with
a total metropolitan population of at least 100,000 and
including all counties that have strong economic and social
ties to the central city.
NAP Network Access Point. A location at which ISPs exchange each
other's traffic.
National Node National network access point where IP traffic is exchanged
between network links and where regional networks access the
national network.
NOC Network Operations Center. Facility where the Company
monitors and manages the Company's network.
OC-3 A data communications circuit consisting of three DS-3s
capable of transmitting data at 155 Mbps.
Peering The commercial practice under which ISPs exchange each
other's traffic without the payment of settlement charges.
Peering occurs at both public and private exchange points.
POP Point of Presence. Telecommunications facility where the
Company locates network equipment used to connect customers
to its network backbone.
Proxy Server A server that acts on behalf of one or more other servers,
usually for screening, firewall, caching, or a combination
of these purposes. Typically, a proxy server is used within
a company to gather all Internet requests, forward them out
to Internet servers, and then receive the responses and in
turn forward them to the original requestor within the
company.
Router Equipment placed between networks that relays data to those
networks based upon a destination address contained in the
data packets being routed.
TCP/IP Transmission Control Protocol/Internet Protocol. A suite of
network protocols that allow computers with different
architectures and operating system software to communicate
with other computers on the Internet.
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VPN Virtual Private Network. A network capable of providing the
tailored services of a private network (i.e. low latency,
high throughput, security and customization) while
maintaining the benefits of a public network (i.e. ubiquity
and economies of scale).
WAN Wide Area Network. A data communications network designed to
interconnect personal computers, workstations, mini
computers, file servers and other communications and
computing devices across a broad geographic region.
Web Site A server connected to the Internet from which Internet users
can obtain information.
World Wide Web or Web
A collection of computer systems supporting a communications
protocol that permits multi-media presentation of
information over the Internet.
xDSL A term referring to a variety of new Digital Subscriber Line
technologies. Some of these varieties are asymmetric with
different data rates in the downstream and upstream
directions. Others are symmetric. Downstream speeds range
from 384 kbps (or "SDSL") to 1.5-8 Mbps (or "ASDL").
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VERIO INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Combined Financial Statements:
Pro Forma Condensed Combined Balance Sheet as of December
31, 1997 (unaudited).................................... F-4
Pro Forma Condensed Combined Statement of Operations for
the Year Ended December 31, 1997 (unaudited)............ F-5
Notes to Pro Forma Condensed Combined Financial Statements
(unaudited)............................................. F-6
Verio Inc. and Subsidiaries -- Consolidated Financial
Statements:
Independent Auditors' Report.............................. F-14
Consolidated Balance Sheets as of December 31, 1996 and
1997.................................................... F-15
Consolidated Statements of Operations for the Period from
Inception (March 1, 1996) to December 31, 1996 and the
Year Ended December 31, 1997............................ F-16
Consolidated Statements of Stockholders' Deficit for the
Period from Inception (March 1, 1996) to December 31,
1996 and the Year Ended December 31, 1997............... F-17
Consolidated Statements of Cash Flows for the Period from
Inception (March 1, 1996) to December 31, 1996 and the
Year Ended December 31, 1997............................ F-18
Notes to Consolidated Financial Statements................ F-19
On-Ramp Technologies, Inc. -- Financial Statements:
Independent Auditors' Report.............................. F-29
Balance Sheet as of July 31, 1996......................... F-30
Statement of Operations for the Nine Months Ended July 31,
1996.................................................... F-31
Statement of Stockholders' Deficit for the Nine Months
Ended July 31, 1996..................................... F-32
Statement of Cash Flows for the Nine Months Ended July 31,
1996.................................................... F-33
Notes to Financial Statements............................. F-34
Global Enterprises Services -- Network Division -- Financial
Statements:
Independent Auditors' Report.............................. F-37
Balance Sheets as of December 31, 1995 and 1996........... F-38
Statements of Operations and Owner's Deficit for the Years
Ended December 31, 1994, 1995, 1996 and Period Ended
January 17, 1997........................................ F-39
Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996 and Period Ended January 17, 1997... F-40
Notes to Financial Statements............................. F-41
Compute Intensive, Inc. -- Financial Statements:
Independent Auditors' Report.............................. F-44
Balance Sheets as of December 31, 1995 and 1996........... F-45
Statements of Operations for the Years Ended December 31,
1995 and 1996 and Period Ended February 18, 1997........ F-46
Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1995 and 1996 and Period Ended
February 18, 1997....................................... F-47
Statements of Cash Flows for the Years Ended December 31,
1995 and 1996 and Period Ended February 18, 1997........ F-48
Notes to Financial Statements............................. F-48
NorthWestNet, Inc. -- Financial Statements:
Independent Auditors' Report.............................. F-54
Balance Sheets as of June 30, 1995 and 1996............... F-55
Statements of Operations for the Year Ended June 30, 1995
and the Six Months Ended December 31, 1995 and Six
Months Ended June 30, 1996 and the Eight Months Ended
February 28, 1997....................................... F-56
Statements of Stockholders' Equity and Fund Balance for
the Year Ended June 30, 1995 and the Six Months Ended
December 31, 1995 and Six Months Ended June 30, 1996 and
the Eight Months Ended February 28, 1997................ F-57
Statements of Cash Flows for the Year Ended June 30, 1995
the Six Months Ended December 31, 1995, and the Six
Months Ended June 30, 1996 and the Eight Months Ended
February 28, 1997....................................... F-58
Notes to Financial Statements............................. F-59
Aimnet Corporation -- Financial Statements:
Independent Auditors' Report.............................. F-66
Balance Sheet as of March 31, 1997........................ F-67
Statement of Operations for the Year Ended March 31, 1997
and Period Ended May 19, 1997........................... F-68
Statements of Stockholders' Equity for the Year Ended
March 31, 1997 and Period Ended May 19, 1997............ F-69
Statements of Cash Flows for the Year Ended March 31, 1997
and Period Ended May 19, 1997........................... F-70
Notes to Financial Statements............................. F-71
West Coast Online, Inc. -- Financial Statements:
Independent Auditors' Report.............................. F-74
Balance Sheet as of September 30, 1997.................... F-75
Statement of Operations and Accumulated Deficit for the
Nine Months Ended September 30, 1997.................... F-76
Statement of Cash Flows for the Nine Months Ended
September 30, 1997...................................... F-77
Notes to Financial Statements............................. F-78
Clark Internet Services, Inc. -- Financial Statements:
Independent Auditors' Report.............................. F-81
Balance Sheet as of September 30, 1997.................... F-82
Statements of Operations and Retained Earnings for the
Year Ended September 30, 1997 and Period Ended October
17, 1997................................................ F-83
Statements of Cash Flows for the Year Ended September 30,
1997 and Period Ended October 17, 1997.................. F-84
Notes to Financial Statements............................. F-85
ATMnet, Inc. -- Financial Statements:
Independent Auditors' Report.............................. F-87
Balance Sheets as of October 31, 1996 and 1997............ F-88
Statements of Operations for the Years Ended October 31,
1996 and 1997........................................... F-89
Statements of Stockholders' Deficit for the Years Ended
October 31, 1996 and 1997............................... F-90
</TABLE>
F-1
<PAGE> 84
<TABLE>
<S> <C>
Statements of Cash Flows for the Years Ended October 31,
1996 and 1997........................................... F-91
Notes to Financial Statements............................. F-92
Global Internet Network Services, Inc. -- Financial
Statements:
Independent Auditors' Report.............................. F-96
Balance Sheets as of December 31, 1996 and November 26,
1997.................................................... F-97
Statements of Operations for the Year Ended December 31,
1996 and the Period Ended November 26, 1997............. F-98
Statements of Stockholders' Equity (Deficit) for the Year
Ended December 31, 1996 and the Period Ended November
26, 1997................................................ F-99
Statements of Cash Flows for the Year Ended December 31,
1996 and the Period Ended November 26, 1997............. F-100
Notes to Financial Statements............................. F-101
Pennsylvania Research Partnership Network
(PREPnet) -- Financial Statements:
Independent Auditors' Report.............................. F-104
Balance Sheets as of November 30, 1996 and 1997........... F-105
Statements of Operations and Owner's Deficit for the Years
Ended November 30, 1996 and 1997 and the Period Ended
December 24, 1997....................................... F-106
Statements of Cash Flows for the Years Ended November 30,
1996 and 1997 and the Period Ended December 24, 1997.... F-107
Notes to Financial Statements............................. F-108
Monumental Network Systems, Inc. -- Financial Statements:
Independent Auditors' Report.............................. F-111
Balance Sheets as of December 31, 1996 and 1997........... F-112
Statements of Operations for the Years Ended December 31,
1996 and 1997........................................... F-113
Statements of Stockholders' Deficit for the Years Ended
December 31, 1996 and 1997.............................. F-114
Statements of Cash Flows for the Years Ended December 31,
1996 and 1997........................................... F-115
Notes to Financial Statements............................. F-116
Internet Servers, Inc. -- Financial Statements:
Independent Auditors' Report.............................. F-120
Balance Sheets as of December 31, 1996 and 1997........... F-121
Statements of Operations for the Period from Inception
(August 23, 1995) to December 31, 1995 and Years Ended
December 31, 1996 and 1997.............................. F-122
Statements of Stockholders' Equity for the Period from
Inception (August 23, 1995) to December 31, 1995 and
Years ended December 31, 1996 and 1997.................. F-123
Statements of Cash Flows for the Period from Inception
(August 23, 1995) to December 31, 1995 and Years Ended
December 31, 1996 and 1997.............................. F-124
Notes to Financial Statements............................. F-125
NSNet, Inc. -- Financial Statements:
Independent Auditors' Report.............................. F-128
Balance Sheets as of December 31, 1996 and 1997........... F-129
Statements of Operations for the Years Ended December 31,
1996 and 1997........................................... F-130
Statements of Owner's and Stockholder's Equity for the
Years Ended December 31, 1996 and 1997.................. F-131
Statements of Cash Flows for the Years Ended December 31,
1996 and 1997........................................... F-132
Notes to Financial Statements............................. F-133
Access One, Inc. -- Financial Statements:
Independent Auditors' Report.............................. F-136
Balance Sheet as of December 31, 1997..................... F-137
Statement of Operations and Accumulated Deficit for the
Year Ended December 31, 1997............................ F-138
Statement of Cash Flows for the Year Ended December 31,
1997.................................................... F-139
Notes to Financial Statements............................. F-140
STARnet, L.L.C. -- Financial Statements:
Independent Auditors' Report.............................. F-143
Balance Sheet as of December 31, 1997..................... F-144
Statement of Operations for the Year Ended December 31,
1997.................................................... F-145
Statement of Members' Equity for the Year Ended December
31, 1997................................................ F-146
Statement of Cash Flows for the Year Ended December 31,
1997.................................................... F-147
Notes to Financial Statements............................. F-148
Computing Engineers Inc. -- Financial Statements:
Independent Auditors' Report.............................. F-150
Balance Sheets as of December 31, 1996 and 1997........... F-151
Statements of Operations for the Years Ended December 31,
1996 and 1997........................................... F-152
Statements of Stockholders' Equity for the Years Ended
December 31, 1996 and 1997.............................. F-153
Statements of Cash Flows for the Years Ended December 31,
1996 and 1997........................................... F-154
Notes to Financial Statements............................. F-155
LI Net, Inc. -- Financial Statements:
Independent Auditors' Report.............................. F-157
Balance Sheets as of April 30, 1997 and January 31,
1998.................................................... F-158
Statements of Operations for the Years Ended April 30,
1996 and 1997 and the Nine Months Ended January 31,
1998.................................................... F-159
Statements of Stockholders' Equity (Deficit) for the Years
Ended April 30, 1996 and 1997 and the Nine Months Ended
January 31, 1998........................................ F-160
Statements of Cash Flows for the Years Ended April 30,
1996 and 1997 and the Nine Months Ended January 31,
1998.................................................... F-161
Notes to Financial Statements............................. F-162
</TABLE>
F-2
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VERIO INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
During the period from August 1, 1996 through the date of this Registration
Statement, Verio Inc. ("Verio" or the "Company") completed numerous business
combinations, whereby the Company acquired newly authorized redeemable,
convertible preferred stock, shares of common stock, or certain net assets of
entities operating in the Internet industry (ISPs), and completed the Buyout of
the remaining equity interests of certain ISPs in which it initially acquired a
less-than-100% equity position (collectively, the "Completed Acquisitions"). In
addition, the Company has entered into definitive agreements to acquire an
additional four ISPs, which acquisitions, in the opinion of management, are
probable to be completed, (the "Proposed Acquisitions"). The Company also has
contractual rights to effect additional Buyouts which have not been completed at
the date of this Registration Statement but two of which, in the opinion of
management, are probable to be completed and are also included as Proposed
Acquisitions. Business combinations, which are acquisitions of a 100% ownership
interest in the target business or of a majority ownership interest (upon
conversion of the preferred shares to common stock) on a fully diluted basis,
are accounted for using the purchase method of accounting. Acquisitions of
minority interests represented by preferred stock are accounted for using the
equity method of accounting, as described in Note 1 to the Consolidated
Financial Statements. The Completed Acquisitions and Proposed Acquisitions are
described in Note A to the accompanying pro forma condensed combined financial
statements.
While the Company now seeks to acquire 100% of new ISPs, the Company's
early acquisition strategy was to rapidly build mass and scale by acquiring less
than 100% of its ISPs. In each case where the Company acquired less than 100% of
an ISP initially, it obtained the right to Buyout the remaining equity in the
future at a price based on either agreed upon revenue multiples or the fair
market value of the ISP. As part of its integration strategy, the Company is in
the process of effecting the Buyouts of its remaining non-wholly owned ISPs
through the use of cash on hand and the issuance of equity. As of the date of
this Registration Statement, Verio has consummated the Buyout of the following
twelve ISPs; On-Ramp Technologies, Inc.; NorthWestNet, Inc.; National Knowledge
Networks, Inc.; Access One, Inc.; Signet Partners, Inc.; Surf Network, Inc.;
Pacific Rim Network, Inc.; Internet Engineering Associates, Inc.; AimNet
Corporation; West Coast Online, Inc.; ServiceTech, Inc., and Clark Internet
Services, Inc. Verio currently expects to effect the Buyouts of the remaining
four ISPs in which it acquired a less-than-100% position during the remainder of
1998. With respect to those Buyouts that have not yet been completed, the
Company expects to consummate two of these Buyouts prior to or concurrent with
the Offering, and considers these Buyouts probable. The Company has contractual
rights to effect the other two Buyouts and expects to complete these Buyouts
during the remainder of 1998. However, there can be no assurance that the
Company will be able to complete these Buyouts at the times, or in accordance
with the terms and conditions, that it currently contemplates. These
acquisitions will also be accounted for using the purchase method of accounting.
The unaudited pro forma condensed combined balance sheet assumes that the
Completed Acquisitions and the Proposed Acquisitions occurred on December 31,
1997 and includes the December 31, 1997 historical consolidated balance sheets
of Verio and the acquired businesses adjusted for the pro forma effects of these
acquisitions. The unaudited pro forma condensed combined statement of operations
for the year ended December 31, 1997 assumes that the Completed Acquisitions and
the Proposed Acquisitions had occurred on January 1, 1997, and includes the
historical consolidated statements of operations of Verio and the Completed and
Proposed Acquisitions for the year ended December 31, 1997, adjusted for the pro
forma effects of the acquisitions. The unaudited pro forma condensed combined
balance sheet also assumes the conversion of the Preferred Stock into common
stock upon completion of the Offering.
The unaudited pro forma condensed combined statement of operations is not
necessarily indicative of the results of operations that would actually have
occurred if the transactions had been consummated as of January 1, 1997 and is
not intended to indicate the expected results for any future period. These
statements should be read in conjunction with the historical consolidated
financial statements and related notes thereto of Verio, and certain acquired
businesses, included herein. The actual purchase accounting adjustments may be
revised upon completion of the acquisitions.
F-3
<PAGE> 86
VERIO INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1997 (UNAUDITED)
AMOUNTS IN THOUSANDS
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------
COMPLETED PROPOSED PRO FORMA PRO FORMA
ACQUISITIONS ACQUISITIONS ADJUSTMENTS COMBINED
VERIO (NOTE B) (NOTE B) (NOTE D) VERIO
-------- --------------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents......... $ 72,586 $ 828 $ 341 $(46,456)(1) $ 27,299
Restricted cash and securities.... 21,015 -- -- -- 21,015
Receivables, net.................. 7,565 1,198 814 -- 9,577
Prepaid expenses and other........ 4,656 685 290 (535)(3) 5,096
-------- ------- ------ -------- --------
Total current assets...... 105,822 2,711 1,445 (46,991) 62,987
Investments in affiliates, at
cost.............................. 2,378 -- -- (1,198)(1) 1,180
Restricted cash and securities...... 19,539 -- -- -- 19,539
Equipment and leasehold
improvements, net................. 28,213 2,315 2,043 -- 32,571
Other assets:
Goodwill, net..................... 83,216 -- -- 69,025(1) 152,241
Other, net........................ 7,303 196 41 -- 7,540
-------- ------- ------ -------- --------
Total assets.............. $246,471 $ 5,222 $3,529 $ 20,836 $276,058
======== ======= ====== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued
expenses....................... $ 19,634 $ 2,049 $ 458 $ -- $ 22,141
Lines of credit, notes payable and
current portion of long-term
debt and capital lease
obligations.................... 4,326 1,166 450 (535)(3) 5,407
Deferred revenue.................. 7,177 921 953 -- 9,051
-------- ------- ------ -------- --------
Total current
liabilities............. 31,137 4,136 1,861 (535) 36,599
Long-term debt and capital lease
obligations, less current
portion........................... 142,321 594 736 -- 143,651
-------- ------- ------ -------- --------
Total liabilities......... 173,458 4,730 2,597 (535) 180,250
Minority interests in
subsidiaries...................... 2,765 -- -- (2,765)(5) --
Redeemable preferred stock.......... 97,249 2,716 -- (2,716)(2) --
(97,249)(7)
Stockholders' deficit:
Preferred stock................... 10,200 -- -- (10,200)(7) --
Common stock and additional
paid-in capital................ 1,598 848 844 (1,692)(2) 134,607
107,449(7)
25,560(1)
Warrants.......................... 12,675 -- -- -- 12,675
Retained earnings (deficit)....... (51,474) (3,072) 88 2,984(2) (51,474)
-------- ------- ------ -------- --------
(27,001) (2,224) 932 124,101 95,808
-------- ------- ------ -------- --------
Total liabilities and
stockholders' deficit... $246,471 $ 5,222 $3,529 $ 20,836 $276,058
======== ======= ====== ======== ========
</TABLE>
F-4
<PAGE> 87
VERIO INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------
COMPLETED PROPOSED PRO FORMA PRO FORMA
ACQUISITIONS ACQUISITIONS ADJUSTMENTS COMBINED
VERIO (NOTE C) (NOTE C) (NOTE D) VERIO
---------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue:
Internet connectivity.................... $ 23,476 $32,887 $ 6,790 $ (98)(3) $ 63,055
Enhanced services and other.............. 12,216 11,340 1,654 -- 25,210
---------- ------- ------- ----------- -----------
Total revenue..................... 35,692 44,227 8,444 (98) 88,265
---------- ------- ------- ----------- -----------
Costs and expenses:
Internet services operating costs........ 15,974 19,338 2,909 (76)(3) 38,145
Selling, general and administrative and
other.................................. 49,383 28,411 4,276 -- 82,070
Depreciation and amortization............ 10,624 2,524 733 12,030(4) 25,911
---------- ------- ------- ----------- -----------
Total costs and expenses.......... 75,981 50,273 7,918 11,954 146,126
---------- ------- ------- ----------- -----------
Loss from operations................... (40,289) (6,046) 526 (12,052) (57,861)
Other income (expense):
Interest income.......................... 6,080 56 11 -- 6,147
Interest expense......................... (11,826) (458) (133) -- (12,417)
Equity in losses of affiliates........... (1,958) -- -- 1,958(5) --
---------- ------- ------- ----------- -----------
Loss before minority interests and
income taxes......................... (47,993) (6,448) 404 (10,094) (64,131)
Minority interests......................... 1,924 -- -- (1,924)(5) --
Income taxes............................... -- (1,076) (171) 1,247(6) --
---------- ------- ------- ----------- -----------
Net loss.......................... (46,069) (7,524) (233) (10,771) (64,131)
Accretion of preferred stock to liquidation
value.................................... (260) -- -- 260(7) --
---------- ------- ------- ----------- -----------
Net loss attributable to common
stockholders............................. $ (46,329) $(7,524) $ 233 $ (10,511) $ (64,131)
========== ======= ======= =========== ===========
Weighted average shares outstanding --basic
and diluted.............................. 1,144,685 20,945,667(8) 22,090,352
========== =========== ===========
Loss per common share -- basic and
diluted.................................. $ (40.47) $ (2.90)
========== ===========
</TABLE>
F-5
<PAGE> 88
VERIO INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(A) BASIS OF PRESENTATION
During the period from inception (March 1, 1996) to April 9, 1998, Verio
completed numerous business combinations, and completed the Buyout of the
remaining equity interests of certain ISPs in which it initially acquired a
less-than-100% equity position (Completed Acquisitions). In addition, the
Company has contractual rights to effect certain additional Buyouts which have
not been completed at the date of this Registration Statement but which, in the
opinion of management, are probable to be completed. These transactions are
collectively referred to as the "Proposed Acquisitions." All of the acquisitions
have been or will be accounted for using the purchase method of accounting.
Summary information regarding the Completed and Proposed Acquisitions is as
follows:
<TABLE>
<CAPTION>
OWNERSHIP PERCENTAGE
--------------------------------------
COMPLETED
ACQUISITIONS
THROUGH
APRIL 9, PROPOSED
ACQUISITION DATE(S) 1998 ACQUISITIONS(a) TOTAL
------------------- ------------ --------------- -----
<S> <C> <C> <C> <C>
On-Ramp Technologies, Inc................. August 1, 1996 51% 100%
October 4, 1996 4%
February 26, 1998 45%
National Knowledge Networks, Inc.......... August 2, 1996 26% 100%
November 7, 1997 15%
February 27, 1998 59%
RAINet, Inc............................... August 2, 1996 100% 100%
Access One, Inc........................... December 12, 1996 20% 100%
February 27, 1998 80%
CCnet, Inc................................ December 19, 1996 100% 100%
Signet Partners, Inc...................... December 19, 1996 25% 100%
November 20, 1997 16%
February 26, 1998 59%
Global Enterprise Services -- Network January 17, 1997 100% 100%
Division................................
Surf Network, Inc......................... January 31, 1997 25% 100%
December 22, 1997 75%
Pacific Rim Network, Inc.................. February 4, 1997 27% 100%
February 16, 1998 73%
Pioneer Global Telecommunications, Inc.... %
February 6, 1997 100 100%
Compute Intensive Inc..................... February 18, 1997 55% 45% 100%
NorthWestNet, Inc......................... February 28, 1997 85% 100%
March 6, 1998 15%
Internet Engineering Associates, Inc...... March 4, 1997 20% 100%
February 25, 1998 80%
Internet Online, Inc...................... March 5, 1997 35% 35%
Structured Network Systems, Inc........... March 6, 1997 20% 80% 100%
</TABLE>
F-6
<PAGE> 89
VERIO INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OWNERSHIP PERCENTAGE
--------------------------------------
COMPLETED
ACQUISITIONS
THROUGH
APRIL 9, PROPOSED
ACQUISITION DATE(S) 1998 ACQUISITIONS(A) TOTAL
------------------- ------------ --------------- -----
<S> <C> <C> <C> <C>
RustNet, Inc.............................. March 14, 1997 100% 100%
AimNet Corporation........................ May 19, 1997 55% 100%
September 22, 1997 45%
West Coast Online, Inc.................... July 26, 1996 20% 100%
April 29, 1997 12%
September 30, 1997 68%
ServiceTech, Inc.......................... August 1, 1997 40% 100%
December 31, 1997 60%
Branch Information Services, Inc.......... September 17, 1997 100% 100%
Communique, Inc........................... October 2, 1997 100% 100%
Clark Internet Services, Inc.............. October 17, 1997 51% 100%
February 25, 1998 49%
ATMnet, Inc............................... November 5, 1997 100% 100%
Global Internet Network Services, Inc..... %
December 1, 1997 100 100%
Sesquinet................................. December 24, 1997 100%(b) 100%
PREPnet................................... December 24, 1997 100% 100%
Monumental Network Systems, Inc........... December 31, 1997 100% 100%
Internet Servers, Inc..................... December 31, 1997 100% 100%
NSNet, Inc................................ February 27, 1998 100% 100%
LI Net, Inc............................... April 9, 1998 100% 100%
STARnet, L.L.C............................ -- -- 100% 100%
Computing Engineers Inc................... -- -- 100% 100%
Matrix Online Media, Inc.................. -- -- 100% 100%
Florida Internet Corporation.............. -- -- 100% 100%
</TABLE>
- ---------------
(a) Acquisition to be completed, including the acquisitions of remaining
interests in consolidated subsidiaries and minority owned affiliates.
(b) Assets of this entity were purchased by On-Ramp Technologies, Inc.
The accompanying unaudited pro forma condensed combined balance sheet as of
December 31, 1997 includes historical balances of Verio and the businesses to be
acquired adjusted for the pro forma effects of the acquisitions completed
through April 9, 1998, including the acquisitions of the remaining interests in
certain consolidated subsidiaries and minority owned affiliates, and proposed
acquisitions to be completed subsequent to April 9, 1998. All acquisitions are
assumed to have been completed for cash, debt or the issuance of preferred stock
of Verio. The unaudited pro forma condensed combined statement of operations for
the year ended December 31, 1997 includes historical results of operations of
Verio and the businesses acquired or to be acquired, including the acquisitions
of the remaining interests in certain consolidated subsidiaries and minority
owned affiliates, adjusted for the pro forma effects of the acquisitions.
F-7
<PAGE> 90
VERIO INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(B) HISTORICAL CONDENSED BALANCE SHEET INFORMATION -- COMPLETED AND PROPOSED
ACQUISITIONS
Historical condensed balance sheet information for the Completed
Acquisitions as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
INTERNET NATIONAL STRUCTURED
PACIFIC RIM SIGNET ENGINEERING KNOWLEDGE NETWORK
NETWORK, INC. PARTNERS, INC. ASSOCIATES, INC. NSNET, INC. NETWORKS, INC. SYSTEMS, INC.
------------- -------------- ---------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents.............. $ -- $ 60 $271 $ 20 $ 166 $ 27
Receivables, net........... 46 112 106 86 73 206
Prepaid expenses and
other.................... 31 83 49 354 12 1
----- ----- ---- ---- ------- -----
Total current
assets.............. 77 255 426 460 251 234
Equipment and leasehold
improvements, net.......... 181 238 191 379 92 54
Other assets............... -- 25 45 67 13 7
----- ----- ---- ---- ------- -----
Total assets......... 258 $ 518 $662 $906 $ 356 $ 295
===== ===== ==== ==== ======= =====
Current liabilities:
Accounts payable and
accrued expenses......... 366 $ 285 $119 $139 $ 70 $ 252
Lines of credit, notes
payable and current
portion of long-term debt
and capital lease
obligations.............. 100 35 32 234 89 70
Deferred revenue........... 12 88 157 83 112 16
----- ----- ---- ---- ------- -----
Total current
liabilities......... 478 408 308 456 271 338
Long-term debt and capital
lease obligations, less
current portion.......... 124 10 10 62 65 15
----- ----- ---- ---- ------- -----
Total liabilities.... 602 418 318 518 336 353
Redeemable preferred
stock...................... 150 802 206 -- 899 150
Stockholders' equity:
Common stock and additional
paid-in capital.......... 55 38 10 107 227 1
Retained earnings
(deficit)................ (549) (740) 128 281 (1,106) (209)
----- ----- ---- ---- ------- -----
Total stockholders'
equity (deficit).... (494) (702) 138 388 (879) (208)
----- ----- ---- ---- ------- -----
Total liabilities and
stockholders' equity
(deficit)........... $ 258 $ 518 $662 $906 $ 356 $ 295
===== ===== ==== ==== ======= =====
<CAPTION>
ACCESS ONE, LI NET
INC. INC. TOTAL
----------- ------ -------
<S> <C> <C> <C>
Current assets:
Cash and cash
equivalents.............. $ 259 $ 25 $ 828
Receivables, net........... 344 225 1,198
Prepaid expenses and
other.................... 146 9 685
------ ----- -------
Total current
assets.............. 749 259 2,711
Equipment and leasehold
improvements, net.......... 679 501 2,315
Other assets............... 10 29 196
------ ----- -------
Total assets......... $1,438 $ 789 $ 5,222
====== ===== =======
Current liabilities:
Accounts payable and
accrued expenses......... $ 550 $ 268 $ 2,049
Lines of credit, notes
payable and current
portion of long-term debt
and capital lease
obligations.............. 453 153 1,166
Deferred revenue........... 294 159 921
------ ----- -------
Total current
liabilities......... 1,297 580 4,136
Long-term debt and capital
lease obligations, less
current portion.......... 38 270 594
------ ----- -------
Total liabilities.... 1,335 850 4,730
Redeemable preferred
stock...................... 509 -- 2,716
Stockholders' equity:
Common stock and additional
paid-in capital.......... 93 317 848
Retained earnings
(deficit)................ (499) (378) (3,072)
------ ----- -------
Total stockholders'
equity (deficit).... (406) (61) (2,224)
------ ----- -------
Total liabilities and
stockholders' equity
(deficit)........... $1,438 $ 789 $ 5,222
====== ===== =======
</TABLE>
F-8
<PAGE> 91
VERIO INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Historical condensed balance sheet information for the Proposed
Acquisitions as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
FLORIDA MATRIX COMPUTING
INTERNET ONLINE ENGINEERS STARNET,
CORPORATION MEDIA, INC. INC. L.L.C. TOTAL
----------- ----------- --------- -------- ------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 4 $ 111 $ 16 $ 210 $ 341
Receivables, net................................ 107 165 430 112 814
Prepaid expenses and other...................... 145 18 39 88 290
----- ----- ------ ----- ------
Total current assets..................... 256 294 485 410 1,445
Equipment and leasehold improvements, net......... 219 566 1,050 208 2,043
Other assets.................................... 3 14 20 4 41
----- ----- ------ ----- ------
Total assets............................. $ 478 $ 874 $1,555 $ 622 $3,529
===== ===== ====== ===== ======
Current liabilities:
Accounts payable and accrued expenses........... $ 96 $ 59 $ 259 $ 44 $ 458
Lines of credit, notes payable and current
portion of long-term debt and capital lease
obligations................................... -- 142 308 -- 450
Deferred revenue................................ 212 119 250 372 953
----- ----- ------ ----- ------
Total current liabilities................ 308 320 817 416 1,861
Long-term debt and capital lease obligations,
less current portion.......................... -- 122 614 -- 736
----- ----- ------ ----- ------
Total liabilities........................ 308 442 1,431 416 2,597
Redeemable preferred stock........................
Stockholders' equity:
Common stock and additional paid-in capital..... 298 540 6 -- 844
Retained earnings (deficit)..................... (128) (108) 118 206 88
----- ----- ------ ----- ------
Total stockholders' equity (deficit)..... 170 432 124 206 932
----- ----- ------ ----- ------
Total liabilities and stockholders'
equity (deficit)....................... $ 478 $ 874 $1,555 $ 622 $3,529
===== ===== ====== ===== ======
</TABLE>
F-9
<PAGE> 92
VERIO INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(C) HISTORICAL CONDENSED STATEMENTS OF OPERATIONS INFORMATION -- COMPLETED AND
PROPOSED ACQUISITIONS
Historical condensed statement of operations information for the Completed
Acquisitions for the year ended December 31, 1997 including the periods from
January 1, 1997 to the dates of consolidation is as follows:
<TABLE>
<CAPTION>
PIONEER GLOBAL
AIMNET RUSTNET, COMPUTE NORTHWEST TELECOMMUNICATIONS, WEST COAST
YEAR ENDED DECEMBER 31, 1997 CORPORATION INC. GES INTENSIVE NET INC. ONLINE, INC.
---------------------------- ----------- -------- ----- --------- --------- ------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Internet connectivity....... $1,068 $ 310 $ 112 $ 468 $ 709 $ 62 $1,192
Enhanced services and
other..................... 101 69 -- 326 351 7 457
------ ----- ----- ----- ------ ---- ------
Total revenue......... 1,169 379 112 794 1,060 69 1,649
Operating costs and expenses:
Internet services operating
costs..................... 444 147 94 301 113 33 735
Selling, general and
administrative and
other..................... 978 319 133 673 1,661 37 981
Depreciation and
amortization.............. 248 17 -- 16 136 4 77
------ ----- ----- ----- ------ ---- ------
Total costs and
expenses............ 1,670 483 227 990 1,910 74 1,793
------ ----- ----- ----- ------ ---- ------
Earnings (loss) from
operations................ (501) (104) (115) (196) (850) (5) (144)
Interest income............... 8 -- --
Interest expense.............. -- (8) -- (8) -- (2) --
------ ----- ----- ----- ------ ---- ------
Earnings (loss) before
income taxes............ (493) (112) (115) (204) (850) (7) (144)
Income taxes.................. -- -- -- -- 118 (5) --
------ ----- ----- ----- ------ ---- ------
Net earnings (loss)... $ (493) $(112) $(115) $(204) $ (732) $(12) $ (144)
====== ===== ===== ===== ====== ==== ======
<CAPTION>
BRANCH
INFORMATION
YEAR ENDED DECEMBER 31, 1997 SERVICES, INC.
---------------------------- --------------
<S> <C>
Revenue:
Internet connectivity....... $588
Enhanced services and
other..................... 84
----
Total revenue......... 672
Operating costs and expenses:
Internet services operating
costs..................... 84
Selling, general and
administrative and
other..................... 298
Depreciation and
amortization.............. 2
----
Total costs and
expenses............ 384
----
Earnings (loss) from
operations................ 288
Interest income............... --
Interest expense.............. --
----
Earnings (loss) before
income taxes............ 288
Income taxes.................. (101)
----
Net earnings (loss)... $187
====
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
CLARK INTERNET
INTERNET SURF NETWORK
COMMUNIQUE, SERVICES, NETWORK, ATMNET, SERVICES,
INC. INC. INC. SESQUINET INC. INC. PREPNET
----------- --------- -------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Internet connectivity................... $1,454 $2,582 $ 585 $1,124 $2,754 $2,501 $2,026
Enhanced services and other............. 764 562 190 -- 73 1,284 121
------ ------ ------ ------ ------- ------ ------
Total revenue..................... 2,218 3,144 775 1,124 2,827 3,785 2,147
Operating costs and expenses:
Internet services operating costs....... 690 1,394 431 538 2,976 2,679 793
Selling, general and administrative and
other................................. 1,159 1,784 981 367 1,786 1,019 773
Depreciation and amortization........... 5 116 76 54 40 280 121
------ ------ ------ ------ ------- ------ ------
Total costs and expenses.............. 1,854 3,294 1,488 959 4,802 3,978 1,687
------ ------ ------ ------ ------- ------ ------
Earnings (loss) from operations....... 364 (150) (713) 165 (1,975) (193) 460
Interest income........................... -- 2 -- -- -- -- --
Interest expense.......................... -- (25) (33) -- (171) (8) (11)
------ ------ ------ ------ ------- ------ ------
Earnings (loss) before income taxes... 364 (173) (746) 165 (2,146) (201) 449
Income taxes.............................. (127) -- -- (58) -- -- (171)
------ ------ ------ ------ ------- ------ ------
Net earnings (loss)............... $ 237 $ (173) $ (746) $ 107 $(2,146) $ (201) $ 278
====== ====== ====== ====== ======= ====== ======
</TABLE>
F-10
<PAGE> 93
VERIO INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
INTERNET SERVICE PACIFIC RIM SIGNET
MONUMENTAL, SERVERS, TECH, NETWORK, PARTNERS, NSNET,
INC. INC. INC. INC. INC. INC.
----------- -------- ---------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Internet connectivity...................... $2,425 $ 704 $ 1,536 $ 472 $1,133 $1,832
Enhanced services and other................ 47 3,688 627 337 518 15
------ ------ ------- ----- ------ ------
Total revenue.......................... 2,472 4,392 2,163 809 1,651 1,847
Operating costs and expenses:
Internet services operating costs.......... 1,162 536 1,229 385 336 471
Selling, general and administrative and
other.................................... 1,757 2,006 1,814 674 1,977 939
Depreciation and amortization.............. 172 260 197 69 10 126
------ ------ ------- ----- ------ ------
Total costs and expenses............... 3,091 2,802 3,240 1,128 2,323 1,536
------ ------ ------- ----- ------ ------
Earnings (loss) from operations.......... (619) 1,590 (1,077) (319) (672) 311
Interest income.............................. -- 26 -- -- -- --
Interest expense............................. (16) -- (42) (15) (5) (6)
------ ------ ------- ----- ------ ------
Earnings (loss) before income taxes...... (635) 1,616 (1,119) (334) (677) 305
Income taxes................................. -- (602) 33 (15) -- (116)
------ ------ ------- ----- ------ ------
Net earnings (loss).................... $ (635) $1,014 $(1,086) $(349) $ (677) $ 189
====== ====== ======= ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
INTERNET NATIONAL
ENGINEERING STRUCTURED KNOWLEDGE
ASSOCIATES, NETWORK ACCESSONE, NETWORKS, LI
INC. SYSTEMS, INC. INC. INC. NET, INC. TOTAL
---------------- ------------- ---------- -------------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Internet connectivity.................... $ 831 $ 859 $2,484 $1,169 $1,907 $32,887
Enhanced services and other.............. 303 27 1,035 234 120 11,340
------ ----- ------ ------ ------ -------
Total revenue........................ 1,134 886 3,519 1,403 2,027 44,227
Operating costs and expenses:
Internet services operating costs........ 323 473 1,510 669 792 19,338
Selling, general and administrative and
other.................................. 678 511 2,251 1,282 1,573 28,411
Depreciation and amortization............ 63 -- 245 55 135 2,524
------ ----- ------ ------ ------ -------
Total costs and expenses............. 1,064 984 4,006 2,006 2,500 50,273
------ ----- ------ ------ ------ -------
Earnings (loss) from operations........ 70 (98) (487) (603) (473) (6,046)
Interest income............................ 14 -- -- 6 -- 56
Interest expense........................... -- (17) (26) (26) (39) (458)
------ ----- ------ ------ ------ -------
Earnings (loss) before income taxes.... 84 (115) (513) (623) (512) (6,448)
Income taxes............................... (29) -- -- (3) -- (1,076)
------ ----- ------ ------ ------ -------
Net earnings (loss).................. $ 55 $(115) $ (513) $ (626) $ (512) $(7,524)
====== ===== ====== ====== ====== =======
</TABLE>
F-11
<PAGE> 94
VERIO INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Historical condensed statement of operations information for the Proposed
Acquisitions for the year ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
FLORIDA MATRIX
INTERNET ONLINE WORLDWIDE STARNET,
YEAR ENDED DECEMBER 31, 1997 CORPORATION MEDIA, INC. ACCESS L.L.C. TOTAL
- ---------------------------- ----------- ----------- --------- -------- ------
<S> <C> <C> <C> <C> <C>
Revenue:
Internet connectivity.................... $1,172 $1,094 $3,322 $1,202 $6,790
Enhanced services and other.............. 264 233 758 399 1,654
------ ------ ------ ------ ------
Total revenue.................... $1,436 $1,327 $4,080 $1,601 $8,444
------ ------ ------ ------ ------
Operating costs and expenses:
Internet services operating costs........ 773 393 1,026 717 2,909
Selling, general and administrative and
other................................. 578 787 2,341 570 4,276
Depreciation and amortization............ 121 127 329 156 733
------ ------ ------ ------ ------
Total costs and expenses......... 1,472 1,307 3,696 1,443 7,918
------ ------ ------ ------ ------
Earnings (loss) from
operations.......................... (36) 20 384 158 526
Interest Income............................ -- 2 -- 9 11
Interest Expense........................... (12) (19) (96) (6) (133)
------ ------ ------ ------ ------
Earnings (loss) before income taxes... (48) 3 288 161 404
Income taxes............................... -- -- (110) (61) (171)
------ ------ ------ ------ ------
Net earnings (loss).............. $ (48) $ 3 $ 178 $ 100 $ 233
====== ====== ====== ====== ======
</TABLE>
F-12
<PAGE> 95
VERIO INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(D) PRO FORMA ADJUSTMENTS
The following pro forma adjustments have been made to the condensed
combined balance sheet as of December 31, 1997 and the condensed combined
statement of operations for the year ended December 31, 1997. The purchase
accounting adjustments relating to the acquisitions completed prior to January
1, 1998 are included in the historical consolidated balance sheet of Verio as of
December 31, 1997.
(1) To reflect cash and 1,704,000 shares of preferred stock, which is
the approximate number of shares issued and proposed to be issued in
connection with the Completed and Proposed Acquisitions subsequent to
December 31, 1997, and the allocation of excess purchase price to goodwill
in the amount of $69,025,000 and to adjust investments in affiliates for
the proposed acquisitions of majority interests. Preferred shares issued
for acquisitions were recorded at fair value as determined by the Company's
Board of Directors and based on other third-party issuances of Company
securities. In the opinion of management, the historical balances of all
other assets acquired and liabilities assumed approximate fair value.
(2) To eliminate equity accounts of the Proposed Acquisitions.
(3) To eliminate intercompany revenue, expenses, receivables and
payables.
(4) To adjust amortization expense due to increase in carrying value
of goodwill, using a ten-year life, including additional amortization
expense related to consolidated acquisitions completed during 1997, as if
such acquisitions had been completed as of January 1, 1997.
(5) To eliminate minority interests share of equity and operations and
equity in losses of affiliates upon acquisition of 100% ownership
interests.
(6) To eliminate income tax expense or benefit of acquired businesses
due to consolidated net operating loss for the year ended December 31,
1997.
(7) To reflect the conversion of all preferred shares into common
stock upon completion of the Offering.
(8) To reflect the conversion of 20,945,667 shares of preferred stock
into common stock upon completion of the Offering, including 1,704,000
shares of preferred stock assumed to be issued and converted to common
stock subsequent to December 31, 1997.
F-13
<PAGE> 96
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying consolidated balance sheets of Verio Inc.
and subsidiaries as of December 31, 1996 and 1997, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the period
from inception (March 1, 1996) to December 31, 1996 and the year ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Verio Inc.
and subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for the period from inception (March 1, 1996) to
December 31, 1996 and the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
February 25, 1998
F-14
<PAGE> 97
VERIO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------- DECEMBER 31,
1996 1997 1997(1)
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 66,467 $ 72,586
Restricted cash and securities (notes 3 and 4)............ -- 21,015
Receivables:
Trade, net of allowance for doubtful accounts of $117
and $1,233............................................. 611 7,565
Affiliates.............................................. 119 735
Prepaid expenses and other................................ 410 3,921
-------- --------
Total current assets................................ 67,607 105,822
Restricted cash and securities (notes 3 and 4).............. -- 19,539
Investments in affiliates, at cost (note 2)................. 1,536 2,378
Equipment and leasehold improvements:
Internet access and computer equipment.................... 4,485 30,535
Furniture, fixtures and computer software................. 220 3,301
Leasehold improvements.................................... 141 1,596
-------- --------
4,846 35,432
Less accumulated depreciation and amortization............ (359) (7,219)
-------- --------
Net equipment and leasehold improvements............ 4,487 28,213
Other assets:
Goodwill, net of accumulated amortization of $303 and
$3,595 (note 2)......................................... 8,736 83,216
Debt issuance costs, net of accumulated amortization of
$330.................................................... -- 4,858
Organization costs and other, net......................... 262 2,445
-------- --------
Total assets........................................ $ 82,628 $246,471
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 2,132 $ 7,389
Accrued expenses.......................................... 931 11,401
Accrued interest payable.................................. -- 844
Accrued preferred stock issuance costs.................... 1,110 --
Lines of credit, notes payable and current portion of
long-term debt (note 3)................................. 2,573 2,751
Current portion of capital lease obligations (note 4)..... 64 1,575
Deferred revenue.......................................... 659 7,177
-------- --------
Total current liabilities........................... 7,469 31,137
Long-term debt, less current portion, net of discount (note
3)........................................................ 20 139,376
Capital lease obligations, less current portion (note 4).... 86 2,945
-------- --------
Total liabilities................................... 7,575 173,458
-------- --------
Minority interests in subsidiaries (note 2)................. 2,231 2,765
Redeemable preferred stock (note 5):
Series A, convertible, $.001 par value. 6,100,000 shares
authorized, 6,033,333 shares issued and outstanding at
December 31, 1996 and 1997. Liquidation preference of
$18,100................................................. 18,078 18,080 --
Series B, convertible, $.001 par value. 10,117,000 shares
authorized 10,000,000 and 10,028,334 shares issued and
outstanding at December 31, 1996 and 1997. Liquidation
preference of $60,170................................... 58,799 59,193 --
Series C, convertible, $.001 par value. 2,500,000 shares
authorized, issued and outstanding at December 31, 1997.
Liquidation preference of $20,000....................... -- 19,976 --
-------- -------- --------
76,877 97,249 --
-------- -------- --------
Stockholders' equity (deficit) (note 6):
Preferred stock, Series D-1, convertible, $.001 par value.
3,000,000 shares authorized, 680,000 shares issued and
outstanding at December 31, 1997. Liquidation preference
of $10,200 (note 5)..................................... -- 10,200 --
Common stock, $.001 par value; 35,133,000 shares
authorized; 1,090,000 and 1,254,533 shares issued and
outstanding at December 31, 1996 and 1997 (20,496,200
shares pro forma)....................................... 1 1 20
Additional paid-in capital................................ 1,089 14,272 121,702
Accumulated deficit....................................... (5,145) (51,474) (51,474)
-------- -------- --------
Total stockholders' equity (deficit)................ (4,055) (27,001) 70,248
-------- -------- --------
Commitments (notes 2, 4 and 5)
Total liabilities and stockholders' deficit......... $ 82,628 $246,471
======== ========
</TABLE>
- ---------------
(1) Reflects the conversion of all preferred shares into common stock on the
basis described in Note 5, only upon completion of the offering described in
the registration statement.
See accompanying notes to consolidated financial statements.
F-15
<PAGE> 98
VERIO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR
(MARCH 1, 1996) ENDED
TO DECEMBER 31, DECEMBER 31,
1996 1997
----------------- ------------
<S> <C> <C>
Revenue:
Internet connectivity:
Dedicated.............................................. $ 1,100 $ 16,383
Dial-up................................................ 1,139 7,093
Enhanced services and other............................... 126 12,216
------- --------
Total revenue..................................... 2,365 35,692
Costs and expenses:
Internet services operating costs......................... 974 15,974
Selling, general and administrative and other............. 7,002 49,383
Depreciation and amortization............................. 669 10,624
------- --------
Total costs and expenses.......................... 8,645 75,981
------- --------
Loss from operations.............................. (6,280) (40,289)
Other income (expense):
Interest income........................................... 593 6,080
Interest expense.......................................... (115) (11,826)
Equity in losses of affiliates............................ -- (1,958)
------- --------
Loss before minority interests.................... (5,802) (47,993)
Minority interests.......................................... 680 1,924
------- --------
Net loss.......................................... (5,122) (46,069)
Accretion of preferred stock to liquidation value........... (23) (260)
------- --------
Net loss attributable to common shareholders...... $(5,145) $(46,329)
======= ========
Loss per common share -- basic and diluted.................. $ (5.29) $ (40.47)
======= ========
Weighted average number of common shares outstanding --basic
and diluted............................................... 971,748 1,144,685
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE> 99
VERIO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
PREFERRED ------------------ PAID-IN ACCUMULATED
STOCK SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- --------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT INCEPTION................ $ -- -- $-- $ -- $ -- $ --
Issuance of common stock for cash.... -- 1,090,000 1 1,089 -- 1,090
Accretion of preferred stock to
liquidation value.................. -- -- -- -- (23) (23)
Net loss............................. -- -- -- -- (5,122) (5,122)
------- --------- --- ------- -------- --------
BALANCES AT DECEMBER 31, 1996........ -- 1,090,000 1 1,089 (5,145) (4,055)
Issuance of common stock for exercise
of options......................... -- 76,200 148 -- 148
Issuance of common stock for cash.... -- 88,333 360 -- 360
Warrants issued in connection with
debt offering (note 3)............. -- -- -- 12,675 -- 12,675
Issuance of preferred stock in
business combination (note 5)...... 10,200 -- -- -- -- 10,200
Accretion of redeemable preferred
stock to liquidation value......... -- -- -- (260) (260)
Net loss............................. -- -- -- (46,069) (46,069)
------- --------- --- ------- -------- --------
BALANCES AT DECEMBER 31, 1997........ $10,200 1,254,533 $ 1 $14,272 $(51,474) $(27,001)
======= ========= === ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 100
VERIO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION YEAR
(MARCH 1, 1996) ENDED
TO DECEMBER 31, DECEMBER 31,
1996 1997
--------------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(5,122) $(46,069)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization.......................... 669 10,624
Minority interests' share of losses.................... (680) (1,924)
Equity in losses of affiliates......................... -- 1,958
Changes in operating assets and liabilities, excluding
effects of business combinations:
Receivables.......................................... (265) (1,561)
Prepaid expenses and other current assets............ (284) (2,305)
Accounts payable..................................... 1,439 (1,656)
Accrued expenses..................................... 1,910 3,082
Accrued interest payable............................. -- 844
Deferred revenue..................................... 7 1,684
------- --------
Net cash used by operating activities............. (2,326) (35,323)
------- --------
Cash flows from investing activities:
Acquisition of equipment and leasehold improvements....... (3,430) (14,547)
Acquisition of net assets in business combinations and
investments in affiliates, net of cash acquired........ (5,627) (64,023)
Restricted cash and securities............................ (40,554)
Other..................................................... (66) (1,206)
------- --------
Net cash used by investing activities............. (9,123) (120,330)
------- --------
Cash flows from financing activities:
Proceeds from lines of credit, notes payable and long-term
debt................................................... -- 145,512
Repayments of lines of credit and notes payable........... (20) (3,468)
Repayments of capital lease obligations................... (8) (950)
Proceeds from issuance of common and preferred stock, net
of issuance costs...................................... 77,944 20,678
------- --------
Net cash provided by financing activities......... 77,916 161,772
------- --------
Net increase in cash and cash equivalents......... 66,467 6,119
Cash and cash equivalents:
Beginning of period....................................... -- 66,467
------- --------
End of period............................................. $66,467 $ 72,586
======= ========
Supplemental disclosures of cash flow information:
Cash paid for interest.................................... $ -- $ 10,982
======= ========
Equipment acquired through capital lease obligations...... $ 58 $ 3,301
======= ========
Acquisition of net assets in business combination through
issuance of notes payable.............................. $ 6,675 $ 4,718
======= ========
Acquisition of net assets in business combination through
issuance of preferred stock............................ $ -- $ 10,200
======= ========
Warrants issued in connection with debt offering.......... $ -- $ 12,675
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 101
VERIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Basis of Presentation
Verio Inc. (Verio or the Company) was incorporated on March 1, 1996 to
capitalize on the growing demand for Internet access and enhanced services by
business users through the acquisition, integration, and growth of existing
independent Internet service providers with a business customer focus in
targeted geographic regions. The goal of the Company is to be the dominant,
full-service national provider of Internet connectivity and enhanced Internet
services to small and medium sized businesses. The Company commenced operations
in April 1996 and had no activity other than the sale of common stock to
founders prior to April 1, 1996.
The accompanying consolidated financial statements include the accounts of
Verio and its majority owned subsidiaries, as described in Note 2. All
significant intercompany balances and transactions have been eliminated in
consolidation. The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
(b) Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. Included in cash
equivalents as of December 31, 1996 and December 31, 1997 are U.S. government,
municipal and corporate debt securities, money market accounts and commercial
paper, totaling $61,769,000 and $75,442,000 (exclusive of cash overdraft in the
amount of $11,228,000), respectively, with maturities ranging from thirty to
ninety days.
Restricted cash and securities include U.S. government securities which are
classified as securities held to maturity and recorded at cost. At December 31,
1997, cost approximated market value.
(c) Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost. Depreciation is
provided over the estimated useful lives of the assets ranging from 3 to 5 years
using the straight-line method. Leasehold improvements are amortized over the
shorter of the lease term or the estimated useful life of the asset.
(d) Investments in Affiliates and Consolidation of Subsidiaries
Investments in affiliates represent newly issued preferred shares of
various affiliates. The preferred shares are convertible at the option of the
Company into common shares on a one-for-one basis and represent future common
stock ownership interests, upon conversion, of less than 50%. As the Company did
not acquire a common stock ownership interest, these investments are recorded at
cost until such time as the preferred shares are converted to common. In
addition, if these entities incur losses resulting in the equity of the common
shareholders being reduced to zero, the Company will utilize the equity method
of accounting for these investments and will generally recognize 100% of all
losses of the affiliates from that date, up to the amount of the Company's
investment, based on the inability of the majority common shareholders to fund
additional losses. During the year ended December 31, 1997, the Company
recognized equity in losses of affiliates of $1,958,000 under this method of
accounting.
The Company has also acquired preferred shares in certain entities which
are convertible into future common stock ownership interests of greater than
50%. In these situations, the Company has majority representation on the Board
of Directors and majority voting rights, exercises significant control over the
F-19
<PAGE> 102
VERIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
entities' operations, and intends to acquire a 100% common ownership interest in
the future. Accordingly, the accounts of these investees have been consolidated
with those of the Company in the accompanying consolidated financial statements
from the dates of acquisition (see note 2).
(e) Other Assets
The excess of cost over the fair value of net assets acquired, or goodwill,
is amortized using the straight-line method over a 10-year period. Other
intangibles are amortized using the straight-line method over periods ranging
from three to seven years.
(f) Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lives Assets to be Disposed
Of (SFAS 121). SFAS 121 requires impairment losses to be recorded on long-lived
assets used in operations, including goodwill, when indications of impairment
are present and the undiscounted future cash flows estimated to be generated by
those assets are less than the assets' carrying amount. In addition, the
recoverability of goodwill is further evaluated under the provisions of APB
Opinion No. 17, Intangible Assets, based upon undiscounted cash flows. If such
assets are impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds the estimated fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
value or fair value, less costs to sell.
(g) Revenue Recognition
Revenue related to Internet services is recognized as the services are
provided, and deferred and amortized to operations for amounts billed relating
to future periods. Installation and customer set-up fees are recognized upon
completion of the services. Revenue from consulting services is recognized as
the services are provided. Revenue from hardware and software sales is
recognized upon shipment of the respective products.
(h) Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109).
SFAS 109 requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the difference is expected to reverse.
(i) Stock-Based Compensation
The Company accounts for its stock-based employee compensation plans using
the intrinsic value based method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations (APB 25). The Company has provided pro forma disclosures of net
loss and loss per share as if the fair value based method of accounting for the
plans, as prescribed by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123), had been applied. Pro forma
disclosures include the effects of employee stock options granted during the
period and year ended December 31, 1996 and 1997.
F-20
<PAGE> 103
VERIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) Loss Per Share
Loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share, (SFAS 128). SFAS
128 replaced the presentation of primary and fully diluted earnings (loss) per
share (EPS), with a presentation of basic EPS and diluted EPS. Under SFAS 128,
basic EPS excludes dilution for common stock equivalents and is computed by
dividing income or loss available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock and resulted in the
issuance of common stock. Basic and diluted EPS are the same in 1996 and 1997,
and all common stock equivalents are antidilutive.
(2) BUSINESS COMBINATIONS AND INVESTMENTS IN AFFILIATES
During the period from inception (March 1, 1996) to December 31, 1996, the
Company completed seven business combinations and investments for cash and notes
payable. All of the acquisitions were accounted for using the purchase method of
accounting or at cost. For those businesses acquired and consolidated, the
results of operations for the acquired businesses are included in the Company's
consolidated statement of operations from the dates of acquisition. Summary
information regarding the business combinations is as follows:
Consolidated acquisitions in 1996:
<TABLE>
<CAPTION>
OWNERSHIP
INTEREST TOTAL OWNERSHIP INTEREST AT
BUSINESS NAME ACQUISITION DATE PURCHASED(A) DECEMBER 31, 1996(A)
------------- ---------------- ------------ ---------------------------
<S> <C> <C> <C>
On-Ramp Technologies, Inc.... August 1, 1996 51%
October 4, 1996 4% 55%(b)
RAINet, Inc.................. August 2, 1996 100% 100%(c)
CCnet Inc.................... December 19, 1996 100% 100%(c)
</TABLE>
The aggregate purchase price, including acquisition costs of $284,000, was
allocated based upon fair value as follows:
<TABLE>
<S> <C>
Equipment....................................... $ 1,359,000
Goodwill........................................ 9,039,000
Net current assets.............................. 2,461,000
-----------
Total purchase price.................. $12,859,000
===========
</TABLE>
Unconsolidated investments in 1996:
<TABLE>
<CAPTION>
OWNERSHIP TOTAL OWNERSHIP
INTEREST INTEREST AT
BUSINESS NAME ACQUISITION DATE PURCHASED(A) DECEMBER 31, 1996(A)
------------- ---------------- ------------ --------------------
<S> <C> <C> <C>
West Coast Online, Inc.......... July 26, 1996 20% 20%(b)
National Knowledge Networks,
Inc........................... August 2, 1996 26% 26%(b)
Access One, Inc................. December 12, 1996 20% 20%(b)
Signet Partners, Inc............ December 19, 1996 25% 25%(b)
</TABLE>
The aggregate purchase price of the above investments, including acquisition
costs of $102,000, was $1,536,000.
F-21
<PAGE> 104
VERIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the year ended December 31, 1997, the Company completed 23 business
combinations and investments for cash, notes payable and preferred stock. All of
the acquisitions were accounted for using the purchase method of accounting or
at cost. For those businesses acquired and consolidated, the results of
operations for the acquired businesses are included in the Company's
consolidated statement of operations from the dates of acquisition. Seventeen
subsidiaries were acquired and newly consolidated during 1997. In addition, the
Company formed two new start-up subsidiaries. Summary information regarding
these acquisitions is as follows:
Consolidated acquisitions in 1997:
<TABLE>
<CAPTION>
OWNERSHIP TOTAL OWNERSHIP
INTEREST INTEREST AT
BUSINESS NAME ACQUISITION DATE PURCHASED(A) DECEMBER 31, 1997(A)
------------- ---------------- ------------ --------------------
<S> <C> <C> <C>
Global Enterprise
Services -- Network Division.... January 17, 1997 100% 100%(d)
Pioneer Global Telecommunications,
Inc. ........................... February 6, 1997 100% 100%(c)
Compute Intensive Inc. ........... February 18, 1997 55% 55%(b)
NorthWestNet, Inc. ............... February 28, 1997 85% 85%(c)
RUSTnet, Inc. .................... March 14, 1997 100% 100%(c)
Aimnet Corporation ............... May 19, 1997 55%
September 22, 1997 45% 100%(c)
Branch Information Services,
Inc. ........................... September 17, 1997 100% 100%(c)
West Coast Online, Inc. .......... April 29, 1997 12%
September 30, 1997 68% 100%(b)
Communique, Inc. ................. October 2, 1997 100% 100%(c)
Clark Internet Services, Inc. .... October 17, 1997 51% 51%(b)
ATMnet, Inc. ..................... November 5, 1997 100% 100%(d)
Global Internet Network Services,
Inc. ........................... December 1, 1997 100% 100%(c)
Surf Network, Inc. ............... January 31, 1997 25%
December 22, 1997 75% 100%(b)
PREPnet........................... December 24, 1997 100% 100%(d)
Service Tech, Inc. ............... August 1, 1997 40%
December 31, 1997 60% 100%(b)
Monumental Network Systems,
Inc. ........................... December 31, 1997 100% 100%(c)
Internet Servers, Inc. ........... December 31, 1997 100% 100%(c)
</TABLE>
The aggregate purchase price, including acquisition costs of $3,396,000 was
allocated based upon fair values as follows:
<TABLE>
<S> <C>
Equipment...................................... $ 12,378,000
Goodwill....................................... 77,772,000
Net current liabilities........................ (9,452,000)
------------
Total purchase price................. $ 80,698,000
============
</TABLE>
F-22
<PAGE> 105
VERIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unconsolidated investments in 1997:
<TABLE>
<CAPTION>
OWNERSHIP TOTAL OWNERSHIP
INTEREST INTEREST AT
BUSINESS NAME ACQUISITION DATE PURCHASED(A) DECEMBER 31, 1997(A)
------------- ---------------- ------------ --------------------
<S> <C> <C> <C>
Pacific Rim Network, Inc........ February 4, 1997 27% 27%(b)
Internet Engineering Associates,
Inc........................... March 4, 1997 20% 20%(b)
Internet Online, Inc............ March 5, 1997 35% 35%(b)
Structured Network Systems,
Inc........................... March 6, 1997 20% 20%(b)
National Knowledge Networks,
Inc........................... November 7, 1997 15% 41%(b)
Signet Partners, Inc............ November 20, 1997 16% 41%(b)
</TABLE>
The aggregate purchase price of the above investments, including acquisition
costs of $253,000, was $2,822,000.
- ---------------
(a) Represents existing ownership interest or, in the case of investments in
preferred stock, ownership upon conversion of preferred shares to common,
on a fully diluted basis.
(b) Represents ownership of preferred stock of affiliate or subsidiary.
(c) Represents ownership of common stock of affiliate or subsidiary.
(d) Represents acquisition of net assets.
The following unaudited condensed pro forma information presents the
unaudited results of operations of the Company as if the above consolidated
acquisitions had occurred on January 1, 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997
---------- ----------
(AMOUNTS IN THOUSANDS,
EXCEPT FOR PER SHARE DATA)
<S> <C> <C>
Revenue..................................................... $ 44,693 $ 63,665
Net loss.................................................... (33,326) (59,006)
Net loss attributable to common shareholders................ (33,349) (59,266)
Loss per common share -- basic and diluted.................. $ (34.32) $ (51.77)
</TABLE>
The pro forma results do not necessarily represent results that would have
occurred if the consolidated acquisitions had taken place as of January 1, 1996,
nor are they necessarily indicative of the results of future operations.
For all of its less-than-100%-owned ISP affiliates, the Company has the
option to acquire all of the remaining ownership interests. Generally, the
option may be exercised beginning one year from the date of the initial
investment or upon the earlier of the completion of an initial public offering
of common stock by the Company or a significant strategic investment in the
Company. In one case, the Company's option becomes mandatorily exercisable upon
completion of an initial public offering.
Subsequent to December 31, 1997 and through February 25, 1998, the Company
has completed or expects to complete the acquisition of the remaining ownership
interests and acquisitions of 12 ISPs, for total consideration of approximately
$50 million in preferred stock and cash.
F-23
<PAGE> 106
VERIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) DEBT
Lines of credit, notes payable and long-term debt consists of the following
as of December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
--------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
13.5% Senior Notes due in 2004, net of unamortized discount
of $12,130,136(a)......................................... $ -- $137,870
Revolving lines of credit, bearing interest at .5% to 2.00%
above prime, (9.0% to 10.5% at December 31, 1997) due
primarily on demand, secured by restricted cash of
$765,000.................................................. -- 788
Unsecured notes payable bearing interest primarily at 7%,
due in 1998 and 1999...................................... 2,500 2,809
Other....................................................... 93 660
------- --------
2,593 142,127
Less current portion........................................ (2,573) (2,751)
------- --------
Long-term debt, less current portion.............. $ 20 $139,376
======= ========
</TABLE>
- ---------------
(a) In June 1997, the Company completed a debt offering of $150,000,000, 13.5%
Senior Notes due 2004 (the "1997 Notes") and warrants to purchase 2,112,480
shares of common stock at $.01 per share, which were valued at
approximately $12,675,000 based on the Company's most recent equity
offering. Interest on the 1997 Notes is payable semi-annually on June 15
and December 15 of each year. The value attributed to the warrants has been
recorded as debt discount and is being amortized to interest expense using
the interest method over the term of the 1997 Notes. Upon closing, the
Company deposited U.S. Treasury securities in an escrow account in an
amount that, together with interest on the securities, will be sufficient
to fund the first five interest payments (through December 1999) on the
1997 Notes. This restricted cash and securities balance totaled $38,195,404
at December 31, 1997. The 1997 Notes are redeemable on or after June 15,
2002 at 103% of the face value.
The indenture covering the 1997 Notes includes various covenants
restricting the payment of dividends, additional indebtedness, disposition of
assets, and transactions with affiliates.
Maturities of lines of credit, notes payable and long-term debt are as
follows:
<TABLE>
<S> <C>
1998.............................................. $ 2,751
1999.............................................. 1,032
2000.............................................. 474
2001.............................................. --
2002.............................................. --
Thereafter........................................ 137,870
--------
$142,127
========
</TABLE>
As of February 25, 1998, Verio had received commitments from a group of
commercial lending institutions to provide an aggregate of up to $57.5 million
pursuant to a two-year revolving credit financing facility. The Company is in
the process of negotiating the definitive terms and conditions and final
documentation for this facility. Chase Manhattan Bank has committed to serve as
agent for the lenders in this facility. In addition, the Company is considering
a possible private placement of up to $100 million in senior
F-24
<PAGE> 107
VERIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
notes. There can be no assurance that the Company will be able to negotiate
final terms and conditions that are acceptable to the Company with respect to,
or to consummate, either of such financing efforts.
(4) LEASES AND COMMITMENTS
The Company leases office space, certain facilities storing internet points
of presence and certain computer and office equipment under capital and
operating leases expiring at various dates through 2003. Future minimum annual
lease payments under these leases as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
1998........................................................ $ 2,279 $ 5,786
1999........................................................ 1,840 5,178
2000........................................................ 1,128 3,485
2001........................................................ 42 1,393
2002........................................................ 9 487
Thereafter.................................................. -- 172
------- -------
Total minimum payments............................ $ 5,298 $16,501
=======
Less amount representing interest........................... (778)
-------
Present value of net minimum lease payments....... 4,520
Less current portion........................................ (1,575)
-------
$ 2,945
=======
</TABLE>
Rent expense for the period from inception (March 31, 1996) to December 31,
1996 and the year ended December 31, 1997 was $128,000 and $1,856,000,
respectively.
In addition, the Company has entered into agreements with two
telecommunications companies to provide the Company with products and services
to be used in its operations. Under one agreement, the minimum payments as of
December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998................................................ $1,200
1999................................................ 1,900
2000................................................ 2,400
2001................................................ 800
------
Total minimum payments.................... $6,300
======
</TABLE>
Under the second agreement, the Company is obligated to spend a total of
$39 million between June 16, 1997 and June 16, 2002 of which $1,500,000 had been
paid as of December 31, 1997. Annual payments will be based on actual usage by
the Company.
The Company had an outstanding irrevocable letter of credit in the amount
of $1.1 million as of December 31, 1997. This letter of credit, which is
automatically renewed after one year at the discretion of the bank, not to be
extended beyond January 31, 2003, is to collateralize the Company's lease
obligation to a third party. The fair value of this letter of credit
approximates contract value which is fixed over the life of the commitment.
Restricted cash in the amount of $1,400,000 secures the letter of credit.
(5) PREFERRED STOCK
Series A, B and C preferred shares were issued in 1996 and 1997 at $3, $6
and $8 per share, respectively, for total proceeds of $18,100,001, $60,170,004
and $20,000,000, respectively, and are convertible into common
F-25
<PAGE> 108
VERIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock initially on a one-for-one basis. In December 1997, the Company also
issued 680,000 shares of Series D-1 preferred shares at $15 per share in
connection with an acquisition. The preferred shares are entitled to receive
dividends equal, on an as-converted basis, to any amount paid to common
stockholders. In the event of any liquidation or dissolution of the Company,
including certain mergers, consolidations and asset sales, holders of the
preferred shares are entitled to receive an amount equal to the original
issuance price, plus any declared and unpaid dividends.
In addition, the Series A, B and C preferred shares are subject to
mandatory redemption, in total, by the Company in October 2004. The Series D-1
preferred shares are not redeemable. Upon redemption, the Series C shares are
senior to Series B shares, which are senior to Series A shares, on the basis
provided in the preferred stock terms. Series A, B, C and D-1 preferred shares
may be converted into shares of common stock at any time at the option of the
holder. The Series A, B, C and D-1 preferred shares are also subject to
mandatory conversion upon consummation of a public offering of common stock
resulting in proceeds to the Company of not less than $30 million and at an
offering price per share equal to at least $15. In addition, shares of Series
D-1 preferred stock are subject to mandatory conversion upon the election of
each of the Series A, B and C classes, each voting as a separate class, to
convert to common.
(6) STOCK-BASED COMPENSATION PLANS
The Company has established Incentive Stock Option Plans (the Plans)
whereby, at the discretion of the Board of Directors (the Board), the Company
may grant stock options to employees of the Company and its controlled
subsidiaries. As of December 31, 1997, the Company had reserved 2,750,000 shares
for issuance under the Plans. The Plans were amended in February 1998 to
increase the number of shares reserved for issuance to 3,750,000. The option
price is determined by the Board at the time the option is granted, but in no
event is less than the fair market value of the Company's common stock at the
date of grant, as determined by the Board. As of December 31, 1996 and December
31, 1997, options had been granted entitling the holders to purchase 707,200 and
2,237,050 shares of the Company's common stock, respectively, at exercise prices
of $1, $3, $6, $6.75 and $8.50 per share. Options granted on or before December
19, 1997, vest over a five year period, and expire ten years from the date of
grant. Options granted December 20, 1997, or later, vest over a four year
period, and expire eight years from the date of grant. In certain circumstances,
options vest earlier or later based upon the fair value of the Company's common
shares or upon reaching certain performance targets, as defined, and in the case
that such performance targets are not met, such performance-based options vest
seven years from the date of grant. Performance based options granted on or
before December 19, 1997, expire ten years from the date of grant, and
performance based options granted December 20, 1997, or later, expire eight
years from the date of grant. As of December 31, 1997, 54,700 options, in total,
were vested and exercisable. Options may be exercised prior to their scheduled
vesting date, but are subject to a repurchase by the Company at the exercise
price until the scheduled vesting date. The weighted average contractual term of
outstanding options was approximately 5 years at December 31, 1997.
F-26
<PAGE> 109
VERIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes option activity for the period from
inception (March 1, 1996) through December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Options granted at the following exercise prices:
$1 per share.............................................. 60,000
$3 per share.............................................. 647,700
---------
Options outstanding at December 31, 1996.................. 707,700 $2.83
Options granted at the following exercise prices:
$3 per share.............................................. 6,000
$6 per share.............................................. 924,550
$6.75 per share........................................... 635,450
$8.50 per share........................................... 191,250
Options forfeited......................................... (151,700) $5.95
Options exercised......................................... (76,200) $1.95
--------- -----
Options outstanding at December 31, 1997.................... 2,237,050 $5.55
========= =====
</TABLE>
As discussed in Note 1, the Company applies APB Opinion 25 and related
interpretations in accounting for its stock compensation plan. Accordingly,
since the Company grants stock options with exercise prices equal to fair value
at the date of grant, no compensation expense has been recognized relating to
option grants in 1996 and 1997. During the period and year ended December 31,
1996 and 1997, the per share weighted-average fair value of stock options
granted was $.46 and $1.08, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: no dividends or volatility, risk-free interest rate of 6%, and
expected life of three years. If the Company had recorded compensation expense
for the period and year ended December 31, 1996 and 1997, based on the fair
value of the options at the grant date under SFAS No. 123, net loss available to
common stockholders would increase to $5,210,000 and $46,737,000, respectively,
and basic and diluted net loss per common share would increase to $4.78 and
$40.83, respectively.
(7) INCOME TAXES
At December 31, 1997, the Company has a net operating loss carryforward for
federal income tax purposes of approximately $49.9 million, of which $5.9
million and $44.0 million is available to offset future federal taxable income,
if any, through 2011 and 2012, respectively. As a result of various preferred
stock transactions during 1996 and 1997, management believes the Company has
undergone an "ownership change" as defined by section 382 of the Internal
Revenue Code. Accordingly, the utilization of a portion of the net operating
loss carryforward may be limited. Due to this limitation, and the uncertainty
regarding the ultimate utilization of the net operating loss carryforward, no
tax benefit for losses has been recorded by the Company in 1996 and 1997, and a
valuation allowance has been recorded for the entire amount of the deferred tax
asset relating to the net operating loss carryforward of $18.6 million. Net
other temporary differences relating to differences in the carrying amounts of
assets and liabilities for financial statement and income tax purposes are not
significant.
(8) CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
accounts receivable. As of December 31, 1996 and 1997, the Company had no
concentrations of credit risk. Concentrations of credit risk with respect to
trade receivables are limited
F-27
<PAGE> 110
VERIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
due to the large number of customers comprising the Company's customer base and
the relatively minor balances of each individual account. At December 31, 1996
and December 31, 1997, the fair value, of the Company's financial instruments
approximate their carrying value, based on their terms and interest rates.
(9) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Plan (the Plan) for all full time employees of the
Company. The Company may make discretionary contributions to the Plan on behalf
of employees that meet certain contribution eligibility requirements defined
under the terms of the Plan. The Company did not make any contributions to the
Plan during 1996 or 1997.
(10) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summary quarterly financial information for the Company is as follows. The
second quarter of 1996 represents the period from inception (March 1, 1996) to
March 31, 1996 (Amounts in Thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
1996 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
---- -------- ------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Revenue.................................. $ -- $ -- $ 678 $ 1,687 $ 2,365
Loss from operations..................... -- (329) (1,395) (4,556) (6,280)
Net loss................................. -- (329) (1,442) (3,374) (5,145)
Loss per common share -- basic and
diluted................................ -- (0.34) (1.48) (3.47) (5.29)
</TABLE>
<TABLE>
<CAPTION>
1997 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
---- -------- ------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Revenue.................................. $ 4,414 $ 8,249 $ 9,624 $ 13,405 $ 35,692
Loss from operations..................... (5,592) (8,854) (10,741) (15,102) (40,289)
Net loss................................. (4,677) (8,120) (12,762) (20,770) (46,329)
Loss per common share -- basic and
diluted................................ (4.29) (7.28) (10.84) (18.06) (40.47)
</TABLE>
F-28
<PAGE> 111
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying balance sheet of On-Ramp Technologies,
Inc. as of July 31, 1996, and the related statements of operations,
stockholders' deficit, and cash flows for the nine months then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of On-Ramp Technologies, Inc.
as of July 31, 1996, and the results of its operations and its cash flows for
the nine months then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
April 11, 1997
F-29
<PAGE> 112
ON-RAMP TECHNOLOGIES, INC.
BALANCE SHEET
JULY 31, 1996
ASSETS
<TABLE>
<S> <C>
Current assets:
Trade receivables, net of allowance for doubtful accounts
of $80,812............................................. $ 433,075
Prepaid expenses and other................................ 25,079
-----------
Total current assets.............................. 458,154
Equipment, net (note 2)..................................... 867,388
-----------
Total assets...................................... $ 1,325,542
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Cash overdraft............................................ $ 91,342
Accounts payable.......................................... 448,460
Accrued liabilities....................................... 61,750
Current portion of note payable (note 3).................. 55,003
Deferred revenue.......................................... 652,965
-----------
Total current liabilities......................... 1,309,520
Note payable, less current portion (note 3)................. 58,692
-----------
Total liabilities................................. 1,368,212
-----------
Stockholders' equity (deficit) (note 5):
Common stock, $0.001 par value, 40,000,000 shares
authorized, 1,079,000 shares issued.................... 1,079
Additional paid-in capital................................ 1,804,871
Accumulated deficit....................................... (1,822,620)
Treasury stock -- 689,971 shares at cost.................. (26,000)
-----------
Total stockholders' deficit....................... (42,670)
-----------
Commitments and contingencies (note 4):
Total liabilities and stockholders' deficit....... $ 1,325,542
===========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE> 113
ON-RAMP TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
NINE MONTHS ENDED JULY 31, 1996
<TABLE>
<S> <C>
Revenue:
Internet services......................................... $2,959,650
Computer hardware and software sales...................... 312,487
Consulting services....................................... 92,881
----------
Total revenue..................................... 3,365,018
----------
Cost and expenses:
Internet services operating costs......................... 606,249
Cost of hardware and software sales....................... 249,990
Selling, general and administrative....................... 2,210,706
Provision for bad debts................................... 497,742
Depreciation.............................................. 260,194
----------
Total operating expenses.......................... 3,824,881
----------
Loss from operations.............................. (459,863)
Other income (expense):
Interest income........................................... 8,035
Interest expense.......................................... (7,991)
----------
Net loss.......................................... $ (459,819)
==========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE> 114
ON-RAMP TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
NINE MONTHS ENDED JULY 31, 1996
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDERS'
COMMON PAID-IN ACCUMULATED TREASURY EQUITY
STOCK CAPITAL DEFICIT STOCK (DEFICIT)
------ ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES AT NOVEMBER 1, 1995............ 1,079 1,799,699 (1,362,801) (26,000) 411,977
Capital contribution.................... -- 5,172 -- -- 5,172
Net loss................................ -- -- (459,819) -- (459,819)
------ --------- ---------- ------- --------
BALANCES AT JULY 31, 1996............... $1,079 1,804,871 (1,822,620) (26,000) (42,670)
====== ========= ========== ======= ========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE> 115
ON-RAMP TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(459,819)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation........................................... 260,194
Provision for bad debts................................ 497,742
Changes in operating assets and liabilities:
Trade receivables.................................... (375,867)
Prepaid expenses..................................... 6,103
Accounts payable..................................... (170,123)
Accrued liabilities.................................. 4,891
Deferred revenue..................................... 227,140
---------
Net cash used by operating activities............. (9,739)
---------
Cash flows from investing activities --
purchases of equipment.................................... (222,564)
---------
Cash flows from financing activities:
Increase in cash overdraft................................ 91,342
Principal payments on note payable........................ (26,919)
Capital contribution...................................... 5,172
---------
Net cash used by financing activities............. 69,595
---------
Decrease in cash.................................. (162,708)
Cash at beginning of period................................. 162,708
---------
Cash at end of period....................................... $ --
=========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 7,991
=========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 116
ON-RAMP TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation
On-Ramp Technologies, Inc. (the Company) was incorporated in the State of
Texas on December 27, 1993. The Company's business consists of providing
regional internet access services, and hardware and software sales and
consulting, to customers in Texas and Georgia.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and/or collected in advance.
Revenue from consulting services is recognized as the services are
provided. Revenue from hardware and software sales is recognized upon shipment
of the respective products.
Equipment
Equipment is stated at cost, less accumulated depreciation. Depreciation is
recorded using the straight-line method over the estimated useful life of the
related assets of three years. Costs for normal repairs and maintenance are
expensed as incurred.
Income Taxes
Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, (SFAS 109).
Under SFAS 109, deferred income taxes are recognized for the future tax
consequences of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws and
statutory rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of (SFAS 121). This
statement was effective for financial statements for fiscal years beginning
after December 15, 1995. Statement No. 121 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted future cash flows estimated to be generated by
those assets are less than the assets' carrying amount. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. The adoption of SFAS 121 as of November
1, 1995 did not have a significant effect on the Company's financial position or
results of operations.
Stock Based Compensation
In October 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, (SFAS No. 123), which establishes a fair
F-34
<PAGE> 117
ON-RAMP TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
value-based method of accounting for stock-based compensation plans. Companies
are encouraged to adopt all provisions of SFAS No. 123 and are required to
comply with the disclosure requirements of SFAS No. 123, which was effective for
fiscal years beginning after December 15, 1995. The Company will continue to
account for stock based compensation under the provisions of APB Opinion No. 25
and will provide the pro forma disclosures required by SFAS 123.
(2) EQUIPMENT
Equipment consisted of the following at July 31, 1996:
<TABLE>
<S> <C>
Internet and computer equipment............................. $1,155,370
Furniture and office equipment.............................. 119,973
Leasehold improvements...................................... 6,668
----------
1,282,011
Less accumulated depreciation............................... (414,623)
----------
$ 867,388
==========
</TABLE>
(3) DEBT
Debt as of July 31, 1996 consists of the following:
<TABLE>
<S> <C>
Note payable bearing interest at 18%, monthly principal and
interest payments of $7,020 through April 1, 1998......... $113,695
Less current portion...................................... (55,003)
--------
$ 58,692
========
</TABLE>
(4) COMMITMENTS AND CONTINGENCIES
Future minimum annual lease payments under operating leases for each of the
years ending July 31, are as follows:
<TABLE>
<S> <C>
1997........................................................ $129,377
1998........................................................ 326,781
1999........................................................ 324,755
2000........................................................ 211,920
--------
$992,833
========
</TABLE>
Rent expense for the nine months ended July 31, 1996 totaled $90,999.
Concentration of Credit Risk and Financial Instruments
The Company provides unsecured credit to customers in the normal course of
business. Failure of the customers to pay could result in losses up to the
recorded receivable balances. The Company does not have any customers that
represent greater than 5% of total revenue at July 31, 1996.
The Company conducts business in Texas and Georgia. Customers who operate
in Texas represent approximately 97% of the Company's customer base and accounts
receivable.
At July 31, 1996, the fair values of the Company's financial instruments
approximate their carrying values based on their terms and interest rates.
F-35
<PAGE> 118
ON-RAMP TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) STOCKHOLDERS' EQUITY
Effective August 1, 1996, the Company issued 1,250,000 shares of newly
authorized redeemable, convertible preferred stock to Verio Inc. (Verio)for cash
consideration of $2,336,816, cancellation of indebtedness in the amount of
$1,663,184, and a note receivable of $4,175,000. The preferred shares are
convertible into common shares on a one for one basis and represent a 50.82%
interest in the Company upon conversion. The preferred shares are redeemable at
the option of the holder at any time, vote on an as-converted basis, and have a
liquidation preference equal to the issuance price. On October 4, 1996, Verio
purchased 100,000 shares of common stock from two Company shareholders for cash
consideration of $600,000, representing an additional 4.07% interest in the
Company. In addition, Verio acquired an option to acquire a 100% common stock
ownership in the Company in the future upon the occurrence of certain events,
including an initial public offering of Verio common stock.
The Company established a stock option plan (the Plan) which provides that
salaried officers or key employees, non-employee directors, and consultants who
provide services to the Company may, at the discretion of the Board of
Directors, be granted options to purchase shares of common stock. 130,560 shares
of the Company's Common Stock have been authorized for issuance under the Plan,
of which 59,878 shares were granted during the nine months ended July 31, 1996,
with an exercise price of $6.34 per share. There were no options exercised or
canceled during the nine months ended July 31, 1996. As of July 31, 1996, 11,976
options were exercisable.
Generally, options vest 20% or 25% on the date of grant of the option and
the balance vests thereafter over a 4 or 3 year period.
During the nine months ended July 31, 1996, the per share weighted-average
fair values of stock options granted was $.71 on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions; expected dividend yield 0%, risk-free interest rate of 6%, and
expected life of four years. If the Company determined compensation expense for
the nine months ended July 31, 1996 based on the fair value of the options at
the grant date under SFAS No. 123, net loss would have been approximately
$468,000.
(6) INCOME TAXES
At December 31, 1995, the Company has a net operating loss carryforward for
federal income tax purposes of $534,000 which is available to offset future
federal taxable income, if any, through 2010. Management believes the Company
has undergone an ownership change under section 382 of the Internal Revenue Code
and, accordingly, the utilization of the net operating loss carryforward
incurred prior to this ownership change is limited. Due to this limitation and
the uncertainty regarding the ultimate utilization of the net operating loss
carryforward a valuation allowance has been recorded for the full amount of the
deferred tax asset related to the net operating loss carryforward, which
represents the only significant temporary difference as of December 31, 1996.
F-36
<PAGE> 119
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying balance sheets of Global Enterprise
Services -- Network Division (a Division of Global Enterprise Services, Inc.) as
of December 31, 1995 and 1996, and the related statements of operations and
owners' deficit, and cash flows for each of the years in the three-year period
ended December 31, 1996 and the period ended January 17, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Global Enterprise
Services -- Network Division (a Division of Global Enterprises Services, Inc.)
as of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996 and
for the period ended January 17, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
February 25, 1998
F-37
<PAGE> 120
GLOBAL ENTERPRISE SERVICES -- NETWORK DIVISION
(A DIVISION OF GLOBAL ENTERPRISE SERVICES, INC.)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 31,072 33,018
Accounts receivable, net of allowance for doubtful
accounts of $67,247 in 1995 and $84,510 in 1996........ 843,980 822,823
Prepaid expenses and other assets......................... 26,286 10,424
----------- -----------
Total current assets.............................. 901,338 866,265
Equipment, net (note 2)..................................... 1,672,045 2,388,509
Other assets................................................ 43,487 118,888
----------- -----------
Total assets...................................... $ 2,616,870 3,373,662
=========== ===========
LIABILITIES AND OWNER'S DEFICIT
Current liabilities:
Accounts payable.......................................... $ 1,223,510 2,450,316
Accrued expenses.......................................... 378,400 449,270
Deferred revenue.......................................... 1,293,360 1,545,884
Current portion of capital lease obligations (note 6)..... 213,041 548,608
Due to related party (note 3)............................. 866,840 2,183,256
----------- -----------
Total current liabilities......................... 3,975,151 7,177,334
Capital lease obligations, less current portion (note 6).... 454,122 824,034
----------- -----------
Total liabilities................................. 4,429,273 8,001,368
Owner's deficit............................................. (1,812,403) (4,627,706)
----------- -----------
Total liabilities and owner's deficit............. $ 2,616,870 3,373,662
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE> 121
GLOBAL ENTERPRISE SERVICES -- NETWORK DIVISION
(A DIVISION OF GLOBAL ENTERPRISE SERVICES, INC.)
STATEMENTS OF OPERATIONS AND OWNER'S DEFICIT
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND PERIOD ENDED JANUARY 17, 1997
<TABLE>
<CAPTION>
PERIOD ENDED
1994 1995 1996 JANUARY 17, 1997
---------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Internet services revenue, net........... $3,386,621 3,642,063 3,958,049 155,170
Costs and expenses:
Internet services operating costs...... 1,965,110 2,484,276 3,227,766 163,076
Selling, general and administrative.... 1,716,853 1,953,712 2,847,300 107,179
Depreciation and amortization.......... 191,983 291,541 556,112 33,126
---------- ----------- ----------- -----------
Total operating costs and
expenses..................... 3,873,946 4,729,529 6,631,178 303,381
---------- ----------- ----------- -----------
Loss from operations........... (487,325) (1,087,466) (2,673,129) (148,211)
Interest expense, net.................... (6,479) (39,960) (142,174) (6,622)
---------- ----------- ----------- -----------
Net loss....................... (493,804) (1,127,426) (2,815,303) (154,833)
Owner's deficit at beginning of period... (191,173) (684,977) (1,812,403) (4,627,706)
---------- ----------- ----------- -----------
Owner's deficit at end of period......... $ (684,977) (1,812,403) (4,627,706) (4,782,539)
========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE> 122
GLOBAL ENTERPRISE SERVICES -- NETWORK DIVISION
(A DIVISION OF GLOBAL ENTERPRISE SERVICES, INC.)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND PERIOD ENDED JANUARY 17, 1997
<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 17,
1994 1995 1996 1997
-------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. (493,804) (1,127,426) (2,815,303) $(154,833)
Adjustments to reconcile net loss to
net cash provided (used) by
operating activities:
Depreciation and amortization...... 191,983 291,541 556,112 33,126
Provision for doubtful accounts.... 30,644 31,714 25,993 --
Changes in operating assets and
liabilities:
Accounts receivable.............. 170,528 (291,457) (4,836) 148,984
Prepaid expenses and other
current assets................ (26,819) 11,404 15,862 (9,636)
Other assets..................... (27,258) 3,771 (75,401) 60,000
Accounts payable................. 286,981 766,581 1,226,806 (52,610)
Accrued expenses................. 63,273 (3,735) 70,870 116,785
Deferred revenue................. 297,900 (387,288) 252,524 (155,171)
-------- ---------- ----------- ---------
Net cash provided (used) by
operating activities........ 493,428 (704,895) (747,373) (13,355)
-------- ---------- ----------- ---------
Cash flows from investing
activities -- purchases of
equipment............................. (321,399) (497,168) (345,436) --
-------- ---------- ----------- ---------
Cash flows from financing activities:
Net change in due to related party.... (142,215) 1,318,772 1,316,416 (153,663)
Proceeds from debt.................... -- -- -- 134,000
Principal repayments on capital lease
obligations........................ (22,739) (93,738) (221,661) --
-------- ---------- ----------- ---------
Net cash provided (used) by
financing activities........ (164,954) 1,225,034 1,094,755 (19,663)
-------- ---------- ----------- ---------
Net increase (decrease) in cash......... 7,075 22,971 1,946 (33,018)
Cash at beginning of period............. 1,026 8,101 31,072 33,018
-------- ---------- ----------- ---------
Cash at end of period................... 8,101 31,072 33,018 $ --
======== ========== =========== =========
Supplemental disclosure of cash flow
information:
Cash paid during the year for
interest........................... 6,073 35,249 70,535 $ 6,622
======== ========== =========== =========
Supplemental disclosure of non-cash
investing activities -- equipment
acquired through capital leases....... 10,908 735,088 927,140 $ --
======== ========== =========== =========
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE> 123
GLOBAL ENTERPRISE SERVICES -- NETWORK DIVISION
(A DIVISION OF GLOBAL ENTERPRISE SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Business and Basis of Presentation
Global Enterprise Services, Inc. (GES) was formed in August 1992 to provide
internet services to subscribers on a national and international basis through a
high performance telecommunications network. The accompanying financial
statements include the accounts of the domestic operations (Network Division),
assuming that the Network Division had been operated separately as of January 1,
1994 and thereafter.
In preparing the accompanying financial statements, management has
allocated certain assets, liabilities, revenue and expenses based upon the
characteristics of the accounts and the business divisions to which they relate.
Expenses which are not directly related to a particular division are allocated
based upon revenue or payroll expense of the division which, in the opinion of
management, represents a reasonable and appropriate method of allocation.
Effective January 17, 1997, the net assets of the Network Division were
acquired by Verio Inc.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Internet services are recognized as the services are provided. The Network
Division records deferred revenue for amounts billed and/or collected in
advance.
Equipment
Equipment, including any assets under capital leases, is stated at cost,
less accumulated depreciation and amortization. Depreciation and amortization is
recorded using the straight-line method over the estimated useful lives of the
related assets or the lease term, which range from five to seven years. Costs
for normal repairs and maintenance are expensed as incurred.
Income Taxes
The operations of the Network Division are included in the income tax
returns of GES, which was treated as a subchapter S Corporation in 1994 and
through August 14, 1995, and a C Corporation beginning on August 15, 1995.
Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, (SFAS 109).
Under SFAS 109, deferred income taxes are recognized for the future tax
consequences of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws and
statutory rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
No tax benefit has been allocated to the Network Division in 1994, 1995 and
1996 or for the period ended January 17, 1997, due to losses at the GES level
for which no tax benefit has been provided for financial statement purposes.
F-41
<PAGE> 124
GLOBAL ENTERPRISE SERVICES -- NETWORK DIVISION
(A DIVISION OF GLOBAL ENTERPRISE SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk and Financial Instruments
The Network Division provides unsecured credit to customers in the normal
course of business. Failure of the customers to pay could result in losses up to
the recorded receivable balances. The Network Division does not have any
customers that represent greater than 5% of total revenue for the years ended
December 31, 1994, 1995 and 1996 or for the period ended January 17, 1997.
At December 31, 1996, the fair values of the Network Division's financial
instruments approximate their carrying values based on their terms and interest
rates.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of (SFAS 121). This
statement was effective for financial statements for fiscal years beginning
after December 15, 1995. Statement No. 121 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted future cash flows estimated to be generated by
those assets are less than the assets' carrying amount. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. The adoption of SFAS 121 effective
January 1, 1996 did not have a significant effect on the Network Division's
financial position or results of operations.
(2) EQUIPMENT
Equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Internet and computer equipment............................. $2,277,949 3,286,929
Furniture and office equipment.............................. 5,889 64,709
Leasehold improvements...................................... 27,165 204,624
---------- -----------
2,311,003 3,556,262
Less accumulated depreciation and amortization.............. (638,958) (1,167,753)
---------- -----------
$1,672,045 2,388,509
========== ===========
</TABLE>
(3) RELATED PARTY TRANSACTIONS
Amounts due to related party represent net cash transfers between the
Network Division and the other divisions of GES, and are non interest bearing.
(4) EMPLOYEE BENEFIT PLAN
GES has established a defined contribution savings plan which provides for
eligible employees who have met certain age and service requirements to
participate by electing to contribute up to 15% of their gross salary to the
plan, as defined, with GES and the Network Division matching 25% of a
participant's contribution up to a maximum of 10% of gross salary, as defined.
Employee contributions are immediately vested. Contributions to the savings plan
on behalf of the Network Division employees for the years ended December 31,
1994, 1995 and 1996 were $3,253, $1,697 and $6,838, respectively.
F-42
<PAGE> 125
GLOBAL ENTERPRISE SERVICES -- NETWORK DIVISION
(A DIVISION OF GLOBAL ENTERPRISE SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) NATIONAL SCIENCE FOUNDATION GRANTS
The Network Division receives grant revenue from the National Science
Foundation (NSF) to provide network connections to certain not-for-profit
educational institutions. Funding is received on a per entity basis. The grant
revenue is recognized ratably over the term of the contract with the
not-for-profit educational institution, which is generally twelve months. Grant
revenue amounted to $131,166, $99,487 and $47,112, in 1994, 1995 and 1996,
respectively. Total amounts receivable at December 31, 1994, 1995 and 1996 were
$34,990, $72,199 and $23,243, respectively.
In September 1994, GES and the Network Division entered into a four year
cooperative agreement with the NSF to provide for interregional connectivity for
the Network Division's United States research and educational customers in the
aggregate amount of $625,115. Pursuant to the agreement, the Network Division
will be reimbursed by the NSF for costs associated with upgrading the Network
Division's existing telecommunications network. The level of funding for each
year will be determined based upon a progress review of the Network Division by
the NSF and the availability of NSF funds. The Network Division is required to
submit an annual plan to the NSF. For the years ended December 31, 1995 and
1996, respectively, the Network Division recognized $154,344 and $196,169 as a
reduction to internet services operating costs. No amounts were recognized for
the year ended December 31, 1994. Total amounts receivable were $30,904 and
$10,326 as of December 31, 1995 and 1996, respectively.
(6) LEASES
The Network Division has entered into capital and operating leases for
telecommunications equipment and office space. Future minimum lease commitments
under all leases at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ ---------- ---------
<S> <C> <C>
1997................................... $ 650,731 344,562
1998................................... 468,940 360,623
1999................................... 392,382 360,830
2000................................... 89,056 372,295
2001................................... -- 191,466
---------- ---------
Total minimum lease payments............................. 1,601,109 1,629,776
=========
Less amount representing interest.......................... (228,467)
----------
Present value of minimum lease payments.................. $1,372,642
Less current portion....................................... (548,608)
----------
$ 824,034
==========
</TABLE>
Rent expense for the years ended December 31, 1994, 1995 and 1996 was
$193,904, $218,408 and $455,936, respectively.
The Network Division has guaranteed monthly usage levels with its primary
communications vendors at December 31, 1996 as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1997.................................................... $205,000
1998.................................................... 205,000
1999.................................................... 51,250
--------
Total.............................................. $461,250
========
</TABLE>
F-43
<PAGE> 126
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying balance sheets of Compute Intensive, Inc.
as of December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the two
year period ended December 31, 1996 and for the period ended February 18, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Compute Intensive, Inc. as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the years in the two year period ended December 31, 1996 and
for the period ended February 18, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
February 25, 1998
F-44
<PAGE> 127
COMPUTE INTENSIVE INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Current assets:
Cash...................................................... $ 20,335 44,328
Trade receivables, net of allowance for doubtful accounts
of $35,033 and $105,858 in 1995 and 1996,
respectively........................................... 455,148 506,017
Income taxes receivable................................... 9,612 15,510
Deferred income taxes (note 7)............................ 16,362 --
Prepaid expenses and other................................ 5,937 183,834
-------- ---------
Total current assets.............................. 507,394 749,689
Equipment, net (note 2)..................................... 344,988 604,358
Other assets................................................ 15,408 48,587
-------- ---------
Total assets...................................... $867,790 1,402,634
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Revolving lines of credit (note 3)........................ $ 28,193 207,115
Current portion of note payable to related party (note
3)..................................................... 18,341 --
Current portion of obligations under capital leases (note
4)..................................................... 60,220 121,535
Accounts payable.......................................... 373,146 809,791
Accrued liabilities....................................... 113,218 142,235
Deferred revenue.......................................... 43,343 53,295
-------- ---------
Total current liabilities......................... 636,461 1,333,971
Note payable to related party, less current portion (note
3)........................................................ 70,384 --
Capital lease obligations, less current portion (note 4).... 104,048 169,476
Deferred income taxes (note 7).............................. 27,790 --
-------- ---------
Total liabilities................................. 838,683 1,503,447
Stockholders' equity (deficit):
Common stock, no par value, 1,000,000 shares authorized,
900,000 shares issued and outstanding.................. 900 900
Additional paid-in capital................................ 41,112 106,266
Accumulated deficit....................................... (12,905) (207,979)
-------- ---------
Total stockholders' equity (deficit).............. 29,107 (100,813)
-------- ---------
Commitments and contingencies (note 4)
Total liabilities and stockholders' equity
(deficit)....................................... $867,790 1,402,634
======== =========
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE> 128
COMPUTE INTENSIVE INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND PERIOD ENDED FEBRUARY 18, 1997
<TABLE>
<CAPTION>
PERIOD
ENDED
FEBRUARY 18,
1995 1996 1997
---------- --------- ------------
<S> <C> <C> <C>
Revenue:
Internet services....................................... $ 584,174 2,013,098 519,127
Consulting services..................................... 1,562,814 1,878,336 187,812
Computer hardware sales................................. 263,924 387,215 44,540
Computer software sales................................. 5,345 37,881 17,375
Other................................................... 69,145 60,037 24,736
---------- --------- --------
Total revenue................................... 2,485,402 4,376,567 793,590
---------- --------- --------
Operating expenses:
Cost of consulting services............................. 503,454 537,000 107,604
Cost of internet services............................... 317,768 670,158 144,457
Cost of hardware sales.................................. 227,913 292,941 26,394
Cost of software sales.................................. 5,859 28,043 15,032
Marketing and selling................................... 348,006 541,426 137,449
General and administrative.............................. 1,001,736 2,331,945 544,350
Depreciation and amortization........................... 46,174 133,280 15,954
---------- --------- --------
Total operating expenses........................ 2,450,910 4,534,793 991,240
---------- --------- --------
Earnings (loss) from operations................. 34,492 (158,226) (197,650)
Interest expense.......................................... (23,319) (54,174) (7,254)
---------- --------- --------
Earnings (loss) before income taxes............. 11,173 (212,400) (204,904)
Income tax benefit (expense) (note 7)..................... (7,308) 17,326 --
---------- --------- --------
Net earnings (loss)............................. $ 3,865 (195,074) (204,904)
========== ========= ========
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE> 129
COMPUTE INTENSIVE INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND PERIOD ENDED FEBRUARY 18, 1997
<TABLE>
<CAPTION>
TOTAL
COMMON ADDITIONAL STOCKHOLDERS'
COMMON STOCK PAID-IN ACCUMULATED EQUITY
STOCK SUBSCRIBED CAPITAL DEFICIT (DEFICIT)
------ ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1995........ $ -- 900 41,112 (16,770) 25,242
Issuance of common stock........... 900 (900) -- -- --
Net earnings....................... -- -- -- 3,865 3,865
---- ---- ------- -------- ---------
BALANCES AT DECEMBER 31, 1995...... 900 -- 41,112 (12,905) 29,107
Capital contribution (note 3)...... -- -- 65,154 -- 65,154
Net loss........................... -- -- -- (195,074) (195,074)
---- ---- ------- -------- ---------
BALANCES AT DECEMBER 31, 1996...... 900 -- 106,266 (207,979) (100,813)
Net loss........................... -- -- -- (204,904) (204,904)
---- ---- ------- -------- ---------
BALANCES AT FEBRUARY 18, 1997...... $900 -- 106,266 (412,883) (305,717)
==== ==== ======= ======== =========
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE> 130
COMPUTE INTENSIVE INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND PERIOD ENDED FEBRUARY 18, 1997
<TABLE>
<CAPTION>
PERIOD
ENDED
FEBRUARY 18,
1995 1996 1997
--------- --------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)................................... $ 3,865 (195,074) (204,904)
Adjustments to reconcile net earnings (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization...................... 46,174 133,280 15,954
Deferred income tax expense (benefit).............. 11,972 (11,428) --
Provision for bad debts............................ 35,015 135,593 5,580
Changes in operating assets and liabilities:
Increase in receivables.......................... (306,539) (186,462) (64,719)
Decrease (increase) in prepaid expenses and
other......................................... 4,463 (117,897) (33,368)
Increase in other assets......................... (7,678) (35,191) (2,251)
Increase in accounts payable..................... 306,005 372,637 78,036
Increase in accrued liabilities.................. 22,478 29,017 49,219
Increase in income tax receivable................ (17,064) (5,898) 15,510
Increase in deferred revenue..................... 34,358 9,952 (18,215)
--------- --------- ---------
Net cash provided (used) by operating
activities.................................. 133,049 128,529 (159,428)
--------- --------- ---------
Cash flows from investing activities -- Purchases of
equipment............................................. (131,193) (158,549) (119,999)
--------- --------- ---------
Cash flows from financing activities:
Borrowings under revolving lines of credit............ 19,000 305,258 66,057
Repayments of revolving lines of credit............... (1,808) (126,336) (98,225)
Borrowings (payments) on note payable to related
party.............................................. (11,275) (19,563) 200,000
Principal payments on capital lease obligations....... (24,880) (105,346) (12,717)
Cash overdraft........................................ -- -- 79,984
--------- --------- ---------
Net cash provided (used) by financing
activities.................................. (18,963) 54,013 235,099
--------- --------- ---------
Increase (decrease) in cash................... (17,107) 23,993 (44,328)
Cash, beginning of period............................... 37,442 20,335 44,328
--------- --------- ---------
Cash, end of period..................................... $ 20,335 44,328 --
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes....................................... $ 10,800 -- $ --
========= ========= =========
Interest........................................... $ 21,571 54,175 $ 7,253
========= ========= =========
Noncash investing and financing activities -- Equipment
acquired through capital lease obligations............ $ 158,006 232,089 $ --
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE> 131
COMPUTE INTENSIVE INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Compute Intensive, Inc. (the Company) was incorporated in the State of
California on December 31, 1993. The Company has three distinct areas of
business; providing regional internet access services to customers in California
and New Mexico, software and hardware consulting and sales, and software
development and implementation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and/or collected in advance.
Revenue from consulting services is recognized when services have been
rendered. On fixed price contracts, revenue is recognized over the course of the
contract using the percentage-of-completion method. The Company provides for any
anticipated losses on such contracts in the period in which such losses are
first determinable.
Revenue from hardware and software sales is recognized upon shipment of the
respective products if the Company has no significant future obligations and
collectibility is probable.
Equipment
Equipment, including any assets under capital leases, is stated at cost,
less accumulated depreciation and amortization. Depreciation and amortization is
recorded using the straight-line method over the estimated useful lives of the
related assets on the lease term, which range from five to seven years. Costs
for normal repairs and maintenance are expensed as incurred.
Income Taxes
Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, (SFAS 109).
Under SFAS 109, deferred income taxes are recognized for the future tax
consequences of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws and
statutory rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized for
financial statement purposes. Management estimates that the fair values of all
financial instruments as of December 31, 1995 and 1996 approximate their
carrying values based on their terms and interest rates. The use of different
market assumptions and/or estimation methodologies may have a significant effect
on the estimated fair values.
F-49
<PAGE> 132
COMPUTE INTENSIVE INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of (SFAS 121). This
statement was effective for financial statements for fiscal years beginning
after December 15, 1995. Statement No. 121 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted future cash flows estimated to be generated by
those assets are less than the assets' carrying amount. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at lower of the carrying amount or
fair value less costs to sell. The adoption of SFAS 121 in 1996 did not have a
significant effect on the Company's financial position or results of operations.
Stock Based Compensation
In October 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, (SFAS No. 123), which establishes a fair value-based method of
accounting for stock-based compensation plans. Companies are encouraged to adopt
all provisions of SFAS No. 123 and are required to comply with the disclosure
requirements of SFAS No. 123, which was effective for fiscal years beginning
after December 15, 1995. The Company will continue to account for stock based
compensation under the provisions of APB Opinion No. 25 and will provide the pro
forma disclosures required by SFAS 123.
Reclassifications
Certain reclassifications have been made to the 1995 financial statements
to conform with the 1996 presentation.
(2) EQUIPMENT
Equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Internet and computer equipment............................. $342,407 730,143
Furniture and office equipment.............................. 55,016 57,718
Leasehold improvements...................................... 1,892 2,092
-------- --------
399,315 789,953
Less accumulated depreciation and amortization.............. (54,327) (185,595)
-------- --------
$344,988 604,358
======== ========
</TABLE>
Equipment includes assets owned under capital leases with a net book value
of $173,607 and $315,303 at December 31, 1995 and 1996, respectively.
(3) DEBT
At December 31, 1995 and 1996, the Company had an $100,000 unsecured
revolving line of credit agreement with a bank, under which $28,193 and $32,167
was outstanding, respectively. Borrowings under the line bear interest at the
bank's prime lending rate plus 4.75% or 4.5%, based on an average daily balance,
payable monthly (12.75% at December 31, 1996) and are due in 1997.
F-50
<PAGE> 133
COMPUTE INTENSIVE INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On October 16, 1996, the Company entered into an additional $200,000
revolving line of credit agreement with a bank, under which $174,948 was
outstanding at December 31, 1996. Borrowings under the line bear interest at the
bank's prime lending rate plus 2%, based on an average daily balance, payable
monthly (10.25% at December 31, 1996) and are due in 1997.
Note payable to related party at December 31, 1995 bore interest at 7.5%
and was due in monthly installments through 2000. During 1996, the unpaid
balance of $65,154 was assumed by the Company's majority stockholder and was
forgiven and recorded as a capital contribution. The Company borrowed $200,000
from Verio Inc. (Verio) (See note 6), during the period ended February 18, 1997.
Such amount was non interest bearing and was repaid in connection with Verio's
investment in the Company.
(4) COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain computer and office equipment under capital
leases. The Company also leases office space under noncancelable operating
leases expiring at various dates through 1997.
Future minimum annual lease payments under capital and noncancelable
operating leases for each of the years ending December 31 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ---------
<S> <C> <C>
1997........................................................ $ 166,477 200,490
1998........................................................ 123,363 269,220
1999........................................................ 50,815 281,820
2000........................................................ 24,352 307,020
2001........................................................ 11,823 313,320
--------- ---------
Total minimum payments.................................... 376,830 1,371,870
=========
Less amount representing interest........................... (85,819)
---------
Present value of net minimum lease payments............... 291,011
Less current portion........................................ (121,535)
---------
$ 169,476
=========
</TABLE>
Rent expense for the years ended December 31, 1995 and 1996 and the period
ended February 18, 1997 was $83,148, $128,130 and $27,800, respectively.
Concentration of Credit Risk
The Company provides unsecured credit to customers in the normal course of
business. Failure of the customers to pay could result in losses up to the
recorded receivable balances. The Company's largest customer represented
approximately 32% and 20% of total revenues for the years ended December 31,
1995 and 1996, respectively.
The Company conducts business in California and New Mexico. Customers who
operate in California represent at least 75% of the Company's customer base and
accounts receivable.
(5) EMPLOYEE BENEFIT PLAN
The Company has a Simplified Employee Pension Plan (the Plan) covering all
employees who meet certain eligibility requirements. The Company may make
discretionary contributions to the Plan on behalf of
F-51
<PAGE> 134
COMPUTE INTENSIVE INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
employees that meet certain contribution eligibility requirements defined under
the terms of the Plan. The Company did not make any contributions to the Plan
during 1995 or 1996.
(6) STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
On February 18, 1997, the Company issued 770,234 shares of newly authorized
redeemable, convertible preferred stock to Verio for cash consideration of
$4,899,998. The preferred shares are convertible into common shares on a 1.000
for 1.0017 basis and represent a 55% ownership interest in the Company upon
conversion. The preferred shares are redeemable at the option of the holder at
any time, vote on an as-converted basis, and include a liquidation preference
equal to the issuance price. In addition, Verio acquired an option to acquire a
100% common stock ownership in the Company which it may exercise at any time on
or after one year following the issuance date of the preferred shares. Upon the
initial public offering of Verio common stock or a significant strategic
investor in Verio, Verio is required to exercise the option.
The Company's 1995 Stock Option/Stock Issuance Plan (the Plan) was adopted
by the Board of Directors and approved by the shareholders of the Company in
March 1995. The Plan provides that salaried officers or key employees,
non-employee directors, and consultants who provide services to the Company may,
at the discretion of the plan administrator, be granted options to purchase
shares of common stock. 250,000 shares of the Company's Common Stock have been
authorized for issuance under the Plan, of which 131,000 and 29,500 nonqualified
options were granted in 1995 and 1996, respectively, with an exercise price of
$.05 and $.001 per share, respectively. All options were granted at fair value
at the date of grant, as determined by the Company's Board of Directors. There
were no options exercised and 18,176 were canceled during 1996.
Generally, options vest 25% on the first anniversary of the option grant
date and the balance vests thereafter in equal successive monthly installments
over the next 36 months of service. Option grants to nonemployee directors must
be approved by the Board.
During 1995 and 1996, the per share weighted-average fair values of stock
options granted was $.01 and $.65, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for both years; expected dividend yield 0%, risk-free interest rate
of 6%, and expected life of three years. If the Company determined compensation
expense in 1995 and 1996 based on the fair value of the options at the grant
date under SFAS No. 123, net loss and net earnings would not have been
significantly different than the historical results of operations.
(7) INCOME TAXES
Income tax expense (benefit) consists of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Current:
Federal.................................................. $(3,838) (6,698)
State.................................................... (826) 800
------- -------
(4,664) (5,898)
------- -------
Deferred:
Federal.................................................. 9,261 (8,717)
State.................................................... 2,711 (2,711)
------- -------
11,972 (11,428)
------- -------
$ 7,308 (17,326)
======= =======
</TABLE>
No tax benefit was recorded for the period ended February 18, 1997 due to
uncertainty as to realization of the net operating loss for the period.
F-52
<PAGE> 135
COMPUTE INTENSIVE INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes expense (benefit) for the years ended December 31 differs from
the amounts that would result from applying the federal statutory rate of 34% as
follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Expected tax expense (benefit).............................. $ 3,798 (72,216)
State income taxes, net of federal benefit.................. 335 (6,373)
Nondeductible expenses...................................... 3,175 7,142
Increase in valuation allowance for deferred tax assets..... -- 41,066
Other....................................................... -- 13,055
-------- --------
Actual income tax expense (benefit).................... $ 7,308 (17,326)
======== ========
</TABLE>
Temporary differences that give rise to the components of deferred tax
assets and liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ -- 50,231
Accounts receivable, due to allowance for doubtful
accounts for financial statement purposes only......... 15,169 37,983
Other..................................................... 1,193 --
-------- --------
Gross deferred tax asset.......................... 16,362 88,214
Valuation allowance......................................... -- (41,066)
-------- --------
Net deferred tax asset............................ 16,362 47,148
-------- --------
Deferred tax liability:
Equipment, due to differences in depreciation for
financial statement and tax purposes................... (23,696) (43,054)
Other..................................................... (4,094) (4,094)
-------- --------
Total deferred tax liability...................... (27,790) (47,148)
-------- --------
Net deferred tax liability........................ $ 11,428 --
======== ========
</TABLE>
As of December 31, 1996, the Company has a net operating loss carryforward
of approximately $132,000 for federal income tax purposes which will expire in
2011, if not utilized. A valuation allowance has been recorded for a portion of
the related deferred tax asset due to the uncertainty relating to the
realization of the entire net operating loss carryforward in the future.
F-53
<PAGE> 136
INDEPENDENT AUDITORS' REPORT
The Board of Directors
NorthWestNet, Inc.:
We have audited the accompanying balance sheet of NorthWestNet, Inc. as of
June 30, 1996, and the related statements of operations, stockholders' equity,
and cash flows for the six months ended June 30, 1996 and the eight months ended
February 28, 1997. We have also audited the accompanying balance sheet of
Northwest Academic Computing Consortium, Inc. (Predecessor Company) as of June
30, 1995 and the related statements of operations, fund balance and cash flows
for the year ended June 30, 1995 and the six months ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NorthWestNet, Inc. as of
June 30, 1996, and the results of its operations and its cash flows for the six
months ended June 30, 1996, and the eight months ended February 28, 1997 and the
financial position of Northwest Academic Computing Consortium, Inc. as of June
30, 1995 and the results of its operations and its cash flows for the year ended
June 30, 1995 and the six months ended December 31, 1995 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Seattle, Washington
January 31, 1998
F-54
<PAGE> 137
NORTHWESTNET, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY NORTHWESTNET, INC.
----------- ------------------
JUNE 30, JUNE 30,
1995 1996
----------- ------------------
<S> <C> <C>
Cash and cash equivalents................................... $ 563,952 277,284
Accounts receivable, net.................................... 842,753 1,243,981
Prepaids and other assets................................... 29,605 32,505
---------- ----------
Total current assets.............................. 1,436,310 1,553,770
Equipment, furniture and leasehold improvements, net........ 1,246,180 1,613,981
Deferred income taxes....................................... -- 46,000
---------- ----------
Total assets...................................... $2,682,490 3,213,751
========== ==========
LIABILITIES, STOCKHOLDERS' EQUITY AND FUND BALANCE
Accounts payable............................................ $ 108,297 165,606
Accrued liabilities......................................... 102,010 340,677
Deferred revenues and customer advances..................... 965,589 1,374,708
---------- ----------
Total current liabilities......................... 1,175,896 1,880,991
---------- ----------
Stockholders' equity:
Common stock, $.01 par value. Authorized 10,000,000
shares; issued and outstanding 4,000,000 shares and
4,000,100 shares at June 30, 1995 and June 30, 1996,
respectively........................................... -- 40,000
Additional paid-in capital................................ -- 1,193,402
Retained earnings......................................... -- 99,358
---------- ----------
Total stockholders' equity........................ -- 1,332,760
---------- ----------
Fund balance................................................ 1,506,594 --
---------- ----------
Total liabilities and stockholders' equity........ $2,682,490 3,213,751
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-55
<PAGE> 138
NORTHWESTNET, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY NORTHWESTNET, INC.
-------------------------- --------------------------
SIX MONTHS SIX MONTHS EIGHT MONTHS
YEAR ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, FEBRUARY 28,
1995 1995 1996 1997
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Revenue:
Internet access and connection fees..... $2,218,354 1,197,690 1,655,211 2,572,917
Online information service fees......... 430,031 310,430 380,522 976,404
Grants.................................. 10,000 146,734 78,342 85,795
Other................................... 117,835 15,407 16,949 47,019
---------- --------- --------- ---------
Total revenue................... 2,776,220 1,670,261 2,131,024 3,682,135
Operating expenses:
Salaries and employee benefits.......... 1,145,224 770,215 886,958 2,728,589
Network operations and circuits......... 225,570 356,711 320,396 547,031
Professional fees....................... 254,982 126,789 39,307 61,047
Marketing and advertising............... 55,222 32,460 66,209 114,544
General and administrative.............. 624,314 309,961 364,418 673,541
Depreciation and amortization........... 507,693 248,770 311,261 509,122
---------- --------- --------- ---------
Total operating expenses........ 2,813,005 1,844,906 1,988,549 4,633,874
---------- --------- --------- ---------
Operating income (loss)................... (36,785) (174,645) 142,475 (951,739)
Interest income........................... 46,108 25,639 15,883 25,083
---------- --------- --------- ---------
Earnings (loss) before income
taxes......................... 9,323 (149,006) 158,358 (926,656)
---------- --------- --------- ---------
Income tax expense (benefit).............. -- -- 59,000 (135,000)
---------- --------- --------- ---------
Net earnings (loss)............. $ 9,323 (149,006) 99,358 (791,656)
========== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-56
<PAGE> 139
NORTHWESTNET, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY AND FUND BALANCE
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS TOTAL
FUND COMMON PAID-IN (ACCUMULATED STOCKHOLDERS'
BALANCE STOCK CAPITAL DEFICIT) EQUITY
----------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JUNE 30, 1994............... $ 1,497,271 -- -- -- --
Net earnings............................ 9,323 -- -- -- --
----------- ------ --------- -------- ---------
BALANCES AT JUNE 30, 1995............... 1,506,594 -- -- -- --
Net loss for the six months ended
December 31, 1995..................... (149,006) -- -- -- --
Distribution to stockholder............. (124,186) -- -- -- --
----------- ------ --------- -------- ---------
BALANCES AT DECEMBER 31, 1995........... 1,233,402 -- -- -- --
Issuance of common stock to effect
corporate reorganization.............. (1,233,402) 40,000 1,193,402 -- 1,233,402
Net earnings for the six months ended
June 30, 1996......................... -- -- -- 99,358 99,358
----------- ------ --------- -------- ---------
BALANCES AT JUNE 30, 1996............... -- 40,000 1,193,402 99,358 1,332,760
Exercise of stock options............... -- 1 86 -- 87
Contingent stock compensation expense... -- -- 451,696 -- 451,696
Net loss for the eight months ended
February 28, 1997..................... -- -- -- (791,656) (791,656)
----------- ------ --------- -------- ---------
BALANCES AT FEBRUARY 28, 1997........... $ -- 40,001 1,645,184 (692,298) 992,887
=========== ====== ========= ======== =========
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE> 140
NORTHWESTNET, INC.
STATEMENTS OF CASH FLOWS
JUNE 30, 1995 AND 1996 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
PREDECESSOR COMPANY NORTHWESTNET, INC.
------------------------- -------------------------
SIX MONTHS SIX MONTHS EIGHT MONTHS
YEAR ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, FEBRUARY 28,
1995 1995 1996 1997
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)................... $ 9,323 (149,006) 99,358 (791,656)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Depreciation and amortization...... 507,693 248,770 311,261 509,122
Contingent stock option
compensation..................... -- -- -- 451,696
Loss on disposition of equipment... -- -- -- 10,526
Deferred tax benefit............... -- -- (46,000) (74,000)
Increases and decreases in:
Accounts receivable.............. (272,151) 418,635 (819,863) 624,707
Prepaids and other assets........ (18,841) (28,347) 25,447 (1,396,570)
Accounts payable................. (73,064) (48,302) (37,056) 304,296
Accrued liabilities.............. (9,079) 110,275 128,392 1,069,605
Deferred revenue................. 331,904 76,759 332,360 (599,775)
--------- ---------- --------- -----------
Net cash provided by (used in)
operating activities........ 475,785 628,784 (6,101) 107,951
--------- ---------- --------- -----------
Cash flows from investing activities:
Purchase of equipment, furniture and
leasehold improvements............. (760,922) (260,850) (524,315) (1,047,283)
Disposition of equipment.............. -- -- -- 22,678
--------- ---------- --------- -----------
Net cash used in investing
activities.................. (760,922) (260,850) (524,315) (1,024,605)
--------- ---------- --------- -----------
Cash flows from financing activities:
Advances from Verio, Inc. ............ -- -- -- 2,560,294
Distribution to stockholder........... -- -- (124,186) --
Exercise of stock options............. -- -- -- 87
--------- ---------- --------- -----------
Net cash provided by (used in)
financing activities........ -- -- (124,186) 2,560,381
--------- ---------- --------- -----------
Increase (decrease) in cash
and cash equivalents........ (285,137) 367,934 (654,602) 1,643,727
Cash and cash equivalents at beginning
of period............................. 849,089 563,952 931,886 277,284
--------- ---------- --------- -----------
Cash and cash equivalents at end of
period................................ $ 563,952 931,886 277,284 1,921,011
========= ========== ========= ===========
Supplemental disclosures of cash flow
information -- cash paid during the
period for income taxes............... $ 900 -- 82,000 118,000
========= ========== ========= ===========
Supplemental schedule of noncash
financing and investing activities:
Accounts payable related to purchase
of equipment....................... $ 15,140 13,523 129,144 --
========= ========== ========= ===========
Issuance of common stock to effect
corporate reorganization........... $ -- 1,233,402 -- --
========= ========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-58
<PAGE> 141
NORTHWESTNET, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1996 AND FEBRUARY 28, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
NorthWestNet, Inc. (NorthWestNet), a for-profit corporation incorporated in
the state of Oregon, is a subsidiary of Northwest Academic Computing Consortium,
Inc. (NWACC). NorthWestNet provides Internet access and related on-line
information services to businesses, educational institutions and other
organizations located principally in the Northwest.
(b) Corporate Reorganization
NWACC, a nonprofit corporation organized to promote research, education and
economic development in the Northwest, had been providing Internet access to
businesses and organizations in the Northwest since 1991.
On January 1, 1996, NWACC completed a transaction that included the
creation of NorthWestNet. The transaction consisted of the transfer of
substantially all of NWACC's operating assets and liabilities to NorthWestNet in
exchange for 4,000,000 shares of common stock, which represented all of the
outstanding common stock of NorthWestNet. This transaction represented a
tax-free transfer pursuant to the Internal Revenue Code (IRC) section 351. In
connection with the transaction, all NWACC employees became NorthWestNet
employees.
NWACC's relationship to NorthWestNet, is now that of a stockholder,
currently the majority stockholder. NWACC intends to maintain its tax-exempt
status under IRC section 501(c)(3); however, its activities are independent of
NorthWestNet and its employees.
(c) Basis of Presentation
There was no change in the carrying amounts of assets and liabilities
transferred from NWACC to NorthWestNet effective January 1, 1996. The
accompanying financial statements include the accounts of NWACC through December
31, 1995, presented as Predecessor Company.
The carrying amounts of net assets transferred from NWACC to NorthWestNet
effective January 1, 1996 are summarized as follows:
<TABLE>
<S> <C>
Cash and cash equivalents................................... $ 807,700
Accounts receivable, net.................................... 424,118
Prepaids and other assets................................... 57,952
Equipment, furniture and leasehold improvements, net........ 1,271,783
----------
Total assets...................................... 2,561,553
----------
Accounts payable............................................ 73,518
Accrued expenses............................................ 212,285
Deferred revenue............................................ 1,042,348
----------
Total liabilities................................. 1,328,151
----------
Net assets........................................ $1,233,402
==========
</TABLE>
(d) Cash Equivalents
All short-term investments with original maturities of three months or less
at date of purchase are considered to be cash equivalents.
F-59
<PAGE> 142
NORTHWESTNET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(e) Concentrations of Credit Risk
Financial instruments that potentially subject NorthWestNet to
concentrations of credit risk consist principally of cash equivalents and
accounts receivable. NorthWestNet's cash equivalents represent investments in
money market funds which are readily convertible to cash. Accounts receivable
are principally from NorthWestNet's customers located throughout the Northwest.
(f) Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of (SFAS 121). This
statement was effective for financial statements for fiscal years beginning
after December 15, 1995. Statement No. 121 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted future cash flows estimated to be generated by
those assets are less than the assets' carrying amount. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. The adoption of SFAS 121 effective July
1, 1996 did not have a significant effect on the NorthWestNet's financial
position or results of operations.
(g) Revenue Recognition
Revenues consist primarily of Internet access fees, connection fees and
on-line information service fees. Internet access fees consist of fixed monthly
amounts and are recognized ratably over the terms of the service contracts.
Connection fees, representing customer site equipment and installation charges,
are recognized upon installation of a customer's Internet connectivity. Fixed
on-line information service fees are recognized ratably over the terms of the
service contracts. Volume-based on-line information service fees are recognized
as such services are delivered. Payments received in advance of providing
services are deferred until the period such services are provided.
(h) Advertising Costs
Advertising costs are expensed as incurred.
(i) Depreciation and Amortization
Equipment, furniture and leasehold improvements are stated at cost.
Depreciation and amortization are provided on the straight-line method over the
estimated useful lives of the assets, or the lease term, if shorter. The
estimated useful lives of the assets are as follows:
<TABLE>
<CAPTION>
<S> <C>
Network equipment........................................... 3 - 4 years
Computer and office equipment............................... 2 - 3 years
Furniture and fixtures...................................... 7 years
Leasehold improvements...................................... 5 years
</TABLE>
(j) Use of Estimates
NorthWestNet management has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, revenues and expenses, and
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
F-60
<PAGE> 143
NORTHWESTNET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(k) Income Taxes
NorthWestNet accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts and tax bases of existing assets and liabilities.
NWACC was exempt from the payment of Federal income taxes under IRC section
501(c)(3). Therefore, no provision for income taxes was required through
December 31, 1995.
(l) Stock-Based Compensation
Prior to July 1, 1996, NorthWestNet accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
July 1, 1996, NorthWestNet adopted Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of APB Opinion No. 25 for
transactions with employees and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied to these transactions. NorthWestNet has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.
(2) EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS
Equipment, furniture and leasehold improvements and related accumulated
depreciation and amortization consist of the following:
<TABLE>
<CAPTION>
JUNE 30
------------------------
1995 1996
----------- ---------
<S> <C> <C>
Network equipment........................................... $ 1,645,558 1,878,787
Computer and office equipment............................... 603,051 586,653
Furniture and fixtures...................................... 102,010 77,011
Leasehold improvements...................................... 50,301 50,301
----------- ---------
Total cost........................................ 2,400,920 2,592,752
Less accumulated depreciation and amortization.............. (1,154,740) (978,771)
----------- ---------
$ 1,246,180 1,613,981
=========== =========
</TABLE>
(3) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JUNE 30
------------------
1995 1996
-------- -------
<S> <C> <C>
Accrued compensation and benefits........................... $102,010 153,447
Network operations and circuits............................. -- 129,080
Other....................................................... -- 58,150
-------- -------
$102,010 340,677
======== =======
</TABLE>
F-61
<PAGE> 144
NORTHWESTNET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) BORROWING AGREEMENT
NorthWestNet had a borrowing agreement with a commercial bank, which
expired in June 1997, that provided for a $400,000 operating line of credit
(Line of Credit) and a $600,000 equipment term loan (Term Loan). Borrowings
under the Line of Credit were limited to 75% of eligible accounts receivable and
bear interest at the bank's prime rate plus 1.75%. The Term Loan bore interest
at the bank's prime rate plus 2%. Borrowings under this agreement were secured
by substantially all of NorthWestNet's assets. There were no borrowings under
the Line of Credit or Term Loan as of June 30, 1996.
(5) INCOME TAXES
The components of NorthWestNet's income tax expense (benefit) for the six
months ended June 30, 1996 and the eight months ended February 28, 1997 are as
follows:
<TABLE>
<CAPTION>
SIX EIGHT
MONTHS MONTHS
ENDED ENDED
JUNE 30, FEBRUARY 28,
1996 1997
-------- ------------
<S> <C> <C>
Current:
Federal..................................................... $100,000 (66,000)
State....................................................... 5,000 5,000
Deferred -- Federal......................................... (46,000) (74,000)
-------- ---------
$ 59,000 (135,000)
======== =========
</TABLE>
Deferred income taxes result from temporary differences in the recognition
of income and expense between financial statement and income tax reporting.
Temporary differences at June 30, 1996 are primarily attributable to
depreciation and amortization of equipment, furniture and leasehold
improvements. The tax effects of these temporary differences result in deferred
tax assets which are classified as noncurrent on the accompanying June 30, 1996
balance sheet. Actual tax expense for the six months ended June 30, 1996
approximates the amount calculated using the Federal statutory rate of 34%, plus
the provision for state taxes. The tax benefit for the eight months ended
February 28, 1997 differs from the expected benefit, calculated using the
Federal statutory rate of 34%, primarily due to non-deductible stock option
compensation.
(6) STOCKHOLDERS' EQUITY -- EMPLOYEE STOCK OPTION PLAN
NorthWestNet adopted a stock option plan (Plan) in January 1996 to
compensate its employees for future services and has reserved 1.5 million shares
of common stock for option grants under the Plan. Of the reserved shares,
500,000 are for options which are exercisable, upon reaching defined corporate
objectives (Contingent Options), at an exercise price of $.875 per share. The
date the defined corporate objectives are met, any excess of fair market value
per share over the exercise price per share of the outstanding options would be
charged to salaries and benefits expense in the statement of operations with a
corresponding increase in stockholder's equity. As of December 31, 1996, 370,000
contingent shares were outstanding. The remaining 1 million reserved shares are
for options which generally vest, based on continued employment, over periods
ranging from three to four years in equal monthly increments beginning the month
after the grant (Noncontingent Options). All options expire ten years from the
date of grant and are exercisable at the fair market value of the common stock
at the grant date.
F-62
<PAGE> 145
NORTHWESTNET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity under the Plan follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------------------
WEIGHTED-
SHARES AVERAGE
AVAILABLE NON- EXERCISE
FOR GRANT CONTINGENT CONTINGENT PRICE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Authorization of Plan.......................... 1,500,000 -- -- $ --
Options granted................................ (988,000) 583,000 405,000 0.875
Options relinquished........................... 76,771 (41,771) (35,000) 0.875
Balances at June 30, 1996...................... 588,771 541,229 370,000 0.875
Options granted................................ (54,000) 54,000 -- 1.956
Options exercised.............................. -- (100) -- 0.875
Options relinquished........................... 3,229 (3,229) -- 0.875
Options surrendered for cash................... -- (192,265) -- 0.875
Balances at February 28, 1997.................. 538,000 399,635 370,000 $0.951
</TABLE>
NorthWestNet applies APB Opinion No. 25 in accounting for its Plans, and,
because the Company grants options at fair value, as determined by the Company's
Board of Directors, no compensation cost has been recognized for its employee
stock options in the financial statements. Had NorthWestNet determined
compensation cost of employee stock options based on the fair value at the grant
date for its stock options under SFAS No. 123, NorthWestNet's net earnings would
have been reported as the pro forma amounts indicated below:
<TABLE>
<CAPTION>
SIX EIGHT
MONTHS MONTHS
ENDED ENDED
JUNE 30, FEBRUARY 28,
1996 1997
-------- ------------
<S> <C> <C>
Net earnings (loss):
As reported............................................... $99,359 (791,656)
Pro forma................................................. 26,469 (892,205)
</TABLE>
The per share weighted-average fair value of stock options granted during
the six months ended June 30, 1996 and the eight months ended February 28, 1997
was $0.28 and $0.70 respectively, on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions: six months
ended June 30, 1996 -- expected dividend yield 0%, risk-free interest rate of
5.51% and an expected life of 7 years; eight months ended February 28,
1997 -- expected dividend yield 0%, risk-free interest rate of 6.55%, and an
expected life of 7 years.
F-63
<PAGE> 146
NORTHWESTNET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
under the Plan at June 30, 1996 and February 28, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------
WEIGHTED-AVERAGE
NUMBER REMAINING
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE
--------------- ----------- ---------------------
<S> <C> <C>
June 30, 1996:
$0.875............................................... 911,229 9.5 years
-------
February 28, 1997:
$0.875............................................... 715,635
1.375............................................... 6,000
2.000............................................... 34,500
$2.10................................................ 13,500
-------
$0.875-2.000......................................... 769,635 9.5 years
-------
</TABLE>
All options became vested and exercisable upon completion of the ownership
change described in note 10.
(7) LEASES
NorthWestNet leases its office and certain network operations facilities
under operating leases which expire in 2002. NorthWestNet subleases a portion of
its office space as sublessor under operating leases which expire in 1996 and
1997. Rental expense, net of sublease income, is included in general and
administrative expenses and is comprised of the following:
<TABLE>
<CAPTION>
MINIMUM SUBLEASE
RENTALS INCOME TOTAL
-------- -------- -------
<S> <C> <C> <C>
Year ended June 30, 1995................................ $142,318 34,665 107,653
Six months ended December 31, 1995...................... 88,960 28,623 60,337
Six months ended June 30, 1996.......................... 88,795 24,423 64,372
Eight months ended February 28, 1997.................... 119,696 25,455 94,241
</TABLE>
NorthWestNet leases circuit lines from various vendors under month-to-month
operating leases. Rent expense on these circuit line leases amounted to
$225,570, $316,712, $270,395, and $413,697 for fiscal year ended 1995, the six
months ended December 31, 1995 and June 30, 1996, and the eight months ended
February 28, 1997, respectively, and is included in network operations and
circuits in the statements of operations.
In November 1996, NorthWestNet amended its existing operating lease for its
office facilities. The amendment increased the space leased by NorthWestNet by
approximately 9,000 square feet, beginning in February 1997, and extended the
lease term of existing space to February 2002. Additionally, in December 1996,
NorthWestNet entered into an operating lease for network operations facilities.
The initial term of the lease is five years, beginning in March 1997, with two
three-year extensions available at NorthWestNet's option.
(8) DEFINED CONTRIBUTION PLAN
NorthWestNet and NWACC both sponsor defined contribution plans. For the
NorthWestNet plan, employees who have worked a minimum of three months and
attained age 20 are eligible to participate and employee contributions are
matched by NorthWestNet up to certain limits. Sponsor contributions to the plans
F-64
<PAGE> 147
NORTHWESTNET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
totaled $35,765, $17,589, $26,781, and $68,855 for the year ended June 30, 1995
and the six months ended December 31, 1995 and June 30, 1996, and the eight
months ended February 28, 1997, respectively.
(9) BUSINESS CONCENTRATION
One customer accounted for approximately 25%, 23%, 27%, and 23% of revenues
for the year ended June 30, 1995, the six months ended December 31, 1995 and
June 30, 1996, and the eight months ended February 28, 1997, respectively. Such
customer had account receivable balance of $227,662 at June 30, 1996.
Additionally, another customer accounted for approximately 14% of revenues
for the eight months ended February 28, 1997.
(10) OWNERSHIP CHANGE
On January 22, 1997, NorthWestNet, NWACC and Verio Inc. (Verio) executed a
Stock Purchase Agreement (Agreement) pursuant to which Verio acquired all of the
common stock of NorthWestNet owned by NWACC. Under the Agreement, Verio also
agreed to contribute at least $3.4 million to NorthWestNet, of which
approximately $2.3 million was funded in February 1997. The transaction closed
on February 28, 1997.
In connection with the sale to Verio, 370,000 contingent options became
exercisable and $451,696 of compensation expense was recorded by NorthWestNet in
February 1997 which was funded by Verio in addition to the $3.4 million. (See
note 6). In addition, the Plan was amended to provide for Verio's right to
acquire all of the securities outstanding under that plan.
F-65
<PAGE> 148
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
VERIO INC.:
We have audited the accompanying balance sheet of Aimnet Corporation
(wholly-owned by Aimquest Corporation) as of March 31, 1997 and the related
statements of operations, stockholder's equity, and cash flows for the year
ended March 31, 1997 and the period ended May 19, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aimnet Corporation as of
March 31, 1997, and the results of its operations and its cash flows for the
year ended March 31, 1997 and the period ended May 19, 1997 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
February 25, 1998
F-66
<PAGE> 149
AIMNET CORPORATION
(WHOLLY-OWNED BY AIMQUEST CORPORATION)
BALANCE SHEET
MARCH 31, 1997
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash...................................................... $ 201,074
Trade receivables, net of allowance for doubtful accounts
of $52,770............................................. 460,611
Inventory................................................. 39,344
Prepaid expenses and other................................ 44,867
-----------
Total current assets.............................. 745,896
Equipment, net (note 2)..................................... 880,224
-----------
Total assets...................................... $ 1,626,120
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable.......................................... $ 141,680
Accrued expenses.......................................... 31,260
Deferred revenue.......................................... 19,251
Due to parent (note 3).................................... 514,122
Current portion of obligations under capital lease
obligations (note 4)................................... 8,153
-----------
Total current liabilities......................... 714,466
Capital lease obligations, less current portion (note 4).... 17,409
-----------
Total liabilities................................. 731,875
Stockholder's equity (note 6):
Common stock, no par value, 1,000 shares authorized, 100
shares issued and outstanding.......................... 2,307,640
Accumulated deficit....................................... (1,413,395)
-----------
Total stockholder's equity........................ 894,245
Commitments (note 4)
-----------
Total liabilities and stockholder's equity........ $ 1,626,120
===========
</TABLE>
See accompanying notes to financial statements.
F-67
<PAGE> 150
AIMNET CORPORATION
(WHOLLY-OWNED BY AIMQUEST CORPORATION)
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1997 AND PERIOD ENDED MAY 19, 1997
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 19,
1997 1997
----------- ------------
<S> <C> <C>
Revenue:
Internet services......................................... $ 2,649,839 303,600
Other (note 3)............................................ 215,279 87,788
----------- ---------
Total revenue..................................... 2,865,118 391,388
----------- ---------
Operating expenses:
Internet services and other operating costs............... 1,225,329 124,275
Selling, general and administrative....................... 2,098,958 437,292
Provision for bad debts................................... 425,295 --
Depreciation.............................................. 528,931 94,801
----------- ---------
Total operating expenses.......................... 4,278,513 656,368
----------- ---------
Net loss.......................................... $(1,413,395) (264,980)
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-68
<PAGE> 151
AIMNET CORPORATION
(WHOLLY-OWNED BY AIMQUEST CORPORATION)
STATEMENT OF STOCKHOLDER'S EQUITY
YEAR ENDED MARCH 31, 1997 AND PERIOD ENDED MAY 19, 1997
<TABLE>
<CAPTION>
INTERCOMPANY
COMMON ACCOUNT ACCUMULATED
STOCK WITH PARENT DEFICIT TOTAL
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Balance as of March 31, 1996................ $ -- 1,592,490 -- 1,592,490
Incorporation as wholly owned subsidiary and
additional capital contribution by
parent.................................... 2,307,640 (1,592,490) -- 715,150
Net loss.................................... -- -- (1,413,395) (1,413,395)
---------- ---------- ---------- ----------
Balances as of March 31, 1997............... $2,307,640 -- (1,413,395) 894,245
Net loss.................................... -- -- (264,980) (264,980)
---------- ---------- ---------- ----------
Balances as of May 19, 1997................. $2,307,640 -- (1,678,375) 629,265
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE> 152
AIMNET CORPORATION
(WHOLLY-OWNED BY AIMQUEST CORPORATION)
STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1997 AND PERIOD ENDED MAY 19, 1997
<TABLE>
<CAPTION>
PERIOD ENDED
1997 MAY 19, 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,413,395) (264,980)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation........................................... 528,931 94,801
Provision for bad debts................................ 425,295 --
Changes in operating assets and liabilities:
Decrease (increase) in trade receivables............. (375,042) 40,670
Decrease (increase) in inventory..................... (5,423) 13,107
Decrease in prepaid expenses and other............... 7,047 4,416
Decrease in accounts payable......................... (44,692) (7,459)
Increase (decrease) in accrued expenses.............. (15,248) 18,522
Increase (decrease) in deferred revenue.............. 10,968 (5,171)
----------- --------
Net cash used by operating activities............. (881,559) (106,094)
----------- --------
Cash flows from investing activities -- purchases of
equipment................................................. (320,809) (54,458)
----------- --------
Cash flows from financing activities:
Cash capital contribution by parent....................... 715,150 --
Increase in due to related party.......................... 514,122 55,264
Principal payments on capital lease obligations........... (3,255) (1,548)
----------- --------
Net cash provided by financing activities......... 1,226,017 53,716
----------- --------
Increase (decrease) in cash....................... 23,649 (106,836)
Cash, beginning of period................................... 177,425 201,074
----------- --------
Cash, end of period......................................... $201,074 94,238
=========== ========
Noncash investing and financing activities --
Equipment acquired through capital lease obligations...... $28,817 --
=========== ========
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE> 153
AIMNET CORPORATION
(WHOLLY-OWNED BY AIMQUEST CORPORATION)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Aimnet Corporation (the Company) was incorporated in the State of
California on September 26, 1996 as a wholly owned subsidiary of Aimquest
Corporation (Aimquest). Prior to incorporation, the Company's assets,
liabilities, and operations were included in the financial statements of
Aimquest. The Company provides regional internet access services, and hardware
and software sales to customers in California. The accompanying financial
statements include the operations of the Company assuming that the Company had
been operated separately as of April 1, 1996 and thereafter.
Effective May 19, 1997, Verio Inc. acquired a 55% ownership interest in the
Company (see note 6).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and/or collected in advance. Revenue
from hardware and software sales is recognized upon shipment of the respective
products.
Inventory
Inventory, consisting of systems hardware and software and maintenance
parts and supplies is recorded at the lower of cost (first-in, first-out) or
market.
Equipment
Equipment, including assets held under capital leases, is stated at cost,
less accumulated depreciation and amortization. Depreciation and amortization is
recorded using the straight-line method over the shorter of the estimated useful
lives of the related assets or the lease term, which are two or three years.
Costs for normal repairs and maintenance are expensed as incurred.
Income Taxes
The Company is included in the tax returns of Aimquest. Income taxes are
accounted for under the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, (SFAS 109). Under SFAS 109,
deferred income taxes are recognized for the future tax consequences of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
No tax benefit has been allocated to the Company due to the Company's net
loss and the uncertainty regarding the ultimate utilization of such loss in the
consolidated income tax returns of Aimquest. A valuation allowance has been
recorded for the entire balance of the deferred tax asset related to the
Company's net loss.
F-71
<PAGE> 154
AIMNET CORPORATION
(WHOLLY-OWNED BY AIMQUEST CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk and Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized for
financial statement purposes. Management estimates that the fair values of all
financial instruments as of March 31, 1997 approximate their carrying values
based on their terms and interest rates. The use of different market assumptions
and/or estimation methodologies may have a significant effect on the estimated
fair values.
Customers who operate in California represent substantially all of the
Company's customer base and accounts receivable. However, no single customer
comprised more than 5% of accounts receivable or total revenue as of or for the
year ended March 31, 1997 or the period ended May 19, 1997.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of (SFAS 121). This
statement was effective for financial statements for fiscal years beginning
after December 15, 1995. Statement No. 121 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted future cash flows estimated to be generated by
those assets are less than the assets' carrying amount. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value, less costs to sell. The adoption of SFAS 121 effective
April 1, 1996 did not have a significant effect on the Company's financial
position or results of operations.
(2) EQUIPMENT
Equipment consisted of the following at March 31, 1997:
<TABLE>
<S> <C>
Internet and computer equipment.......................... $1,712,000
Furniture................................................ 29,144
----------
1,741,144
Less accumulated depreciation............................ (860,920)
----------
$ 880,224
==========
</TABLE>
Equipment includes assets owned under capital leases with a net book value
of $25,562 at March 31, 1997.
(3) RELATED PARTY TRANSACTIONS
The Company provides internet services to Aimquest which totaled $5,924 for
the year ended March 31, 1997 and $20,386 for the period ended May 19, 1997.
Amounts due to parent represent cash transfers from Aimquest which are
noninterest bearing.
F-72
<PAGE> 155
AIMNET CORPORATION
(WHOLLY-OWNED BY AIMQUEST CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain computer and office equipment under capital
leases. The Company also leases office space under noncancelable operating
leases expiring at various dates through 2001. Future minimum annual lease
payments under capital and noncancelable operating leases for each of the years
ending March 31 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ----------
<S> <C> <C>
1998.................................................... $12,396 327,146
1999.................................................... 12,396 283,916
2000.................................................... 8,780 279,810
2001.................................................... -- 109,488
Less future minimum payments to be received under
noncancelable subleases............................... -- (31,059)
------- -------
Total minimum payments................................ 33,572 969,301
=======
Less amount representing interest....................... (8,010)
-------
Present value of net minimum lease payments........... 25,562
Less current portion.................................... (8,153)
-------
$17,409
=======
</TABLE>
Rent expense for the year ended March 31, 1997 and the period ended May 19,
1997 totaled $314,890 and $38,203, respectively.
(5) EMPLOYEE BENEFIT PLAN
Aimquest has a 401(k) (the Plan) covering all employees of the Company who
meet certain eligibility requirements. Employer contributions are not required
and the Company did not make any contributions to the Plan during the year ended
March 31, 1997 or the period ended May 19, 1997.
(6) SUBSEQUENT EVENT
Effective May 19, 1997, Verio Inc. (Verio) acquired 77 shares of the
Company's series A preferred stock for cash consideration of approximately
$4,171,000. The preferred shares represent a 55% ownership interest in the
Company, on a fully diluted basis, and are convertible into common shares on a
one for one basis. In addition, the preferred shares have a liquidation
preference equal to the issuance price. Verio also acquired an option to acquire
a 100% ownership in the Company in the future upon the occurrence of certain
events, including an initial public offering of Verio common stock.
F-73
<PAGE> 156
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying balance sheet of West Coast Online, Inc.
as of September 30, 1997 and the related statements of operations and
accumulated deficit, and cash flows for the nine months then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of West Coast Online, Inc. as
of September 30, 1997, and the results of its operations and its cash flows for
the nine months then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
November 21, 1997
F-74
<PAGE> 157
WEST COAST ONLINE, INC.
BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash...................................................... $ 25,907
Trade receivables, net of allowance for doubtful accounts
of $3,588.............................................. 96,659
Prepaid expenses and other................................ 4,933
---------
Total current assets.............................. 127,499
Equipment, net (note 2)..................................... 524,474
Other assets................................................ 7,148
---------
Total assets...................................... $ 659,121
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable:
Trade.................................................. $ 41,270
Related party.......................................... 27,009
Accrued liabilities....................................... 105,487
Deferred revenue.......................................... 99,679
Current portion of capital lease obligations (note 3)..... 57,874
---------
Total current liabilities......................... 331,319
Capital lease obligations, less current portion (note 3).... 69,994
Total liabilities................................. 401,313
---------
Redeemable preferred stock, 2,000,000 shares authorized
(note 4):
Series A, 60,000 shares issued and outstanding............ 225,000
Series B, 50,710 shares issued and outstanding............ 250,000
---------
Total redeemable preferred stock.................. 475,000
---------
Stockholders' deficit (note 4):
Common stock, no par value, 1,000,000 shares authorized,
246,000 shares issued and outstanding.................. 79,775
Accumulated deficit....................................... (296,967)
---------
Total stockholders' deficit....................... (217,192)
Commitments (note 3)
Total liabilities and stockholders' deficit....... $ 659,121
=========
</TABLE>
See accompanying notes to financial statements.
F-75
<PAGE> 158
WEST COAST ONLINE, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C>
Revenue:
Internet services......................................... $1,354,911
Computer hardware sales................................... 171,818
Other..................................................... 126,394
----------
Total revenue..................................... 1,653,123
----------
Operating expenses:
Internet services operating costs......................... 641,106
Cost of hardware sales.................................... 136,978
Selling, general and administrative....................... 913,743
Depreciation.............................................. 106,185
----------
Total operating expenses.......................... 1,798,012
----------
Loss from operations.............................. (144,889)
Interest expense............................................ (22,772)
----------
Net loss.......................................... (167,661)
Accumulated deficit at beginning of period.................. (129,306)
----------
Accumulated deficit at end of period........................ $ (296,967)
==========
</TABLE>
See accompanying notes to financial statements.
F-76
<PAGE> 159
WEST COAST ONLINE, INC.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(167,661)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation........................................... 106,185
Provision for bad debts................................ 3,588
Changes in operating assets and liabilities:
Receivables.......................................... (39,945)
Prepaid expenses and other current assets............ 5,197
Other assets......................................... (7,148)
Accounts payable and accrued liabilities............. 12,802
Deferred revenue..................................... 35,944
---------
Net cash used by operating activities............. (51,038)
---------
Cash flows from investing activities -- purchase of
equipment................................................. (154,301)
---------
Cash flows from financing activities:
Proceeds from issuance of redeemable preferred stock...... 250,000
Principal payments under capital lease obligations........ (36,541)
---------
Net cash provided by financing activities......... 213,459
---------
Net increase in cash.............................. 8,120
Cash at beginning of period................................. 17,787
---------
Cash at end of period....................................... $ 25,907
=========
Supplemental disclosure of cash flow information -- cash
paid during the year for interest......................... $ 22,772
=========
Noncash investing and finance activities -- equipment
acquired through capital lease obligations................ $ 67,064
=========
</TABLE>
See accompanying notes to financial statements.
F-77
<PAGE> 160
WEST COAST ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
West Coast Online, Inc. (the Company) was incorporated in the State of
California on January 30, 1996. The Company provides internet access services
and computer hardware sales to customers primarily in California.
As of September 30, 1997, Verio Inc. (Verio) acquired all of the
outstanding common stock of the Company, resulting in 100% ownership.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Equipment
Equipment is stated at cost, less accumulated depreciation. Depreciation is
recorded using the straight-line method over the shorter of the estimated useful
lives of the related assets or the lease term, which range from three to five
years. Costs of normal repairs and maintenance are expensed as incurred.
Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of (SFAS 121). SFAS 121 requires impairment losses to be recorded on long-lived
assets used in operations, including goodwill, when indications of impairment
are present and the undiscounted future cash flows estimated to be generated by
those assets are less than the assets' carrying amount. If such assets are
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the estimated fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying value or fair
value, less costs to sell.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and/or collected in advance.
Revenue from hardware sales is recognized upon shipment of the respective
products if the Company's future obligations are not significant and
collectibility is probable.
Income Taxes
Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109).
Under SFAS 109, deferred income taxes are recognized for the future tax
consequences of differences between the tax bases of assets and liabilities and
their financial reporting amounts at September 30, 1997 based on enacted tax
laws and statutory rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company has a net operating loss carryforward of approximately $181,000
which expires in 2012. No tax benefit has been recorded by the Company for the
nine months ended September 30, 1997 due to the Company's net loss and the
uncertainty regarding the ultimate utilization of such loss carryforward. A
valuation allowance has been
F-78
<PAGE> 161
WEST COAST ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
recorded for the entire balance of the deferred tax asset related to the
carryforward. Other temporary differences between financial statement and income
tax bases of assets and liabilities are not significant.
Concentration of Credit Risk and Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized for
financial statement purposes. Management estimates that the fair values of all
financial instruments as of December 31, 1997 approximate their carrying values
based on their terms and interest rates. The use of different market assumptions
and/or estimation methodologies may have a significant effect on the estimated
fair values.
Customers who operate in California represent substantially all of the
Company's customer base. However, no single customer comprised more than 10% of
accounts receivable or total revenue for the nine months ended September 30,
1997.
(2) EQUIPMENT
Equipment consisted of the following at September 30, 1997:
<TABLE>
<S> <C>
Internet and computer equipment............................. $ 733,411
Furniture and office equipment.............................. 21,312
---------
754,723
Less accumulated depreciation and amortization.............. (230,249)
---------
$ 524,474
=========
</TABLE>
Equipment includes assets held under capital leases with a net book value
of $134,362 at September 30, 1997.
(3) COMMITMENTS
The Company leases certain computer and office equipment under capital
leases. The Company also leases office space under noncancelable leases expiring
at various dates through 2001. Future minimum annual lease payments under
noncancelable operating leases for each of the years ending September 30 are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
1998................................................... $ 70,104 $ 72,160
1999................................................... 63,728 36,342
2000................................................... 18,974 10,743
2001................................................... -- 7,162
-------- --------
Total minimum payments............................... $152,806 $126,407
========
Less amount representing interest...................... (24,938)
--------
Present value of net minimum lease payments.......... 127,868
Less current portion................................... (57,874)
--------
$ 69,994
========
</TABLE>
Rent expense for the nine months ended September 30, 1997 totaled $64,820.
F-79
<PAGE> 162
WEST COAST ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) REDEEMABLE PREFERRED STOCK
The Company issued 60,000 Series A and 50,710 Series B shares of
redeemable, convertible preferred stock in 1996 and 1997, respectively, to
Verio. The preferred shares were convertible into common shares on a one for one
basis and were mandatorily redeemable in 2000. On September 30, 1997, in
connection with the Verio Acquisition, as described in Note 1, Verio converted
these preferred shares to common stock.
F-80
<PAGE> 163
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying balance sheet of Clark Internet Services,
Inc. as of September 30, 1997, and the related statements of operations and
retained earnings, and cash flows for the year ended September 30, 1997 and the
period ended October 17, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Clark Internet Services,
Inc. as of September 30, 1997, and the results of its operations and its cash
flows for the year ended September 30, 1997 and the period ended October 17,
1997 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
February 25, 1998
F-81
<PAGE> 164
CLARK INTERNET SERVICES, INC.
BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 54,293
Trade accounts receivable, net of allowance for doubtful
accounts of $28,154.................................... 438,186
Related party receivable (note 5)......................... 42,104
Prepaid expenses and other................................ 122,894
----------
Total current assets.............................. 657,477
Equipment, net (note 2)..................................... 650,001
Other assets, net........................................... 112,475
----------
Total assets...................................... $1,419,953
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 261,194
Accrued liabilities....................................... 91,474
Salaries and commissions payable.......................... 98,220
Deferred revenue and customer advances.................... 514,555
Current portion of long-term debt (note 3)................ 175,800
----------
Total current liabilities......................... 1,141,243
Long-term debt, net of current portion (note 3)............. 264,950
Total liabilities................................. 1,406,193
Stockholders' equity:
Common stock, no par value, 1,000,000 shares authorized,
860,000 shares issued and outstanding.................. 4,000
Retained earnings......................................... 9,760
----------
Total stockholders' equity........................ 13,760
----------
Commitments (note 4)
Total liabilities and stockholders' equity........ $1,419,953
==========
</TABLE>
See accompanying notes to financial statements.
F-82
<PAGE> 165
CLARK INTERNET SERVICES, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED SEPTEMBER 30, 1997 AND PERIOD ENDED OCTOBER 17, 1997
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 17,
1997 1997
---------- ------------
<S> <C> <C>
Revenue:
Internet services......................................... $3,601,491 159,079
Other..................................................... 114,193 48,917
---------- -------
Total revenue..................................... 3,715,684 207,996
---------- -------
Operating expenses:
Internet services......................................... 1,672,046 48,346
Selling, general and administrative....................... 2,053,619 195,610
Depreciation and amortization............................. 139,379 9,547
---------- -------
Total operating expenses.......................... 3,865,044 253,503
---------- -------
Loss from operations.............................. (149,360) (45,507)
Other income (expense):
Interest income........................................... 2,702 (1,054)
Interest expense.......................................... (26,929) --
---------- -------
Net loss.......................................... (173,587) (46,561)
Retained earnings (deficit):
Beginning of period....................................... 183,347 9,760
---------- -------
End of period............................................. $ 9,760 (36,801)
========== =======
</TABLE>
See accompanying notes to financial statements.
F-83
<PAGE> 166
CLARK INTERNET SERVICES, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1997 AND PERIOD ENDED OCTOBER 17, 1997
<TABLE>
<CAPTION>
PERIOD ENDED
1997 OCTOBER 17, 1997
--------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(173,587) (46,561)
Adjustments to reconcile net loss to net cash provided by
operating activities -- depreciation and
amortization........................................... 139,379 9,547
Changes in operating assets and liabilities:
Trade and related party accounts receivable, net....... (362,396) 2,483
Prepaid expenses and other............................. (19,671) 32,793
Accounts payable....................................... 157,360 (78,954)
Accrued liabilities, and salaries and commissions
payable............................................... 92,849 30,677
Deferred revenue and customer advances................. 245,114 30,809
Other assets, net...................................... (61,263) 12,179
--------- --------
Net cash provided (used) by operating
activities...................................... 17,785 (7,027)
Cash flows used by investing activities --
purchases of equipment.................................... (425,477) --
--------- --------
Cash flows used by financing activities:
Proceeds from bank lines of credit........................ 90,000 --
Proceeds from bank loan................................... 375,000 --
Repayment of bank loan.................................... (51,929) --
--------- --------
Net cash provided by financing activities......... 413,071 --
--------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 5,379 (7,027)
Cash and cash equivalents, at beginning of period........... 48,914 54,293
--------- --------
Cash and cash equivalents, at end of period................. $ 54,293 47,266
========= ========
Supplemental disclosures of cash flow information --
cash paid during year for interest........................ $ 26,929 1,053
========= ========
</TABLE>
See accompanying notes to financial statements.
F-84
<PAGE> 167
CLARK INTERNET SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Clark Internet Services, Inc. (the Company) is a provider of internet
access services to businesses and individuals, primarily in the Maryland,
Washington DC, and Northern Virginia regions.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Effective October 17, 1997, Verio Inc. acquired 51% of the outstanding
common stock of the Company.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Equipment
Equipment is recorded at cost. Depreciation is provided over the estimated
useful lives of the assets ranging from 3 to 5 years using the straight-line
method.
Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of (Statement No. 121). Statement No. 121 requires impairment losses to be
recorded on long-lived assets used in operations, including goodwill, when
indicators of impairment are present and the undiscounted future cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. If such assets are impaired, the impairment to be recognized is measured
by the amounts by which the carrying amount of the assets exceeds the fair value
of the assets. Assets to be disposed of are reported at the lower of the
carrying value or fair value, less costs to sell.
Revenue Recognition
Internet services revenue is recognized as the services are provided.
Installation charges and set-up fees are recognized when installation is
completed. The Company records deferred revenue for accounts billed and/or
collected in advance.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109).
SFAS 109 requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
At December 31, 1997, the Company has a net operating loss carryforward for
federal income tax purposes of $235,000 which is available to offset future
federal taxable income, if any, through 2012. Due to the uncertainty regarding
the ultimate utilization of the net operating loss carryforward a valuation
allowance
F-85
<PAGE> 168
CLARK INTERNET SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
has been recorded for the full amount of the deferred tax asset related to the
net operating loss carryforward, which represents the only significant temporary
difference as of September 30, 1997.
Concentration of Credit Risk and Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized for
financial statements purposes. Management estimates that the fair values of all
financial instruments as of September 30, 1997 approximate their carrying values
based on their terms and interest rates. The use of different market assumptions
and/or estimation methodologies may have a significant effect on the estimated
fair values.
(2) EQUIPMENT
Equipment consisted of the following at September 30, 1997:
<TABLE>
<S> <C>
Furniture and fixtures...................................... $ 337,163
Computer and equipment...................................... 656,496
---------
993,659
Less accumulated depreciation............................... (343,658)
---------
$ 650,001
=========
</TABLE>
Depreciation expense for the year ended September 30, 1997 and the period
ended October 17, 1997 totaled $138,054 and $9,547, respectively.
(3) BANK LINE OF CREDIT AND NOTES PAYABLE
In April 1997, the Company entered into a $200,000 line of credit agreement
with a bank, with interest at the prime rate plus 1.5% (10.0% at September 30,
1997). Borrowings under the line of credit are due in April 1998.
In addition, the Company also borrowed $375,000 from a bank under a loan
secured by the Small Business Administration with interest at the prime rate
plus 2% (10.5% at September 30, 1997). Monthly principal payments of $6,250 are
due through April 2002.
(4) LEASES
The Company leases its facilities under long-term operating leases expiring
at various dates through 2002. Future minimum lease payments consist of the
following at September 30:
<TABLE>
<CAPTION>
<S> <C>
1998........................................................ $363,000
1999........................................................ 182,155
2000........................................................ 42,926
2001........................................................ 25,320
2002........................................................ 13,811
--------
Total minimum lease payments...................... $627,212
========
</TABLE>
Rent expense totaled $484,162 for the year ended September 30, 1997.
(5) TRANSACTION WITH RELATED PARTY
The related party receivable at September 30, 1997 is due from an entity
owned by the Company's Chief Executive Officer, for whom the Company provides
general accounting and administrative services. These amounts were repaid
subsequent to September 30, 1997.
F-86
<PAGE> 169
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying balance sheets of ATMnet Corporation as of
October 31, 1996 and 1997, and the related statements of operations,
stockholders' deficit, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ATMnet Corporation as of
October 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
December 13, 1997
F-87
<PAGE> 170
ATMNET CORPORATION
BALANCE SHEETS
OCTOBER 31, 1996 AND 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 76,037 11,739
Trade receivables, net of allowance for doubtful accounts
of $30,000 and $25,981................................. 279,871 192,726
Other receivables......................................... 13,646 --
Other..................................................... 56,607 65,886
----------- -----------
Total current assets.............................. 426,161 270,351
Equipment and leasehold improvements, net (note 2).......... 1,404,863 1,120,396
Investment in affiliate (note 3)............................ 87,500 --
Intangible assets, net of accumulated amortization of
$99,758 and $52,952....................................... 181,081 134,273
----------- -----------
Total assets...................................... $ 2,099,605 1,525,020
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,736,880 2,738,070
Accrued liabilities....................................... 162,381 589,794
Due to related parties (note 6)........................... 16,235 41,209
Deferred revenue.......................................... 176,481 115,393
Subordinated notes payable to stockholders and related
parties (note 4)....................................... -- 908,979
Current portion of capital lease obligations (note 7)..... 140,223 150,134
----------- -----------
Total current liabilities......................... 2,232,200 4,543,579
Capital lease obligations, less current portion............. 164,514 14,379
----------- -----------
Total liabilities................................. 2,396,714 4,557,958
Stockholders' deficit (note 5):
Common stock, no par value, 83,000,000 shares authorized;
29,100,000 shares issued and outstanding............... 1,158,532 1,158,532
Accumulated deficit....................................... (1,455,641) (4,191,470)
----------- -----------
Total stockholders' deficit....................... (297,109) (3,032,938)
Commitments (note 7)........................................
----------- -----------
Total liabilities and stockholders' deficit....... $ 2,099,605 1,525,020
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-88
<PAGE> 171
ATMNET CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Revenue:
Internet services (note 6)................................ $ 1,236,478 $ 2,730,732
Equipment sales........................................... 440,315 513,941
----------- -----------
Total revenue..................................... 1,676,793 3,244,673
----------- -----------
Operating expenses:
Cost of internet services................................. 845,465 1,963,858
Cost of equipment sold.................................... 258,517 381,043
Other operating expenses.................................. 645,710 721,012
Selling, general and administrative....................... 957,253 1,927,589
Depreciation and amortization............................. 343,682 649,510
----------- -----------
Total operating expenses.......................... 3,050,627 5,643,012
----------- -----------
Loss from operations...................................... (1,373,834) (2,398,339)
Other expenses:
Interest expense.......................................... (36,203) (167,864)
Other..................................................... (21,000) (169,626)
----------- -----------
Net loss.......................................... $(1,431,037) $(2,735,829)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-89
<PAGE> 172
ATMNET CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED OCTOBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
---------- ----------- -----------
<S> <C> <C> <C>
BALANCE AS OF NOVEMBER 1, 1995....................... $ 458,200 $ (24,604) $ 433,596
Issuance of common stock for cash.................... 700,332 -- 700,332
Net loss............................................. -- (1,431,037) (1,431,037)
---------- ----------- -----------
BALANCES AS OF OCTOBER 31, 1996...................... 1,158,532 (1,455,641) (297,109)
Net loss............................................. -- (2,735,829) (2,735,829)
---------- ----------- -----------
BALANCES AS OF OCTOBER 31, 1997...................... $1,158,532 $(4,191,470) $(3,032,938)
========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-90
<PAGE> 173
ATMNET CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,431,037) $(2,735,829)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation and amortization.......................... 343,682 649,510
Provision for doubtful accounts........................ 62,000 58,686
Loss on write-off of investment........................ -- 87,500
Changes in operating assets and liabilities:
Trade receivables.................................... (302,792) 28,459
Other receivables.................................... 46,354 13,646
Other current assets................................. (51,943) (9,279)
Accounts payable..................................... 1,710,981 1,001,190
Accrued liabilities and due to related parties....... 172,852 452,387
Deferred revenue..................................... 171,898 (61,088)
----------- -----------
Net cash provided (used) by operating
activities..................................... 721,995 (514,818)
----------- -----------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements.......... (1,235,719) (318,235)
Investment in affiliates, at cost......................... (87,500) --
----------- -----------
Net cash used by investing activities............. (1,323,219) (318,235)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of subordinated debt............... -- 1,018,979
Proceeds from issuance of common stock.................... 700,332 --
Principal payments on subordinated debt................... -- (110,000)
Principal payments on capital lease obligations........... (114,166) (140,224)
----------- -----------
Net cash provided by financing activities......... 586,166 768,755
----------- -----------
Net decrease in cash.............................. (15,058) (64,298)
Cash, beginning of year..................................... 91,095 76,037
----------- -----------
Cash, end of year........................................... $ 76,037 $ 11,739
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest............................................... $ 36,203 $ 25,765
=========== ===========
Noncash investing and financing activities -- equipment
acquired through capital lease obligations................ $ 345,046 $ --
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-91
<PAGE> 174
ATMNET CORPORATION
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
ATMnet Corporation (the Company) was incorporated in the State of
California on February 26, 1997. The Company provides regional internet access
services, and hardware sales to customers mainly in California.
Effective November 5, 1997, Verio Inc. acquired substantially all of the
net assets of the Company.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and/or collected in advance. Revenue
from hardware sales is recognized upon shipment of the respective products.
Equipment and Leasehold Improvements
Equipment and leasehold improvements, including assets held under capital
leases, is stated at cost, less accumulated depreciation and amortization.
Depreciation and amortization is recorded using the straight-line method over
the shorter of the estimated useful lives of the related assets or the lease
term, which are two or three years. Costs for normal repairs and maintenance are
expensed as incurred.
Investment in Affiliates
Investment in affiliate represents common stock of an affiliate
representing less than a 20% ownership interest which is accounted for using the
cost method.
Intangible Assets
The excess of cost over the fair value of net assets acquired, or goodwill,
and organization costs are amortized using the straight-line method over five
years.
Income Taxes
Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109).
Under SFAS 109, deferred income taxes are recognized for the future tax
consequences of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws and
statutory rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
The Company has a net operating loss carryforward for income tax purposes
of approximately $3,883,000 which expires in 2012. No tax benefit has been
recorded by the Company in fiscal 1996 and 1997 due to the Company's net loss
and the uncertainty regarding the ultimate utilization of such loss
carryforward. A valuation allowance has been recorded for the entire balance of
the deferred tax asset related to the carryforward. Other temporary differences
between financial statement and income tax bases of assets and liabilities are
not significant.
F-92
<PAGE> 175
ATMNET CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1996 AND 1997
Concentration of Credit Risk and Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized for
financial statement purposes. Management estimates that the fair values of all
financial instruments as of October 31, 1997 and 1996 approximate their carrying
values based on their terms and interest rates. The use of different market
assumptions and/or estimation methodologies may have a significant effect on the
estimated fair values.
Customers who operate in California represent substantially all of the
Company's customer base and accounts receivable. However, no single customer
comprised more than 5% of accounts receivable or total revenue as of or for the
year ended October 31, 1997 or 1996.
Long-Lived Assets
The Company accounts for long-lived assets under the provisions of
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
(SFAS 121). Statement No. 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted future cash flows estimated to be generated by those assets
are less than the assets' carrying amount. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value, less
costs to sell.
Stock-Based Compensation
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock compensation plan. Accordingly, since the Company
grants stock options with exercise prices equal to fair value at the date of
grant, no compensation expense has been recognized in 1996 or 1997. Under
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), entities are permitted to adopt the fair value method
of accounting for employee stock-based compensation plans. However, SFAS 123
allows an entity to continue using the intrinsic value method under APB Opinion
No. 25, but requires the entity to make pro forma disclosures of net income or
loss as if the fair value method of accounting had been applied.
(2) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment consisted of the following at October 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Internet and computer equipment............................. $1,613,305 1,786,575
Furniture and fixtures...................................... 77,668 133,730
Leasehold improvements...................................... 12,080 100,983
---------- ---------
1,703,053 2,021,288
Less accumulated depreciation............................... (298,190) (900,892)
---------- ---------
$1,404,863 1,120,396
========== =========
</TABLE>
Equipment and leasehold improvements includes assets owned under capital
leases with a net book value of $195,294 and $333,079 at October 31, 1996 and
1997, respectively.
F-93
<PAGE> 176
ATMNET CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1996 AND 1997
(3) INVESTMENT IN AFFILIATE
During fiscal 1996, the Company acquired a 10% interest in Turpike
Corporation for a purchase price of $87,500. The investment was written off in
fiscal 1997.
(4) SUBORDINATED NOTES PAYABLE
Subordinated notes payable as of October 31, 1997 consists of notes payable
to stockholders and related parties, with interest at rates varying from prime
plus 2% (10.5% at October 31, 1997) to 18%, due in June 1998. The notes are
subordinate to all other senior indebtedness of the Company. Interest expense
related to the subordinated notes totaled $104,130 in 1997.
(5) STOCK COMPENSATION PLANS
The Company established a Stock Option Plan in March 1996, whereby. at the
discretion of the Board of Directors (the Board), the Company may grant stock
options to certain key employees of the Company. The option price is determined
by the Board at the time the option is granted, but in no event is less than the
fair market value of the Company's common stock at the date of grant, as
determined by the Board. The options vest over a five year period or, in certain
circumstances, earlier based on the fair value of the Company's common shares,
as defined, and expire ten years from the date of grant. As of October 31, 1997,
no options had been exercised or are exercisable. The weighted-average
contractual life of outstanding options as of October 31, 1997 is approximately
two years.
The following table summarizes option activity for two years ended October
31, 1997:
Options granted during fiscal 1996 at the following exercise price:
<TABLE>
<S> <C>
Options granted during fiscal 1996 at the following exercise
price:
$0.30 per share........................................... 4,410,000
$0.33 per share........................................... 1,000,000
----------
Options outstanding at October 31, 1996..................... 5,410,000
Options cancelled......................................... (1,545,000)
----------
Options outstanding at October 31, 1997..................... 3,865,000
==========
Weighted average exercise price of outstanding options...... $.31
==========
</TABLE>
During the years ended October 31, 1996 and 1997, the per share
weighted-average fair value of stock options granted was $.03 on the date of
grant using the Black-Scholes opinion-pricing model with the following
weighted-average assumptions; no dividends or volatility, risk-free interest
rate of 6%, and expected life of two years. If the Company had determined
compensation expense for the years ended October 31, 1996 and 1997 based on the
fair value of the options at the grant dates under SFAS No. 123, net loss would
increase to $1,595,000 and $2,854,000, respectively.
(6) RELATED PARTY TRANSACTIONS
The Company provides internet services to a company whose founder and CEO
is a shareholder of ATMnet. Revenue earned by ATMnet from this company totaled
$15,523 and $22,581 during the years ended October 31, 1996 and 1997,
respectively.
Amounts due to related parties are for services provided, are non-interest
bearing and are due within one year.
F-94
<PAGE> 177
ATMNET CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1996 AND 1997
(7) LEASES
The Company leases certain computer and office equipment under capital
leases. The Company also leases office space under noncancelable operating
leases expiring at various dates through 2000. Future minimum annual lease
payments under capital and noncancelable operating leases for each of the years
ending October 31 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ---------
<S> <C> <C>
1998........................................................ $ 161,028 173,868
1999........................................................ 22,524 142,068
2000........................................................ -- 26,209
--------- -------
Total minimum payments.................................... 183,552 342,145
=======
Less amount representing interest........................... (19,039)
---------
Present value of net minimum lease payments............... 164,513
Less current portion........................................ (150,134)
---------
$ 14,379
=========
</TABLE>
Rent expense for the years ended October 31, 1996 and 1997 totaled $72,686
and $168,410, respectively.
F-95
<PAGE> 178
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying balance sheets of Global Internet Network
Services, Inc. (wholly-owned by Global Internet.Com Inc.) as of December 31,
1996 and November 26, 1997, and the related statements of operations,
stockholder's equity (deficit), and cash flows for the year ended December 31,
1996 and the period ended November 26, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Global Internet Network
Services, Inc. as of December 31, 1996 and November 26, 1997 and, and the
results of its operations and its cash flows for the year ended December 31,
1996 and the period ended November 26, 1997 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
February 20, 1998
F-96
<PAGE> 179
GLOBAL INTERNET NETWORK SERVICES, INC.
(WHOLLY-OWNED BY GLOBAL INTERNET.COM INC.)
BALANCE SHEETS
DECEMBER 31, 1996 AND NOVEMBER 26, 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Current assets:
Cash...................................................... $ 132,118 30,681
Trade receivables, net of allowance for doubtful accounts
of $59,777 in 1996 and $86,166 in 1997................. 935,979 449,959
Receivables from affiliates (note 3)...................... 40,497 53,542
Inventory................................................. 126,020 102,801
Prepaid expenses and other................................ 60,869 83,323
---------- ---------
Total current assets.............................. 1,295,483 720,306
Equipment, net (note 2)..................................... 557,142 799,179
Other assets................................................ 3,864 3,723
---------- ---------
Total assets...................................... $1,856,489 1,523,208
========== =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 631,660 109,651
Accrued liabilities....................................... 17,996 18,168
Deferred revenue.......................................... 486,167 418,885
Current portion of obligations under capital leases (note
4)..................................................... 37,828 106,720
Due to parent (note 3).................................... 942,098 --
---------- ---------
Total current liabilities......................... 2,115,749 653,424
Capital lease obligations, less current portion (note 4).... 31,687 193,630
---------- ---------
Total liabilities................................. 2,147,436 847,054
---------- ---------
Stockholder's equity (deficit):
Common stock, $1.00 par value, 10,000 shares authorized,
5,000 shares issued and outstanding.................... 5,000 5,000
Additional paid-in capital................................ 245,000 1,412,849
Accumulated deficit....................................... (540,947) (741,695)
---------- ---------
Total stockholder's equity (deficit)................... (290,947) 676,154
---------- ---------
Commitments (note 4)
Total liabilities and stockholder's equity (deficit)... $1,856,489 1,523,208
========== =========
</TABLE>
See accompanying notes to financial statements.
F-97
<PAGE> 180
GLOBAL INTERNET NETWORK SERVICES, INC.
(WHOLLY-OWNED BY GLOBAL INTERNET.COM INC.)
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 AND
PERIOD ENDED NOVEMBER 26, 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Revenue:
Internet services......................................... $1,979,201 2,501,037
Consulting services (note 3).............................. 344,233 564,150
Computer hardware and software sales (note 3)............. 853,396 355,731
National Science Foundation revenue (note 7).............. 440,119 114,982
Other..................................................... 80,401 248,816
---------- ----------
Total revenue..................................... 3,697,350 3,784,716
---------- ----------
Operating expenses:
Internet services operating costs......................... 1,530,020 1,960,653
Cost of hardware and software sales....................... 591,227 292,874
Engineering and network................................... 507,843 425,430
Marketing and selling..................................... 248,986 238,982
General and administrative................................ 956,052 785,960
Depreciation and amortization............................. 259,956 280,445
---------- ----------
Total operating expenses.......................... 4,094,084 3,984,344
---------- ----------
Loss from operations.............................. (396,734) (199,628)
Other income (expense):
Interest expense.......................................... (9,897) (8,229)
Other, net................................................ 43,577 7,109
---------- ----------
Net loss.......................................... $ (363,054) (200,748)
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-98
<PAGE> 181
GLOBAL INTERNET NETWORK SERVICES, INC.
(WHOLLY-OWNED BY GLOBAL INTERNET.COM INC.)
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1996 AND
PERIOD ENDED NOVEMBER 26, 1997
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDER'S
COMMON PAID-IN ACCUMULATED EQUITY
STOCK CAPITAL DEFICIT (DEFICIT)
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1996..................... $5,000 245,000 (177,893) 72,107
Net loss........................................ -- -- (363,054) (363,054)
------ --------- -------- --------
BALANCES AT DECEMBER 31, 1996................... 5,000 245,000 (540,947) (290,947)
Transfer of net assets to parent (note 6)....... -- (101,088) -- (101,088)
Conversion of note payable to parent to equity
(note 6)...................................... -- 1,156,437 -- 1,156,437
Capital contribution by parent (note 6)......... -- 112,500 -- 112,500
Net loss........................................ -- -- (200,748) (200,748)
------ --------- -------- --------
BALANCES AT NOVEMBER 26, 1997................... $5,000 1,412,849 (741,695) 676,154
====== ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-99
<PAGE> 182
GLOBAL INTERNET NETWORK SERVICES, INC.
(WHOLLY-OWNED BY GLOBAL INTERNET.COM INC.)
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 AND
PERIOD ENDED NOVEMBER 26, 1997
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(363,054) (200,748)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization.......................... 259,956 280,445
Provision for bad debts................................ 70,445 95,913
Changes in operating assets and liabilities:
Trade receivables.................................... (231,005) 377,062
Inventory............................................ (43,335) 23,219
Other current assets................................. (26,954) (22,454)
Accounts payable..................................... 575,188 (522,009)
Accrued liabilities.................................. (382,897) 172
Deferred revenue..................................... 58,277 (67,282)
Other................................................ (3,241) --
--------- ---------
Net cash used by operating activities............. (86,620) (35,682)
--------- ---------
Cash flows from investing activities -- purchases of
equipment................................................. (336,795) (334,161)
--------- ---------
Cash flows from financing activities:
Capital contribution by parent............................ -- 112,500
Advances by parent........................................ 544,707 214,339
Principal payments made under capital lease obligations... (39,720) (58,433)
--------- ---------
Net cash provided by financing activities......... 504,987 268,406
--------- ---------
Increase (decrease) in cash....................... 81,572 (101,437)
Cash, beginning of year..................................... 50,546 132,118
--------- ---------
Cash, end of year........................................... $ 132,118 30,681
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 10,095 15,681
========= =========
Noncash investing and financing activities:
Equipment acquired through capital lease obligations... $ -- 299,940
========= =========
Transfer of assets to parent........................... $ -- 101,088
========= =========
</TABLE>
See accompanying notes to financial statements.
F-100
<PAGE> 183
GLOBAL INTERNET NETWORK SERVICES, INC.
(WHOLLY-OWNED BY GLOBAL INTERNET.COM INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND NOVEMBER 26, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Global Internet Network Services, Inc. (the Company) is engaged in
providing regional internet access services, software and hardware consulting
and sales to customers in a ten state region. The Company was incorporated in
Nebraska in September 1987, as Midnet Inc., a nonprofit corporation organized to
promote research, education and economic development. On July 15, 1994, Midnet
Inc. became a for profit corporation and was purchased by Global Internet.Com
Inc. (Parent) on August 8, 1994. On March 12, 1997, the Company changed its
corporate name from Midnet Inc. to Global Internet Network Services, Inc.
Effective November 26, 1997, Verio Inc. (Verio) acquired a 100% ownership
interest in the Company. (see note 6).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and/or collected in advance. Revenue
from consulting services is recognized when services have been rendered. Revenue
from hardware and software sales is recognized upon shipment of the respective
products.
Inventory
Inventory, consisting of systems hardware and software and maintenance
parts and supplies is recorded at the lower of cost (first-in, first-out) or
market.
Equipment
Equipment, including any assets held under capital leases, is recorded at
cost, less accumulated depreciation and amortization. Depreciation and
amortization is recorded using the straight-line method over the estimated
useful lives of the related assets or the lease term, which range from three to
five years. Costs for normal repairs and maintenance are expensed as incurred.
Income Taxes
The Company is included in the tax returns of the Parent. Income taxes are
accounted for under the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109). Under SFAS 109,
deferred income taxes are recognized for the future tax consequences of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
The Company has a net operating loss carryforward of approximately
$518,000, which expires in 2012. No tax benefit has been recorded by the Company
for 1996 or 1997 due to the Company's net loss and the uncertainty regarding the
ultimate utilization of such loss in the consolidated income tax returns of the
Parent. A valuation allowance has been recorded for the entire balance of the
deferred tax asset related to the
F-101
<PAGE> 184
GLOBAL INTERNET NETWORK SERVICES, INC.
(WHOLLY-OWNED BY GLOBAL INTERNET.COM INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's net loss. Other temporary differences between financial statement and
income tax bases of assets and liabilities are not significant.
Concentration of Credit Risk
The Company provides unsecured credit to customers in the normal course of
business. Failure of the customers to pay could result in losses up to the
recorded receivable balances. The Company did not have any customers that
represent greater than 5% of total revenue for the year ended December 31, 1996
and the period ended November 26, 1997, respectively.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of (SFAS 121). This
statement was effective for financial statements for fiscal years beginning
after December 15, 1995. Statement No. 121 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted future cash flows estimated to be generated by
those assets are less than the assets' carrying amount. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at lower of the carrying amount or
fair value less costs to sell. SFAS 121 did not have a significant effect on the
Company's financial position or results of operations in 1997 and 1996.
(2) EQUIPMENT
Equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 26,
1996 1997
------------ ------------
<S> <C> <C>
Internet and computer equipment............................ $821,921 1,342,321
Furniture and office equipment............................. 137,847 150,254
Leasehold improvements..................................... 1,228 2,001
-------- ---------
960,996 1,494,576
Less accumulated depreciation and amortization............. (403,854) (695,397)
-------- ---------
$557,142 799,179
======== =========
</TABLE>
(3) TRANSACTIONS WITH PARENT
Amounts due to Parent represent noninterest bearing cash transfers from the
Parent (see note 6).
Hardware and software sales and consulting revenue from affiliates of the
Parent for the year ended December 31, 1996 and the period ended November 27,
1997 were $92,273 and $561,438, respectively.
(4) LEASES
The Company leases certain internet and computer equipment under capital
leases. At December 31, 1996 and November 26, 1997, leased equipment was
included in internet and computer equipment with net book values of $80,117 and
$367,003, respectively. The Company also leases office space under a
noncancelable operating lease expiring in November 2002.
F-102
<PAGE> 185
GLOBAL INTERNET NETWORK SERVICES, INC.
(WHOLLY-OWNED BY GLOBAL INTERNET.COM INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum annual lease payments under capital and noncancelable
operating leases for years ending November 30 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ---------
<S> <C> <C>
1998........................................................ $ 131,748 47,634
1999........................................................ 116,448 50,016
2000........................................................ 95,435 52,516
2001........................................................ -- 55,142
2002........................................................ -- 57,899
--------- -------
Total minimum payments.................................... 343,631 263,207
=======
Less amount representing interest........................... (43,281)
---------
Present value of net minimum lease payments............... 300,350
Less current portion........................................ (106,720)
---------
$ 193,630
=========
</TABLE>
Rent expense for the year ended December 31, 1996 and the period ended
November 26, 1997 was $71,738 and $63,724, respectively.
(5) EMPLOYEE BENEFIT PLAN
The Parent has a 401(k) (the Plan) covering all employees of the Company
who meet certain eligibility requirements. Employer contributions are not
required and the Parent did not make any contributions to the Plan during the
year ended December 31, 1996 and the period ended November 26, 1997.
(6) STOCKHOLDER'S EQUITY
In connection with the acquisition of common stock of the Company by Verio
Inc. (Verio) amounts due to parent totaling $1,156,437 were converted to equity
and the Parent made a cash contribution to the Company in the amount of
$112,500.
Prior to the Verio acquisition in November 1997, the Company transferred
certain net assets of a division to the Parent in the amount of $101,088, which
division was not acquired by Verio.
(7) NATIONAL SCIENCE FOUNDATION GRANTS
The Company receives grant revenue under contracts with the National
Science Foundation (NSF) to provide network connections to certain
not-for-profit educational institutions. Grant revenue is recognized ratably
over the term of the contract, which is generally twelve months. Grant revenue
amounted to $440,119 and $114,982 for the year ended December 31, 1996 and the
period ended November 26, 1997, respectively. Total amounts receivable at
December 31, 1996 and November 26, 1997 were $65,858 and $16,439, respectively.
F-103
<PAGE> 186
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying balance sheets of the Pennsylvania
Research Partnership Network (PREPnet) as of November 30, 1996 and 1997, and the
related statements of operations and owners' deficit, and cash flows for the
years then ended and the period ended December 24, 1997. These financial
statements are the responsibility of PREPnet's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Pennsylvania Research
Partnership Network (PREPnet) as of November 30, 1996 and 1997, and the results
of its operations and its cash flows for the years then ended and for the period
ended December 24, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
February 20, 1998
F-104
<PAGE> 187
THE PENNSYLVANIA RESEARCH PARTNERSHIP NETWORK
(PREPNET)
BALANCE SHEETS
NOVEMBER 30, 1996 AND 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
----------- ---------
<S> <C> <C>
Current assets:
Trade receivables, net of allowance for doubtful accounts
of $14,631 and $13,313, respectively................... $ 73,943 $ 102,041
Prepaid expenses and other................................ 1,769 15,409
----------- ---------
Total current assets.............................. 75,712 117,450
Equipment, net (note 2)..................................... 200,538 138,008
----------- ---------
Total assets...................................... $ 276,250 $ 255,458
=========== =========
LIABILITIES AND OWNER'S DEFICIT
Current liabilities:
Accounts payable.......................................... $ 88,639 $ 132,039
Accrued liabilities....................................... 44,555 3,020
Current portion of obligations under capital leases (note
3)..................................................... 57,468 56,262
Deferred revenue.......................................... 1,084,501 683,371
----------- ---------
Total current liabilities......................... 1,275,163 874,692
Capital lease obligations, less current portion (note 3).... 55,502 --
----------- ---------
Total liabilities................................. 1,330,665 874,692
Owners' deficit............................................. (1,054,415) (619,234)
Commitments (note 3)
----------- ---------
Total liabilities and owner's deficit............. $ 276,250 $ 255,458
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-105
<PAGE> 188
THE PENNSYLVANIA RESEARCH PARTNERSHIP NETWORK
(PREPNET)
STATEMENTS OF OPERATIONS AND OWNERS' DEFICIT
YEARS ENDED NOVEMBER 30, 1996 AND 1997 AND PERIOD ENDED DECEMBER 24, 1997
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 24,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
Revenue:
Internet services.................................... $ 2,027,682 $ 2,026,439 $ 156,459
Grant revenue (note 4)............................... 194,343 98,711 --
Other................................................ 6,309 22,477 --
----------- ----------- ----------
Total revenue................................ 2,228,334 2,147,627 156,459
----------- ----------- ----------
Costs and expenses:
Internet services operating costs.................... 588,543 792,684 80,972
Selling, general and administrative (note 5)......... 831,230 773,174 64,625
Depreciation......................................... 92,251 121,192 8,285
----------- ----------- ----------
Total costs and expenses..................... 1,512,024 1,687,050 153,882
----------- ----------- ----------
Earnings from operations..................... 716,310 460,577 2,577
Interest expense, net.................................. (18,331) (11,261) (938)
----------- ----------- ----------
Net earnings................................. 697,979 449,316 1,639
Owners' deficit at beginning of period................. (726,569) (1,054,415) (619,234)
Net advances to owners................................. (1,025,825) (14,135) (23,911)
----------- ----------- ----------
Owners' deficit at end of period....................... $(1,054,415) $ (619,234) $ (641,506)
=========== =========== ==========
Pro forma information:
Historical net earnings.............................. $ 697,979 $ 449,316 $ 1,639
Pro forma adjustment for income tax expense.......... (265,000) (171,000) (600)
----------- ----------- ----------
Pro forma net earnings....................... $ 432,979 $ 278,316 $ 1,039
=========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-106
<PAGE> 189
THE PENNSYLVANIA RESEARCH PARTNERSHIP NETWORK
(PREPNET)
STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 1996 AND 1997 AND PERIOD ENDED DECEMBER 24, 1997
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 24,
1996 1997 1997
----------- --------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings........................................ $ 697,979 $ 449,316 $ 1,639
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation..................................... 92,251 121,192 8,285
Provision for bad debts.......................... 14,631 13,313 --
Changes in operating assets and liabilities:
Trade receivables.............................. 58,406 (41,411) (38,747)
Prepaid expenses and other assets.............. -- (13,640) 6,294
Accounts payable and accrued liabilities....... 100,318 1,865 (5,400)
Deferred revenue............................... 178,313 (401,130) 57,131
----------- --------- ---------
Net cash provided by operating activities... 1,141,898 129,505 29,202
----------- --------- ---------
Cash flows from investing activities -- purchase of
equipment........................................... (61,987) (58,662) --
----------- --------- ---------
Cash flows from financing activities:
Repayments of capital lease obligations............. (54,086) (56,708) (5,291)
Net advances to owners.............................. (1,025,825) (14,135) (23,911)
----------- --------- ---------
Net cash used by financing activities....... (1,079,911) (70,843) (29,202)
----------- --------- ---------
Net change in cash and cash at beginning and
end of period............................. $ -- $ -- $ --
=========== ========= =========
Supplemental disclosure of cash flow
information -- cash paid for interest............... $ 18,331 $ 11,261 $ 938
=========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-107
<PAGE> 190
THE PENNSYLVANIA RESEARCH PARTNERSHIP NETWORK
(PREPNET)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
The accompanying financial statements include the accounts of the
Pennsylvania Research Partnership Network (PREPnet), the data communications
network of a consortium of research institutions in Pennsylvania. A joint
venture between Carnegie Mellon University and the University of Pittsburgh
serves as the legal entity and coordinator of the consortium. The accompanying
financial statements have been prepared assuming that PREPnet had been operated
separately as of December 1, 1995 and thereafter. PREPnet provides internet
services to businesses, educational institutions, not-for-profit organizations,
and individual subscribers.
Effective December 24, 1997, the net assets of PREPnet were acquired by
Verio Inc. in a purchase business combination.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Internet services are recognized as the services are provided. PREPnet
records deferred revenue for amounts billed and/or collected in advance.
Equipment
Equipment, including any assets held under capital leases, is stated at
cost, less accumulated depreciation. Depreciation is recorded using the
straight-line method over the estimated useful lives of the related assets or
the lease term, which is 3 years. Costs for normal repairs and maintenance are
expensed as incurred.
Long-Lived Assets
PREPnet evaluates the carrying value of its long-lived assets under the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of (SFAS 121). Statement No. 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted future cash flows estimated to be generated by those assets
are less than the assets' carrying amount. If such assets are impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
Income Taxes
The operations of PREPnet are included in the income tax returns of the
joint venture, which is a non-profit entity and is exempt from income taxes.
However, pro forma information has been included in the accompanying statement
of operations to reflect a pro forma adjustment for income tax expense as if
PREPnet had been a separate taxable entity subject to federal and state income
taxes for all periods presented.
F-108
<PAGE> 191
THE PENNSYLVANIA RESEARCH PARTNERSHIP NETWORK
(PREPNET)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk and Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized for
financial statements purposes. Management estimates that the fair values of all
financial instruments as of November 30, 1996 and 1997 approximate their
carrying values based on their terms and interest rates. The use of different
market assumptions and/or estimation methodologies may have a significant effect
on the estimated fair values.
(2) EQUIPMENT
Equipment consisted of the following at November 30:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Internet and computer equipment............................. $ 321,434 $ 376,014
Furniture and office equipment.............................. 5,854 9,936
--------- ---------
327,288 385,950
Less accumulated depreciation and amortization.............. (126,750) (247,942)
--------- ---------
$ 200,538 $ 138,008
========= =========
</TABLE>
(3) COMMITMENTS
PREPnet leases certain computer and office equipment under capital leases.
PREPnet also leases office space under noncancelable operating leases expiring
at various dates through 2001.
Future minimum annual lease payments under capital and noncancelable
operating leases for each of the years ending November 30 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
1998........................................................ $ 58,810 $ 50,731
1999........................................................ -- 50,341
2000........................................................ -- 27,867
2001........................................................ -- 49,171
-------- --------
Total minimum payments.................................... 58,810 $178,110
========
Less amount representing interest........................... (2,548)
--------
Present value of net minimum lease payments............... 56,262
Less current portion........................................ (56,262)
--------
$ --
========
</TABLE>
Rent expense for the years ended November 30, 1996 and 1997 and the period
ended December 24, 1997 was $47,674, $73,218 and $6,102, respectively.
(4) GRANT REVENUE
PREPnet receives grant revenue from the National Science Foundation and
other government agencies to provide network connections to certain
not-for-profit educational institutions. Grant revenue is recognized ratably
over the term of the contract, which is generally twelve months. Total deferred
grant revenue at November 30, 1996 was $71,667.
F-109
<PAGE> 192
THE PENNSYLVANIA RESEARCH PARTNERSHIP NETWORK
(PREPNET)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) RELATED PARTY TRANSACTIONS
Carnegie Mellon University provides administrative support and use of
facilities to PREPnet and allocates the cost of these services to the entity.
Such allocations totalled approximately $69,188 and $81,886 for the years ended
November 30, 1996 and 1997, respectively.
F-110
<PAGE> 193
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying balance sheets of Monumental Network
Systems, Inc. as of December 31, 1996 and 1997, and the related statements of
operations, stockholders' deficit, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Monumental Network Systems,
Inc. as of December 31, 1996 and 1997, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
February 25, 1998
F-111
<PAGE> 194
MONUMENTAL NETWORK SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
--------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 63,693 $ --
Trade receivables, net of allowance for doubtful accounts
of $15,363 and $41,207................................. 138,263 214,440
--------- -----------
Total current assets.............................. 201,956 214,440
Equipment, net (note 2)..................................... 359,327 440,406
Other assets, net........................................... 17,664 66,562
--------- -----------
Total assets...................................... $ 578,947 $ 721,408
========= ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 186,526 $ 258,319
Accrued liabilities....................................... 23,052 163,436
Current portion of notes payable (note 3):
Related party.......................................... 30,025 132,954
Other.................................................. 9,789 49,694
Current portion of obligations under capital lease (note
4)..................................................... 70,736 82,194
Deferred revenue.......................................... 326,924 573,057
Cash overdraft............................................ -- 166,157
--------- -----------
Total current liabilities......................... 647,052 1,425,811
Notes payable, less current portion (note 3)................ 8,915 21,067
Capital lease obligations, less current portion (note 4).... 114,764 97,208
--------- -----------
Total liabilities................................. 770,731 1,544,086
Stockholders' deficit:
Common stock, $1.00 par value, 500,000 shares authorized,
300,944 and 302,779 shares issued and outstanding as of
December 31, 1996 and 1997............................. 300,944 302,779
Additional paid-in capital................................ 197,494 199,329
Accumulated deficit....................................... (690,222) (1,324,786)
--------- -----------
Total stockholders' deficit....................... (191,784) (822,678)
Commitments (note 4)
--------- -----------
Total liabilities and stockholders' deficit....... $ 578,947 $ 721,408
========= ===========
</TABLE>
See accompanying notes to financial statements.
F-112
<PAGE> 195
MONUMENTAL NETWORK SYSTEMS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Revenue:
Internet services......................................... $1,250,789 $2,425,121
Computer hardware and software sales...................... 95,557 41,733
Other..................................................... 24,197 4,653
---------- ----------
Total revenue..................................... 1,370,543 2,471,507
---------- ----------
Operating expenses:
Internet services operating costs......................... 385,439 743,524
Cost of hardware and software sales....................... 198,486 417,559
Selling, general and administrative....................... 1,246,716 1,756,956
Depreciation.............................................. 74,607 172,092
---------- ----------
Total operating expenses.......................... 1,905,248 3,090,131
---------- ----------
Loss from operations.............................. (534,705) (618,624)
Interest expense, net....................................... 18,448 15,940
---------- ----------
Net loss.......................................... $ (553,153) $ (634,564)
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-113
<PAGE> 196
MONUMENTAL NETWORK SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
------------------ PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1996.............. 114,015 $114,015 $ -- $ (137,069) $ (23,054)
Issuance of common shares for cash....... 100,000 100,000 100,000 -- 200,000
Issuance of common shares for services or
equipment.............................. 86,929 86,929 97,494 -- 184,423
Net loss................................. -- -- -- (553,153) (553,153)
------- -------- -------- ----------- ---------
BALANCES AT DECEMBER 31, 1996............ 300,944 300,944 197,494 (690,222) (191,784)
Issuance of common shares for cash....... 1,000 1,000 1,000 -- 2,000
Issuance of common shares for services... 835 835 835 -- 1,670
Net loss................................. -- -- -- (634,564) (634,564)
------- -------- -------- ----------- ---------
BALANCES AT DECEMBER 31, 1997............ 302,779 $302,779 $199,329 $(1,324,786) $(822,678)
======= ======== ======== =========== =========
</TABLE>
See accompanying notes to financial statements.
F-114
<PAGE> 197
MONUMENTAL NETWORK SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(553,153) $(634,564)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation........................................... 74,607 172,092
Provision for bad debts................................ 15,363 170,634
Changes in operating assets and liabilities:
Trade receivables.................................... (127,442) (246,811)
Other assets......................................... (15,691) (48,898)
Accounts payable..................................... 120,414 71,793
Accrued liabilities.................................. 13,704 140,384
Deferred revenue..................................... 278,172 246,133
--------- ---------
Net cash used by operating activities............. (194,026) (129,237)
--------- ---------
Cash flows from investing activities -- purchases of
equipment................................................. (142,367) (178,377)
--------- ---------
Cash flows from financing activities:
Net change in cash overdraft.............................. -- 166,157
Borrowings under note payable to related parties.......... 30,848 130,000
Principal payments on note payable to related parties..... (823) (27,071)
Borrowings under notes payable............................ 18,704 66,229
Repayments of notes payable............................... -- (14,172)
Principal payments on capital lease obligations........... (36,824) (80,892)
Issuance of common stock.................................. 384,423 3,670
--------- ---------
Net cash provided by financing activities......... 396,328 243,921
--------- ---------
Increase (decrease) in cash....................... 59,935 (63,693)
Cash at beginning of year................................... 3,758 63,693
--------- ---------
Cash at end of year......................................... $ 63,693 $ --
========= =========
Supplemental disclosure of cash flow information -- cash
paid during the year for interest......................... $ 18,739 $ 16,508
========= =========
Noncash investing and financing activities -- equipment
acquired through capital lease obligations................ $ 219,242 $ 74,794
========= =========
</TABLE>
See accompanying notes to financial statements.
F-115
<PAGE> 198
MONUMENTAL NETWORK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Monumental Network Systems, Inc. (the Company) was incorporated in the
State of Virginia on April 13, 1994. The Company's business consists of
providing regional internet access services, hardware and software sales, and
consulting to customers in Virginia, Maryland and the Washington D.C. area.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Effective December 31, 1997, Verio Inc. acquired all of the outstanding
common stock of the Company.
Equipment
Equipment, including any assets held under capital leases, is stated at
cost, less accumulated depreciation. Depreciation is recorded using the
straight-line method over the estimated useful lives of the related assets, or
over the lease term, which range from three to seven years. Costs for normal
repairs and maintenance are expensed as incurred.
Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of (SFAS 121). Statement No. 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted future cash flows estimated to be generated by those assets
are less than the assets' carrying amount. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at lower of the carrying amount or fair value less
costs to sell.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and/or collected in advance.
Revenue from consulting services is recognized when services have been
rendered.
Revenue from hardware and software sales is recognized upon shipment of the
respective products, if significant future vendor obligations do not exist and
collectibility is probable.
Income Taxes
Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109).
Under SFAS 109, deferred income taxes are recognized for the future tax
consequences of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws and
statutory rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
F-116
<PAGE> 199
MONUMENTAL NETWORK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk and Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized for
financial statement purposes. Management estimates that the fair values of all
financial instruments as of December 31, 1996 and 1997 approximate their
carrying values based on their terms and interest rates. The use of different
market assumptions and/or estimation methodologies may have a significant effect
on the estimated fair values.
Customers who operate in Virginia, Maryland and the Washington D.C. area
represent substantially all of the Company's customer base. No single customer
comprised more than 10% of accounts receivable or total revenue as of or for the
years ended December 31, 1996 or 1997.
Stock-Based Compensation
The Company accounts for its stock-based employee compensation plan using
the intrinsic value based method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations (APB 25). The Company has provided pro forma disclosures of net
loss as if the fair value based method of accounting for the plan, as prescribed
by Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), had been applied. Pro forma disclosures
include the effects of employee stock options granted during the years ended
December 31, 1996 and 1997.
(2) EQUIPMENT
Equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Equipment................................................... $413,615 $ 642,498
Furniture and office equipment.............................. 39,310 55,505
Leasehold improvements...................................... -- 8,093
-------- ---------
452,925 706,096
Less accumulated depreciation............................... (93,598) (265,690)
-------- ---------
$359,327 $ 440,406
======== =========
</TABLE>
Equipment includes assets held under capital leases with a net book value
of $198,445 and $201,745 at December 31, 1996 and 1997, respectively.
Depreciation expense totaled $74,607 and $172,092 for the years ended December
31, 1996 and 1997, respectively.
(3) DEBT
Notes payable consists of the following as of December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Notes payable with interest rates ranging from 8.25% to
8.39%, secured by vehicles due through 2002............... $14,319 $ 34,625
Unsecured notes payable to vendors with interest at 15% due
in 1998................................................... 4,385 36,136
------- --------
18,704 70,761
Less current portion........................................ (9,789) (49,694)
------- --------
$ 8,915 $ 21,067
======= ========
</TABLE>
F-117
<PAGE> 200
MONUMENTAL NETWORK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, the Company issued notes payable to stockholders of the
Company in the amount of $30,848, with interest at 6%, and monthly payments of
principal and interest due in various dates through 1998. The total unpaid
balance as of December 31, 1997 was $30,025.
During 1997, the Company issued additional notes payable to stockholders of
the Company totaling $130,000, which bear interest at 9%, with interest payable
annually, and are due on demand.
(4) COMMITMENTS
The Company leases certain computer and office equipment under capital
leases. The Company also leases office space under noncancelable operating
leases expiring at various dates through 2001. Future minimum annual lease
payments under capital and noncancelable operating leases for each of the years
ending December 31 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
1998........................................................ $103,978 $29,132
1999........................................................ 66,919 5,736
2000........................................................ 39,031 1,710
2001........................................................ 3,818 --
-------- -------
Total minimum payments.................................... 213,746 $36,578
=======
Less amount representing interest........................... (34,344)
--------
Present value of net minimum lease payments............... 179,402
Less current portion........................................ (82,194)
--------
$ 97,208
========
</TABLE>
Rent expense for the years ended December 31, 1996 and 1997 was $38,967 and
$53,084, respectively.
(5) INCOME TAXES
As of December 31, 1997, the Company has a net operating loss carryforward
of approximately $470,000 which will expire in 2012, if not utilized. A
valuation allowance has been recorded for the entire deferred tax asset related
primarily to the net operating loss carryforward due to the uncertainty relating
to the realization of the benefit of the deferred tax asset in the future.
(6) STOCK OPTION PLAN
The Company's 1997 Option Plan (the Plan) was adopted by the Board of
Directors and approved by the stockholders of the Company on January 1, 1997.
The Plan provides that salaried officers or key employees, non-employee
directors, and consultants who provide services to the Company may, at the
discretion of the plan administrator, be granted Incentive or Non-statutory
stock options to purchase shares of common stock. 200,000 shares of the
Company's common stock have been authorized for issuance under the Plan, of
which 11,872 incentive stock options were granted in 1997, with an exercise
price of $2.00 per share. None of the options were exercised or canceled during
1997.
Options vest 25% on the first anniversary of the option grant date and 25%
on each of the following three anniversary dates. As of December 31, 1997, no
options were vested or exercisable. The weighted average contractual term of
outstanding options was approximately 9 years at December 31, 1997.
The per share weighted-average fair value of stock options granted was $.33
on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions; expected dividend yield
F-118
<PAGE> 201
MONUMENTAL NETWORK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
0%, risk-free interest rate of 6%, and expected life of three years. If the
Company determined compensation expense in 1997 based on the fair value of the
options at the grant date under SFAS No. 123, net loss would not have been
significantly different from the historical results of operations other than for
compensation expense recognized for options granted at less than fair value, as
discussed below.
None of the incentive stock option shares were exercisable or vested as of
December 31, 1997. However, in accordance with the acquisition agreement between
the Company and Verio Inc., Monumental Network Systems, Inc. purchased the
11,872 options outstanding as of December 31,1997 at fair market value, less the
exercise price per share, and recorded a charge to operations of $84,152.
F-119
<PAGE> 202
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying balance sheets of Internet Servers, Inc.
as of December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for the period from inception (August 23,
1995) to December 31, 1995 and the years ended December 31, 1996 and 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Internet Servers, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the period from inception (August 23, 1995) to December 31, 1995 and the
years ended December 31, 1996 and 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 2, 1998
F-120
<PAGE> 203
INTERNET SERVERS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 18,021 $1,161,510
Receivables:
Trade, net of allowance for doubtful accounts of
$11,029 in 1997....................................... 98,675 220,571
Employees.............................................. -- 67,000
Prepaid expenses and other................................ -- 85,478
-------- ----------
Total current assets.............................. 116,696 1,534,559
Equipment, net (note 2)..................................... 484,240 714,205
-------- ----------
Total assets...................................... $600,936 $2,248,764
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 35,061 $ 118,241
Accrued liabilities....................................... 11,731 159,366
Income taxes payable...................................... 111,314 316,456
Deferred revenue.......................................... -- 14,388
-------- ----------
Total current liabilities......................... 158,106 608,451
Stockholders' equity (note 5):
Common stock, no par value, 100,000 shares authorized,
10,895 and 11,092 shares issued and outstanding........ 70,918 426,129
Retained earnings......................................... 371,912 1,214,184
-------- ----------
Total stockholders' equity........................ 442,830 1,640,313
Commitments (note 4)
-------- ----------
Total liabilities and stockholders' equity........ $600,936 $2,248,764
======== ==========
</TABLE>
See accompanying notes to financial statements.
F-121
<PAGE> 204
INTERNET SERVERS, INC.
STATEMENTS OF OPERATIONS
PERIOD FROM INCEPTION (AUGUST 23, 1995) TO DECEMBER 31, 1995 AND
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 23,
1995) TO
DECEMBER 31,
1995 1996 1997
------------ ---------- ----------
<S> <C> <C> <C>
Revenue:
Enhanced services................................... $48,380 $1,507,875 $3,476,045
Internet services................................... -- -- 704,187
Other............................................... 2,520 -- 211,962
------- ---------- ----------
Total revenue............................... 50,900 1,507,875 4,392,194
======= ========== ==========
Operating costs and expenses:
Enhanced and internet services operating costs...... 8,240 631,111 1,820,757
Selling, general and administrative................. 35,698 166,751 721,337
Depreciation........................................ 5,728 90,343 259,984
------- ---------- ----------
Total costs and expenses.................... 49,666 888,205 2,802,078
------- ---------- ----------
Earnings from operations.................... 1,234 619,670 1,590,116
Other income, net..................................... -- 322 26,215
------- ---------- ----------
Earnings before income taxes................ 1,234 619,992 1,616,331
Income tax expense (note 3)........................... -- (111,314) (602,059)
------- ---------- ----------
Net earnings................................ $ 1,234 $ 508,678 $1,014,272
======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-122
<PAGE> 205
INTERNET SERVERS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM INCEPTION (AUGUST 23, 1995) TO DECEMBER 31, 1995 AND
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ -------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCES AT INCEPTION......................... -- $ -- $ -- $ --
Issuances of common stock for cash............ 9,800 13,000 -- 13,000
Net earnings.................................. -- -- 1,234 1,234
------ -------- ---------- ----------
BALANCES AT DECEMBER 31, 1995................. 9,800 13,000 1,234 14,234
Issuance of common stock for services......... 1,095 57,918 -- 57,918
Dividends paid in cash........................ -- -- (138,000) (138,000)
Net earnings.................................. -- -- 508,678 508,678
------ -------- ---------- ----------
BALANCES AT DECEMBER 31, 1996................. 10,895 70,918 371,912 442,830
Issuance of common stock for services......... 197 355,211 -- 355,211
Dividends paid in cash........................ -- -- (172,000) (172,000)
Net earnings.................................. -- -- 1,014,272 1,014,272
------ -------- ---------- ----------
BALANCES AT DECEMBER 31, 1997................. 11,092 $426,129 $1,214,184 $1,640,313
====== ======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-123
<PAGE> 206
INTERNET SERVERS, INC.
STATEMENTS OF CASH FLOWS
PERIOD FROM INCEPTION (AUGUST 23, 1995) TO DECEMBER 31, 1995 AND
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 23,
1995) TO
DECEMBER 31,
1995 1996 1997
------------ --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings......................................... $ 1,234 $ 508,678 $1,014,272
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation...................................... 5,728 90,343 259,984
Provision for bad debts........................... -- -- 58,371
Common stock issued for services.................. -- 57,918 355,211
Changes in operating assets and liabilities:
Receivables..................................... (12,611) (86,064) (247,267)
Prepaid expenses and other...................... -- -- (85,478)
Accounts payable................................ 13,224 21,837 83,180
Accrued liabilities............................. 4,896 6,835 147,635
Income taxes payable............................ -- 111,314 205,142
Deferred revenue................................ -- -- 14,388
-------- --------- ----------
Net cash provided by operating activities.... 12,471 710,861 1,805,438
-------- --------- ----------
Cash flows from investing activities -- purchases of
equipment............................................ (35,144) (545,167) (489,949)
-------- --------- ----------
Cash flows from financing activities:
Borrowings on debt................................... 7,000 -- --
Repayments of debt................................... -- (7,000) --
Proceeds from issuance of common stock............... 13,000 -- --
Dividends............................................ -- (138,000) (172,000)
Net change in cash overdraft......................... 2,673 (2,673) --
-------- --------- ----------
Net cash provided (used) by financing
activities................................. 22,673 (147,673) (172,000)
-------- --------- ----------
Increase in cash and cash equivalents........ -- 18,021 1,143,489
Cash and cash equivalents at beginning of period....... -- -- 18,021
-------- --------- ----------
Cash and cash equivalents at end of period............. $ -- $ 18,021 $1,161,510
======== ========= ==========
Supplemental disclosure of cash flow information --
cash paid during the year for income taxes........... $ -- $ 40,000 $ 349,743
======== ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-124
<PAGE> 207
INTERNET SERVERS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Internet Servers, Inc. (the Company) was incorporated in the State of Utah
on August 23, 1995. The Company's business consists of providing regional
internet enhanced services and consulting to customers in Utah and throughout
the Western states.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Effective December 31, 1997, Verio Inc. acquired 100% of the outstanding
common stock of the Company.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Revenue Recognition
Revenue related to enhanced and internet services is recognized as the
services are provided. Enhanced services consists primarily of web hosting
services to customers. The Company records deferred revenue for accounts billed
and/or collected in advance.
Revenue from hardware and software sales is recognized upon shipment of the
respective products if the Company's future obligations are not significant and
collectibility is probable.
Equipment
Equipment is stated at cost, less accumulated depreciation. Depreciation is
provided over the estimated useful lives of the assets ranging from three to
seven years using the straight-line method. Costs for normal repairs and
maintenance are expensed as incurred.
Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of (SFAS 121). SFAS 121 requires impairment losses to be recorded on long-lived
assets used in operations including goodwill when indications of impairment are
present and the undiscounted future cash flows estimated to be generated by
those assets are less than the assets' carrying amount. If such assets are
impaired the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the estimated fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying value or fair
value less costs to sell.
Income Taxes
From inception to September 1, 1996, the Company elected to be treated as a
subchapter S Corporation for income tax purposes. Accordingly, taxable income
through September 1, 1996 was included in the income tax returns of the
shareholders. On September 1, 1996, the Company converted to a C Corporation.
F-125
<PAGE> 208
INTERNET SERVERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109).
SFAS 109 requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the difference is expected to reverse.
Concentration of Credit Risk and Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized for
financial statement purposes. Management estimates that the fair values of all
financial instruments as of December 31, 1996 and 1997 approximate their
carrying values based on their terms and interest rates. The use of different
market assumptions and/or estimation methodologies may have a significant effect
on the estimated fair values.
Customers who operate in Utah represent substantially all of the Company's
customer base and accounts receivable. However, no single customer comprised
more than 10% of accounts receivable or total revenue as of or for the years
ended December 31, 1995, 1996 or 1997.
(2) EQUIPMENT
Equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Internet and computer equipment............................. $561,296 $1,044,691
Furniture and office equipment.............................. 19,015 25,569
-------- ----------
580,311 1,070,260
Less accumulated depreciation and amortization.............. (96,071) (356,055)
-------- ----------
$484,240 $ 714,205
======== ==========
</TABLE>
(3) INCOME TAXES
Income tax expense consists of the following for the years ended December
31:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Current:
Federal...................................... $ 91,314 $548,794
State........................................ 20,000 53,265
-------- --------
$111,314 $602,059
======== ========
</TABLE>
Income tax expense for the years ended December 31 differs from the amounts
computed using the federal statutory tax rate of 34% to earnings before income
taxes as follows:
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Expected tax expense........................................ $ 210,797 $549,553
State income taxes, net of federal benefit.................. 20,460 53,341
S Corporation taxable income................................ (120,693) --
Other....................................................... 750 (835)
--------- --------
Actual income tax expense......................... $ 111,314 $602,059
========= ========
</TABLE>
F-126
<PAGE> 209
INTERNET SERVERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences in the bases of assets and liabilities for financial
statement and income tax purposes are not significant as of December 31, 1996
and 1997.
(4) COMMITMENTS
The Company leases certain computer equipment and office space under
noncancelable operating leases expiring at various dates through 2000. Future
minimum annual lease payments under noncancelable operating leases for each of
the years ending December 31 are as follows:
<TABLE>
<S> <C>
1998.............................................. $359,139
1999.............................................. 345,684
2000.............................................. 148,654
--------
Total minimum payments............................ $853,477
========
</TABLE>
Rent expense for the years ended December 31, 1996 and 1997 was $14,500 and
$241,402, respectively.
(5) STOCKHOLDERS' EQUITY
On October 21, 1996, the Company entered into an employment agreement with
an officer. The agreement included a compensation and benefit package which also
included a long-term incentive provision consisting of the granting of shares of
the Company's common stock equal to two percent of the total common shares
outstanding. As of December 31, 1996, 25 shares had been issued resulting in
compensation expense of $45,078 based on the estimated fair value of the stock,
as determined by the Company's Board of Directors.
In accordance with the acquisition agreement between the Company and Verio
Inc., the unvested shares under the employment agreement were fully vested at
December 31, 1997. An additional 197 shares were issued as of December 31, 1997
and compensation expense of $355,211 was recognized by the Company based on the
estimated fair value of the stock using the acquisition price in the Verio Inc.
transaction.
F-127
<PAGE> 210
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying balance sheets of NSNet, Inc. as of
December 31, 1996 and 1997, and the related statements of operations, owner's
and stockholder's equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NSNet, Inc. as of December
31, 1996 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 13, 1998
F-128
<PAGE> 211
NSNET, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
ASSETS (NOTE 3)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Current assets:
Cash...................................................... $ 4,188 $ 20,169
Receivables:
Trade, net of allowance for doubtful accounts of $3,133
and $12,158 in 1996 and 1997, respectively............ 27,494 85,881
Other.................................................. -- 20,377
Prepaid expenses and other................................ 124,829 333,130
-------- --------
Total current assets.............................. 156,511 459,557
Equipment, net (note 2)..................................... 177,410 378,874
Other assets................................................ -- 67,665
-------- --------
Total assets...................................... $333,921 $906,096
======== ========
LIABILITIES AND OWNER'S AND STOCKHOLDER'S EQUITY
Current liabilities:
Cash overdraft............................................ $ 41,057 $ --
Accounts payable.......................................... 7,614 94,252
Accrued liabilities....................................... 37,778 44,866
Revolving lines of credit (note 3)........................ -- 200,000
Current portion of capital lease obligations (note 4)..... -- 34,231
Deferred revenue and customer advances.................... 42,827 82,699
-------- --------
Total current liabilities......................... 129,276 456,048
Capital lease obligations, less current portion (note 4).... -- 61,636
-------- --------
Total liabilities................................. 129,276 517,684
Owner's and Stockholder's equity:
Owner's equity............................................ 204,645 --
Common stock, no par value, 2,000,000 shares authorized,
100,000 shares issued and outstanding at December 31,
1997................................................... -- 204,645
Retained earnings......................................... -- 183,767
-------- --------
Total owner's and stockholder's equity............ 204,645 388,412
Commitments (note 4)
-------- --------
Total liabilities and owner's and stockholder's
equity.......................................... $333,921 $906,096
======== ========
</TABLE>
See accompanying notes to financial statements.
F-129
<PAGE> 212
NSNET, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Revenue:
Internet services......................................... $887,939 $1,832,374
Other..................................................... -- 14,550
-------- ----------
Total revenue..................................... 887,939 1,846,924
-------- ----------
Operating expenses:
Internet services operating costs......................... 210,517 471,247
Selling, general and administrative....................... 485,128 938,523
Depreciation.............................................. 61,106 126,301
-------- ----------
Total operating expenses.......................... 756,751 1,536,071
-------- ----------
Earnings from operations.......................... 131,188 310,853
Other income (expense), net................................. 1,885 (5,508)
-------- ----------
Net earnings...................................... $133,073 305,345
======== ==========
Pro forma information:
Historical net earnings................................... 133,073 305,345
Pro forma adjustment for income tax expense............... (51,000) (116,000)
-------- ----------
Pro forma net earnings............................ $ 82,073 $ 189,345
======== ==========
</TABLE>
See accompanying notes to financial statements.
F-130
<PAGE> 213
NSNET, INC.
STATEMENTS OF OWNER'S AND STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
TOTAL
OWNER'S COMMON RETAINED STOCKHOLDER'S
EQUITY STOCK EARNINGS EQUITY
--------- -------- --------- -------------
<S> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1996..................... $ 75,037 $ -- $ -- $ 75,037
Distributions................................. (3,465) -- -- (3,465)
Net earnings.................................. 133,073 -- -- 133,073
--------- -------- --------- ---------
BALANCES AT DECEMBER 31, 1996................... 204,645 -- -- 204,645
Issuance of common stock upon incorporation
(note 1)................................... (204,645) 204,645 -- --
Distributions................................. -- -- (121,578) (121,578)
Net earnings.................................. -- -- 305,345 305,345
--------- -------- --------- ---------
BALANCES AT DECEMBER 31, 1997................... $ -- $204,645 $ 183,767 $ 388,412
========= ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-131
<PAGE> 214
NSNET, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 133,073 $ 305,345
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation........................................... 61,106 126,301
Provision for bad debts................................ 3,133 24,334
Changes in operating assets and liabilities:
Receivables.......................................... (17,073) (103,098)
Prepaid expenses and other........................... (124,829) (208,301)
Accounts payable and accrued liabilities............. 26,911 93,726
Deferred revenue and customer advances............... 25,647 39,872
--------- ---------
Net cash provided by operating activities......... 107,968 278,179
--------- ---------
Cash flows from investing activities:
Purchases of equipment.................................... (141,372) (217,958)
Increase in other assets.................................. -- (67,665)
--------- ---------
Net cash used by investing activities............. (141,372) (285,623)
--------- ---------
Cash flows from financing activities:
Cash overdraft............................................ 41,057 (41,057)
Borrowings under revolving lines of credit................ -- 240,000
Repayments under revolving lines of credit................ -- (40,000)
Principal payments under capital lease obligations........ -- (13,940)
Distributions............................................. (3,465) (121,578)
--------- ---------
Net cash provided by financing activities......... 37,592 23,425
--------- ---------
Increase in cash.................................. 4,188 15,981
Cash at beginning of year................................... -- 4,188
--------- ---------
Cash at end of year......................................... $ 4,188 $ 20,169
========= =========
Supplemental disclosure of cash flow information -- cash
paid during the year for interest......................... $ -- $ 5,508
========= =========
Noncash investing and financing activities -- equipment
acquired through capital lease obligations................ $ -- $ 109,807
========= =========
</TABLE>
See accompanying notes to financial statements.
F-132
<PAGE> 215
NSNET, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
NSNet, Inc. (the Company) was incorporated as a subchapter S Corporation in
the State of California on January 1, 1997. Prior to incorporation, the Company
was operating as NextGen Systems Internet Services, a sole proprietorship formed
in 1992. All assets and liabilities of the sole proprietorship were contributed
to the Company upon incorporation and recorded at historical cost. The Company
provides internet access services to customers in California.
Effective February 27, 1998, Verio Inc. acquired 100% of the outstanding
common stock of the Company.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for accounts billed and/or collected in advance.
Equipment
Equipment, including assets held under capital leases, is stated at cost,
less accumulated depreciation. Depreciation is recorded using the straight-line
method over the shorter of the estimated useful lives of the related assets or
the lease term, which is three years. Costs for normal repairs and maintenance
are expensed as incurred.
Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of (SFAS 121). SFAS 121 requires impairment losses to be recorded on long-lived
assets used in operations, including goodwill, when indications of impairment
are present and the undiscounted future cash flows estimated to be generated by
those assets are less than the assets' carrying amount. If such assets are
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the estimated fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying value or fair
value, less costs to sell.
Income Taxes
No provision for income taxes has been included in the accompanying
financial statement for 1996 or 1997 due to the Company's status as a sole
proprietorship and subchapter S Corporation. Accordingly, net earnings as of
December 31, 1996 were included in owner's equity and taxable income has been
included in the tax returns of the owner and stockholder. However, pro forma
information has been included in the accompanying statements of operations to
reflect a pro forma adjustment for income tax expense as if the Company had been
a separate taxable entity subject to federal and state income taxes for both
years presented.
Concentration of Credit Risk and Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized for
financial statement purposes. Management estimates that the fair
F-133
<PAGE> 216
NSNET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
values of all financial instruments as of December 31, 1996 and 1997 approximate
their carrying values based on their terms and interest rates. The use of
different market assumptions and/or estimation methodologies may have a
significant effect on the estimated fair values.
Customers who operate in California represent substantially all of the
Company's customer base. No single customer comprised more than 10% of accounts
receivable or total revenue as of or for the years ended December 31, 1996 or
1997.
(2) EQUIPMENT
Equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Internet and computer equipment............................. $255,112 $ 568,239
Furniture................................................... 10,000 24,638
-------- ---------
265,112 592,877
Less accumulated depreciation............................... (87,702) (214,003)
-------- ---------
$177,410 $ 378,874
======== =========
</TABLE>
Equipment includes assets held under capital leases with a net book value
of $94,248 at December 31, 1997.
(3) DEBT
At December 31, 1997, the Company had a $150,000 unsecured revolving line
of credit agreement with a bank, under which $100,000 was outstanding.
Borrowings under the line bear interest at the bank's prime rate plus 2.975%
(11.475% at December 31, 1997), and are due in 1998. The agreement included
various restrictive covenants including limitations on indebtedness and payment
of dividends. As of December 31, 1997, the Company was not in compliance with
the restrictions on additional indebtedness. All borrowings under this line were
paid in full subsequent to the acquisition by Verio, Inc.
At December 31, 1997, the Company had an additional $125,000 revolving line
of credit agreement with a second bank, secured by substantially all of the
assets of the Company, under which $100,000 was outstanding. Borrowings under
the line bear interest at the bank's prime rate plus 1.5% (10% at December 31,
1997), and are due in 1998.
(4) COMMITMENTS
The Company leases certain computer and office equipment under capital
leases. The Company also leases office space under noncancelable operating
leases expiring at various dates through 2002. Future
F-134
<PAGE> 217
NSNET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
minimum annual lease payments under capital and noncancelable operating leases
for each of the years ending December 31 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
1998........................................................ $ 43,434 $ 95,767
1999........................................................ 43,434 110,092
2000........................................................ 23,227 114,004
2001........................................................ -- 118,862
2002........................................................ -- 108,956
-------- --------
Total minimum payments.................................... 110,095 $547,681
========
Less amount representing interest........................... (14,228)
--------
Present value of net minimum lease payments............... 95,867
Less current portion........................................ (34,231)
--------
$ 61,636
========
</TABLE>
Rent expense for the years ended December 31, 1996 and 1997 totaled $19,801
and $34,082, respectively.
F-135
<PAGE> 218
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying balance sheet of Access One, Inc. as of
December 31, 1997 and the related statements of operations and accumulated
deficit, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Access One, Inc. as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Denver, Colorado
April 9, 1998
F-136
<PAGE> 219
ACCESS ONE, INC.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash...................................................... $ 259,144
Trade receivables, net of allowance for doubtful accounts
of $148,040 (note 3)................................... 344,773
Inventory................................................. 40,635
Prepaid expenses and other................................ 105,365
----------
Total current assets.............................. 749,917
Equipment, net (notes 2 and 3).............................. 678,752
Other assets................................................ 9,853
----------
Total assets...................................... $1,438,522
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Revolving line of credit.................................. $ 110,000
Accounts payable:
Trade.................................................. 144,297
Related party (note 5)................................. 273,306
Accrued liabilities....................................... 376,330
Notes payable (note 3).................................... 88,550
Current portion of capital lease obligations (note 4)..... 8,858
Note payable to related party (note 5).................... 32,194
Deferred revenue.......................................... 294,266
----------
Total current liabilities......................... 1,327,801
Capital lease obligations, less current portion (note 4).... 6,812
----------
Total liabilities................................. 1,334,613
Redeemable preferred stock, $0.01 par value, 500,000 shares
authorized, 200,000 shares issued and outstanding (note
6)........................................................ 508,748
Stockholders' deficit (note 6):
Common stock, $0.01 par value, 2,000,000 shares
authorized, 800,000 shares issued and outstanding...... 8,000
Additional paid-in capital................................ 85,476
Accumulated deficit....................................... (498,315)
----------
Total stockholders' deficit....................... (404,839)
Commitments (note 4)
----------
Total liabilities and stockholders' deficit....... $1,438,522
==========
</TABLE>
See accompanying notes to financial statements.
F-137
<PAGE> 220
ACCESS ONE, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Revenue:
Internet services......................................... $2,485,583
Enhanced services......................................... 702,639
Computer hardware and software sales...................... 303,465
Other..................................................... 27,019
----------
Total revenue..................................... 3,518,706
----------
Operating expenses:
Internet and enhanced services operating costs (note 5)... 613,084
Cost of hardware and software sales....................... 226,205
Selling, general and administrative (note 5).............. 2,922,073
Depreciation.............................................. 245,003
----------
Total operating expenses.......................... 4,006,365
----------
Loss from operations.............................. (487,659)
Other expense:
Interest expense.......................................... (21,833)
Other, net................................................ (3,808)
----------
Net loss.......................................... $ (513,300)
==========
Retained earnings at beginning of year...................... 14,985
Accumulated deficit at end of year.......................... (498,315)
==========
</TABLE>
See accompanying notes to financial statements.
F-138
<PAGE> 221
ACCESS ONE, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(513,300)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation......................................... 245,003
Provision for bad debts.............................. 386,983
Changes in operating assets and liabilities:
Receivables....................................... (445,284)
Inventory......................................... (40,635)
Prepaid expenses and other current assets......... (96,000)
Other assets...................................... (9,708)
Accounts payable and accrued liabilities.......... 541,280
Deferred revenue.................................. 148,798
---------
Net cash provided by operating activities.... 217,137
---------
Cash flows from investing activities -- purchase of
equipment................................................. (559,530)
---------
Cash flows from financing activities:
Borrowings under revolving line of credit................. 110,000
Borrowings under note payable............................. 127,916
Principal payments on note payable........................ (39,366)
Borrowings under notes to related parties................. 6,965
Principal payments under capital lease obligations........ (15,501)
---------
Net cash provided by financing activities.... 190,014
---------
Net decrease in cash......................... (152,379)
Cash at beginning of year................................... 411,523
---------
Cash at end of year......................................... $ 259,144
=========
Supplemental disclosure of cash flow information -- cash
paid during the year for interest......................... $ 21,822
=========
</TABLE>
See accompanying notes to financial statements.
F-139
<PAGE> 222
ACCESS ONE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Access One, Inc. (the Company) was originally organized as a limited
liability company on July 1, 1994. The Company reincorporated on December 9,
1996 as a C corporation in the state of Washington. The Company provides
internet access and enhanced services and computer hardware and software sales
to customers primarily in Washington.
Effective February 27, 1998, Verio Inc. (Verio) acquired all of the
outstanding common stock of the Company, resulting in 100% ownership (see Note
6).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Equipment
Equipment is stated at cost, less accumulated depreciation. Depreciation is
recorded using the straight-line method over the shorter of the estimated useful
lives of the related assets or the lease terms, which range from three to five
years. Costs for normal repairs and maintenance are expensed as incurred.
Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of (SFAS 121). SFAS 121 requires impairment losses to be recorded on long-lived
assets used in operations, including goodwill, when indications of impairment
are present and the undiscounted future cash flows estimated to be generated by
those assets are less than the assets' carrying amount. If such assets are
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the estimated fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying value or fair
value, less costs to sell.
Revenue Recognition
Internet and enhanced services are recognized as the services are provided.
Enhanced services consist primarily of web hosting and collocation services to
customers. The Company records deferred revenue for amounts billed and/or
collected in advance.
Revenue from hardware sales is recognized upon shipment of the respective
products if the Company's future obligations are not significant and
collectibility is probable.
Income Taxes
Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109).
Under SFAS 109, deferred income taxes are recognized for the future tax
consequences of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws and
statutory rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
F-140
<PAGE> 223
ACCESS ONE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a net operating loss carryforward for income tax purposes
of approximately $337,000 which expires in 2012. No tax benefit has been
recorded by the Company in 1997 due to the Company's net loss and the
uncertainty regarding the ultimate utilization of such loss carryforward. The
Company also has a deferred tax asset related to the allowance for doubtful
accounts of approximately $56,000. A valuation allowance has been recorded for
the entire balance of the deferred tax asset related to the carryforward and the
allowance for doubtful accounts. Other temporary differences between financial
statement and income tax bases of assets and liabilities are not significant.
Concentration of Credit Risk and Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized for
financial statement purposes. Management estimates that the fair values of all
financial instruments as of December 31, 1997 approximate their carrying values
based on their terms and interest rates. The use of different market assumptions
and/or estimation methodologies may have a significant effect on the estimated
fair values.
Customers who operate in Washington represent substantially all of the
Company's customer base. No single customer comprised more than 10% of revenue
or accounts receivable as of or for the year ended December 31, 1997.
(2) EQUIPMENT
Equipment consisted of the following at December 31, 1997:
<TABLE>
<S> <C>
Internet and computer equipment........................... $ 926,175
Furniture and office equipment............................ 120,657
---------
1,046,832
Less accumulated depreciation and amortization.............. (368,080)
---------
$ 678,752
=========
</TABLE>
Equipment includes assets held under capital lease with a net book value of
$12,990 at December 31, 1997.
(3) DEBT
Lines of credit and notes payable consist of the following as of December
31, 1997:
<TABLE>
<S> <C>
Revolving line of credit, maximum credit available of
$300,000, bearing interest at 1.5% above the bank's prime
lending rate, (10% at December 31, 1997), due in 1998, and
secured by accounts receivable............................ $ 110,000
Notes payable, bearing interest at 10.25%, due on demand, or
if no demand is made, in monthly payments of principal and
interest of $5,945 through April, 1999, and secured by
certain equipment of the Company.......................... 88,550
---------
198,550
Less current portion........................................ (198,550)
---------
Long-term debt, less current portion...................... $ --
=========
</TABLE>
F-141
<PAGE> 224
ACCESS ONE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) COMMITMENTS
Leases
The Company leases certain computer and office equipment under capital
leases. The Company also leases office space under noncancelable operating
leases expiring at various dates through 1999. Future minimum annual lease
payments under noncancelable capital and operating leases for each of the years
ending December 31 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1998.................................... $ 8,280 $80,808
1999.................................... 7,589 1,512
------- -------
Total minimum payments................ $15,869 $82,320
======= =======
Less amount representing interest....... (199)
-------
Present value of net minimum lease
payments.............................. 15,670
Less current portion.................... (8,858)
-------
$ 6,812
=======
</TABLE>
Rent expense for the year ended December 31, 1997 totaled $219,500.
(5) TRANSACTIONS WITH RELATED PARTIES
During 1997, the Company received customer service, technical support, and
backbone transport services provided by Verio. Total amounts charged to the
Company by Verio in this manner were $79,421 included in internet and enhanced
services operating costs and $178,969 included in selling, general, and
administrative expenses. Verio also purchased approximately $14,916 of equipment
on behalf of the Company. Amounts due to related party at December 31, 1997
relate to these services and purchases of equipment and are non interest
bearing.
Note payable to related party is a non interest bearing, unsecured note
payable to the majority stockholder of the Company.
(6) REDEEMABLE PREFERRED STOCK
During 1996, the Company issued 200,000 shares of redeemable, convertible
Series A preferred stock to Verio. The preferred shares are convertible into
common shares on a one for one basis and are mandatorily redeemable in 2002. In
connection with the Verio acquisition disclosed in note 1, the preferred shares
were converted to common stock.
(7) EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) Plan (the Plan) for all full time employees.
The Company makes matching contributions of 25% of employee contributions up to
6% of the respective employee's salary. During 1997 the Company made
contributions to the Plan totaling $11,876.
F-142
<PAGE> 225
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying balance sheet of STARnet, L.L.C. as of
December 31, 1997 and the related statements of operations, members' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of STARnet, L.L.C. as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 27, 1998
F-143
<PAGE> 226
STARNET, L.L.C.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash...................................................... $210,089
Trade receivables, net of allowance for doubtful accounts
of $22,944............................................. 111,541
Inventory................................................. 69,089
Prepaid expenses and other................................ 18,779
--------
Total current assets.............................. 409,498
Equipment, net (note 2)..................................... 208,336
Other assets................................................ 4,583
--------
Total assets...................................... $622,417
========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 31,371
Accrued liabilities....................................... 12,895
Deferred revenue.......................................... 371,608
--------
Total current liabilities......................... 415,874
Members' equity............................................. 206,543
Commitments (note 3)
--------
Total liabilities and members' equity............. $622,417
========
</TABLE>
See accompanying notes to financial statements.
F-144
<PAGE> 227
STARNET, L.L.C.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Revenue:
Internet services......................................... $1,201,504
Computer hardware sales................................... 386,376
Other..................................................... 13,094
----------
Total revenue..................................... 1,600,974
----------
Operating expenses:
Internet services operating costs......................... 397,019
Cost of hardware sales.................................... 319,486
Selling, general and administrative....................... 570,461
Depreciation.............................................. 155,968
----------
Total operating expenses.......................... 1,442,934
----------
Earnings from operations.......................... 158,040
Other income (expense):
Interest income........................................... 9,411
Other, net................................................ (6,282)
----------
Net earnings...................................... $ 161,169
==========
Pro forma information:
Historical net earnings................................... 161,169
Pro forma adjustment for income tax expense............... (61,000)
----------
Pro forma net earnings............................ $ 100,169
==========
</TABLE>
See accompanying notes to financial statements.
F-145
<PAGE> 228
STARNET, L.L.C.
STATEMENT OF MEMBERS' EQUITY
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Balance at January 1, 1997.................................. $ 290,109
Distributions to members.................................... (244,735)
Net earnings................................................ 161,169
---------
Balance at December 31, 1997................................ $ 206,543
=========
</TABLE>
See accompanying notes to financial statements.
F-146
<PAGE> 229
STARNET, L.L.C.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 161,169
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation........................................... 155,968
Provision for bad debts................................ 44,484
Loss on sale of assets................................. 6,282
Changes in operating assets and liabilities:
Receivables.......................................... (40,725)
Inventory............................................ 50,205
Prepaid expenses and other current assets............ (13,944)
Other assets......................................... 834
Accounts payable and accrued liabilities............. (54,304)
Deferred revenue..................................... (3,346)
---------
Net cash provided by operating activities......... 306,623
---------
Cash flows from investing activities -- purchase of
equipment................................................. (117,202)
---------
Cash flows from financing activities -- distributions to
members................................................... (244,735)
---------
Net decrease in cash.............................. (55,314)
Cash at beginning of year................................... 265,403
---------
Cash at end of year......................................... $ 210,089
=========
</TABLE>
See accompanying notes to financial statements.
F-147
<PAGE> 230
STARNET, L.L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
STARnet, L.L.C. (the Company) was originally organized as a limited
liability company in the State of Missouri as Internetix, L.L.C. on June 21,
1994. On August 18, 1997, the Company changed its name to STARnet, L.L.C. The
Company provides internet access services and computer hardware sales to
customers primarily in Missouri and Illinois.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Equipment
Equipment is stated at cost, less accumulated depreciation. Depreciation is
recorded using a method that estimates the straight-line method over the
estimated useful lives of the related assets, which is three years. Costs for
normal repairs and maintenance are expensed as incurred.
Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of (SFAS 121). SFAS 121 requires impairment losses to be recorded on long-lived
assets used in operations, including goodwill, when indications of impairment
are present and the undiscounted future cash flows estimated to be generated by
those assets are less than the assets' carrying amount. If such assets are
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the estimated fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying value or fair
value, less costs to sell.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and/or collected in advance.
Revenue from hardware sales is recognized upon shipment of the respective
products if the Company's future obligations are not significant and
collectibility is probable.
Income Taxes
No provision for income taxes has been included in the accompanying
financial statements due to the Company's status as a limited liability
corporation. Accordingly, taxable income has been included in the tax returns of
the members. However, pro forma information has been included in the
accompanying statement of operations to reflect a pro forma adjustment for
income tax expense as if the Company had been a separate taxable entity subject
to federal and state income taxes for the year ended December 31, 1997.
Concentration of Credit Risk and Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized for
financial statement purposes. Management estimates that the fair values of all
financial instruments as of December 31, 1997 approximate their carrying values
based on their
F-148
<PAGE> 231
STARNET, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
terms and interest rates. The use of different market assumptions and/or
estimation methodologies may have a significant effect on the estimated fair
values.
Customers who operate in Missouri and Illinois represent substantially all
of the Company's customer base. Three customers comprised approximately 38% of
accounts receivable as of December 31, 1997. However, no single customer
comprised more than 10% of revenue for the year ended December 31, 1997.
(2) EQUIPMENT
Equipment consisted of the following at December 31, 1997:
<TABLE>
<S> <C>
Internet and computer equipment............................. $ 503,324
Furniture and office equipment.............................. 2,750
---------
506,074
Less accumulated depreciation and amortization.............. (297,738)
---------
$ 208,336
=========
</TABLE>
(3) COMMITMENTS
The Company leases office space and equipment under noncancelable leases
expiring at various dates through 2002. Future minimum annual lease payments
under noncancelable operating leases for each of the years ending December 31
are as follows:
<TABLE>
<S> <C>
1998............................................... $32,873
1999............................................... 26,236
2000............................................... 2,716
2001............................................... 870
2002............................................... 400
-------
Total minimum payments................... $63,095
=======
</TABLE>
Rent expense for the year ended December 31, 1997 totaled $39,630.
In addition, the Company has a verbal agreement to guarantee certain
obligations of a related party with a telecommunications company for one year in
the amount of $250,000.
F-149
<PAGE> 232
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying balance sheets of Computing Engineers Inc.
as of December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Computing Engineers Inc. as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 27, 1998
F-150
<PAGE> 233
COMPUTING ENGINEERS INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
ASSETS (NOTE 3)
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash...................................................... $ -- $ 15,995
Trade receivables, net of allowance for doubtful accounts
of $133,739 and $62,085 in 1996 and 1997,
respectively........................................... 340,799 429,171
Inventory................................................. -- 37,411
Prepaid expenses and other................................ 2,014 2,014
---------- ----------
Total current assets.............................. 342,813 484,591
Equipment, net (note 2)..................................... 821,637 1,049,662
Other assets, net........................................... -- 20,420
---------- ----------
Total assets...................................... $1,164,450 $1,554,673
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft............................................ $ 54,352 $ --
Accounts payable.......................................... 355,223 225,153
Accrued liabilities....................................... 5,252 33,373
Current portion of note payable (note 3).................. -- 84,352
Current portion of obligations under capital leases (note
4)..................................................... 193,873 223,826
Deferred revenue.......................................... 146,010 249,817
---------- ----------
Total current liabilities......................... 754,710 816,521
Note payable, less current portion (note 3)................. -- 585,002
Capital lease obligations, less current portion (note 4).... 49,776 28,811
---------- ----------
Total liabilities................................. 804,486 1,430,334
Stockholders' equity:
Common stock, $10 par value, 1,000 shares authorized, 100
shares issued and outstanding.......................... 1,000 1,000
Additional paid-in capital................................ 5,000 5,000
Retained earnings......................................... 353,964 118,339
---------- ----------
Total stockholders' equity........................ 359,964 124,339
---------- ----------
Commitments (note 4)
Total liabilities and stockholders' equity........ $1,164,450 $1,554,673
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-151
<PAGE> 234
COMPUTING ENGINEERS INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Revenue:
Internet services......................................... $2,326,898 $3,321,562
Consulting services....................................... -- 162,683
Computer hardware and software sales...................... 88,664 537,057
Other..................................................... -- 58,176
---------- ----------
Total revenue..................................... 2,415,562 4,079,478
---------- ----------
Operating expenses:
Internet services operating costs......................... 606,522 632,653
Costs of hardware and software sales...................... 148,770 392,676
Marketing and selling..................................... 47,155 299,990
General and administrative................................ 1,179,149 2,041,265
Depreciation and amortization............................. 144,953 329,296
---------- ----------
Total operating expenses.......................... 2,126,549 3,695,880
---------- ----------
Earnings from operations.......................... 289,013 383,598
Interest expense............................................ (19,254) (95,223)
---------- ----------
Net earnings...................................... $ 269,759 $ 288,375
========== ==========
Pro forma information:
Historical net earnings................................... $ 269,759 $ 288,375
Pro forma adjustment for income tax expense............... (103,000) (110,000)
---------- ----------
Pro forma net earnings............................ $ 166,759 $ 178,375
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-152
<PAGE> 235
COMPUTING ENGINEERS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1996............ 100 $1,000 $5,000 $ 207,104 $ 213,104
Distributions to stockholders.......... -- -- -- (122,899) (122,899)
Net earnings........................... -- -- -- 269,759 269,759
--- ------ ------ --------- ---------
BALANCES AT DECEMBER 31, 1996.......... 100 1,000 5,000 353,964 359,964
Distributions to stockholders.......... -- -- -- (524,000) (524,000)
Net earnings........................... -- -- -- 288,375 288,375
--- ------ ------ --------- ---------
BALANCES AT DECEMBER 31, 1997.......... 100 $1,000 $5,000 $ 118,339 $ 124,339
=== ====== ====== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-153
<PAGE> 236
COMPUTING ENGINEERS INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 269,759 $ 288,375
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization.......................... 144,953 329,296
Provision for bad debts................................ 133,739 165,153
Changes in operating assets and liabilities:
Trade receivables.................................... (472,524) (253,525)
Inventory............................................ -- (37,411)
Prepaid expenses and other........................... 142 --
Accounts payable..................................... 355,223 (130,070)
Accrued liabilities.................................. 238 28,121
Deferred revenue..................................... 146,010 103,807
--------- ---------
Net cash provided by operating activities......... 577,540 493,746
--------- ---------
Cash flows from investing activities -- purchases of
equipment................................................. (336,776) (228,892)
--------- ---------
Cash flows from financing activities:
Net change in cash overdraft.............................. (15,314) (54,352)
Borrowings under note payable............................. -- 700,000
Debt issuance costs....................................... -- (20,420)
Principal payments on note payable........................ -- (30,646)
Principal payments on capital lease obligations........... (102,551) (319,441)
Distributions to shareholders............................. (122,899) (524,000)
--------- ---------
Net cash used by financing activities............. (240,764) (248,859)
--------- ---------
Increase in cash.................................. -- 15,995
Cash at beginning of year................................... -- --
--------- ---------
Cash at end of year......................................... $ -- $ 15,995
========= =========
Supplemental disclosure of cash flow information -- cash
paid during the year for interest......................... $ 19,254 $ 95,223
========= =========
Noncash investing and financing activities -- equipment
acquired through capital lease obligations................ $ 346,200 $ 328,429
========= =========
</TABLE>
See accompanying notes to financial statements.
F-154
<PAGE> 237
COMPUTING ENGINEERS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Computing Engineers Inc. (the Company) was incorporated in the State of
Illinois on November 1, 1993. The Company is a provider of internet access
services to businesses and individuals, primarily in Illinois.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Equipment
Equipment, including any assets held under capital leases, is stated at
cost, less accumulated depreciation and amortization. Depreciation and
amortization is recorded using the straight-line method over the shorter of the
estimated useful lives of the related assets or the lease term, which is three
years. Costs for normal repairs and maintenance are expensed as incurred.
Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of (SFAS 121). Statement No. 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted future cash flows estimated to be generated by those assets
are less than the assets' carrying amount. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at lower of the carrying amount or fair value less
costs to sell.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and/or collected in advance.
Revenue from consulting services is recognized when services have been
rendered.
Revenue from hardware and software sales is recognized upon shipment of the
respective products if the Company's future obligations are not significant and
collectibility is probable.
Income Taxes
No provision for income taxes has been included in the accompanying
financial statements for 1996 or 1997 due to the Company's status as a
subchapter S corporation. Accordingly, taxable income has been included in the
tax returns of the stockholders. However, pro forma information has been
included in the accompanying statements of operations to reflect a pro forma
adjustment for income tax expense as if the Company had been a separate taxable
entity subject to federal and state income taxes for all periods presented.
Concentration of Credit Risk and Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized for
financial statement purposes. Management estimates that the fair values of all
financial instruments as of December 31, 1996 and 1997 approximate their
carrying values based
F-155
<PAGE> 238
COMPUTING ENGINEERS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
on their terms and interest rates. The use of different market assumptions
and/or estimation methodologies may have a significant effect on the estimated
fair values.
(2) EQUIPMENT
Equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
Internet and computer equipment............................ $ 973,392 $1,522,201
Furniture and office equipment............................. 22,048 30,560
--------- ----------
995,440 1,552,761
Less accumulated depreciation and amortization............. (173,803) (503,099)
--------- ----------
$ 821,637 $1,049,662
========= ==========
</TABLE>
Equipment includes assets owned under capital leases with a net book value
of $305,530 and $474,893 at December 31, 1996 and 1997, respectively.
(3) DEBT
Debt consists of the following as of December 31, 1997:
<TABLE>
<S> <C>
Note payable bearing interest at prime plus 2.75% (11.25% at
December 31, 1997), monthly principal and interest
payments of $11,986 through May 12, 2004, secured by
substantially all the assets of the Company............... $669,354
Less current portion........................................ (84,352)
--------
$585,002
========
</TABLE>
(4) COMMITMENTS
The Company leases certain computer and office equipment under capital
leases. The Company also leases office space under noncancelable operating
leases expiring at various dates through 2005. Future minimum annual lease
payments under capital and noncancelable operating leases for each of the years
ending December 31 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
1998........................................................ $ 252,242 $ 234,353
1999........................................................ 29,695 219,153
2000........................................................ -- 192,161
2001........................................................ -- 197,120
2002........................................................ -- 202,079
Thereafter.................................................. -- 472,345
--------- ----------
Total minimum payments.................................... 281,937 $1,517,211
==========
Less amount representing interest........................... (29,300)
---------
Present value of net minimum lease payments............... 252,637
Less current portion........................................ (223,826)
---------
$ 28,811
=========
</TABLE>
Rent expense for the years ended December 31, 1996 and 1997 was $93,501 and
$134,777, respectively.
F-156
<PAGE> 239
INDEPENDENT AUDITORS' REPORT
The Board of Directors
LI Net, Inc.:
We have audited the accompanying balance sheets of LI Net, Inc. as of April
30, 1997 and January 31, 1998, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years ended April 30,
1996 and 1997 and the nine months ended January 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LI Net, Inc. as of April 30,
1997 and January 31, 1998, and the results of its operations and its cash flows
for the years ended April 30, 1996 and 1997 and the nine months ended January
31, 1998 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 27, 1998
F-157
<PAGE> 240
LI NET, INC.
BALANCE SHEETS
APRIL 30, 1997 AND JANUARY 31, 1998
ASSETS
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Current assets:
Cash...................................................... $ 49,036 $ 24,575
Receivables (note 3):
Trade, net of all allowance for doubtful accounts of
$28,948 and $50,000, respectively..................... 157,643 225,148
Other.................................................. -- 6,000
Prepaid expenses and other................................ 3,850 3,850
-------- ---------
Total current assets.............................. 210,529 259,573
Equipment, net (notes 2 and 3).............................. 355,906 500,654
Other assets................................................ 25,057 28,708
-------- ---------
Total assets...................................... $591,492 $ 788,935
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $171,038 $ 245,777
Accrued liabilities....................................... 13,942 22,521
Current portion of notes payable (note 3):
Bank................................................... -- 22,476
Related party (note 6)................................. 9,038 8,885
Revolving line of credit (note 3)......................... 15,265 39,993
Current portion of obligations under capital leases (note
4)..................................................... 52,090 81,652
Deferred revenue.......................................... 77,766 158,740
-------- ---------
Total current liabilities......................... 339,139 580,044
Notes payable, less current portion (note 3):
Bank...................................................... -- 93,542
Related party (note 6).................................... 126,052 114,029
Capital lease obligations, less current portion (note 4).... 87,826 62,453
-------- ---------
Total liabilities................................. 553,017 850,068
Stockholders' equity (deficit):
Common stock, no par value, 100 shares authorized and
issued................................................. 44,000 44,000
Additional paid-in capital................................ -- 273,100
Retained earnings (deficit)............................... 6,375 (378,233)
Treasury stock -- 5 shares at April 30, 1997, at cost..... (11,900) --
-------- ---------
Total stockholders' equity (deficit).............. 38,475 (61,133)
-------- ---------
Commitments (note 4)
Total liabilities and stockholders' equity
(deficit)....................................... $591,492 $ 788,935
======== =========
</TABLE>
See accompanying notes to financial statements.
F-158
<PAGE> 241
LI NET, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1996 AND 1997 AND NINE MONTHS ENDED JANUARY 31, 1998
<TABLE>
<CAPTION>
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Internet services..................................... $608,714 $1,033,595 $1,430,480
Computer hardware sales............................... 152,854 325,723 90,233
-------- ---------- ----------
Total revenue................................. 761,568 1,359,318 1,520,713
-------- ---------- ----------
Operating expenses:
Internet services operating costs..................... 197,025 317,225 551,993
Costs of hardware sold................................ 73,370 156,347 42,987
Selling, general and administrative expenses(note
7)................................................. 358,627 769,898 1,180,146
Depreciation.......................................... 64,470 77,762 100,902
-------- ---------- ----------
Total operating expenses...................... 693,492 1,321,232 1,876,028
Earnings (loss) from operations............... 68,076 38,086 (355,315)
Interest expense........................................ (10,596) (55,325) (29,293)
-------- ---------- ----------
Earnings (loss) before income taxes........... 57,480 (17,239) (384,608)
Income tax expense (note 5)............................. (7,600) -- --
-------- ---------- ----------
Net earnings (loss)........................... $ 49,880 $ (17,239) $ (384,608)
======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-159
<PAGE> 242
LI NET, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED APRIL 30, 1996 AND 1997 AND NINE MONTHS ENDED JANUARY 31, 1998
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL RETAINED STOCKHOLDERS'
COMMON PAID-IN EARNINGS TREASURY EQUITY
STOCK CAPITAL (DEFICIT) STOCK (DEFICIT)
------- ---------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES AT MAY 1, 1995............ $44,000 $ -- $ (26,266) $ -- $ 17,734
Purchase of treasury stock......... -- -- -- (10,000) (10,000)
Net earnings....................... -- -- 49,880 -- 49,880
------- -------- --------- -------- ---------
BALANCES AT APRIL 30, 1996......... 44,000 -- 23,614 (10,000) 57,614
Purchase of treasury stock......... -- -- -- (13,800) (13,800)
Issuance of treasury stock for
services (note 7)................ -- -- -- 11,900 11,900
Net loss........................... -- -- (17,239) -- (17,239)
------- -------- --------- -------- ---------
BALANCES AT APRIL 30, 1997......... 44,000 -- 6,375 (11,900) 38,475
Issuance of treasury stock for
services (note 7)................ -- 273,100 -- 11,900 285,000
Net loss........................... -- -- (384,608) -- (384,608)
------- -------- --------- -------- ---------
BALANCES AT JANUARY 31, 1998....... $44,000 $273,100 $(378,233) $ -- $ (61,133)
======= ======== ========= ======== =========
</TABLE>
See accompanying notes to financial statements.
F-160
<PAGE> 243
LI NET, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1996 AND 1997 AND NINE MONTHS ENDED JANUARY 31, 1998
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)..................................... $ 49,880 $ (17,239) $(384,608)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation......................................... 64,470 77,762 100,902
Provision for bad debts.............................. -- 28,948 50,000
Issuance of treasury stock for services.............. -- 11,900 285,000
Changes in operating assets and liabilities:
Receivables........................................ (66,218) (103,079) (123,505)
Prepaid expenses and other current assets.......... -- (3,850) --
Other assets....................................... (13,602) (6,580) (3,651)
Accounts payable and accrued liabilities........... 88,042 67,313 83,318
Deferred revenue................................... -- 77,766 80,974
--------- --------- ---------
Net cash provided by operating activities....... 122,572 132,941 88,430
--------- --------- ---------
Cash flows from investing activities -- purchases of
equipment............................................... (149,667) (94,633) (182,471)
--------- --------- ---------
Cash flows from financing activities:
Borrowings under revolving lines of credit.............. -- 15,265 24,728
Proceeds from borrowings from bank...................... -- -- 130,000
Principal payments on notes payable to bank............. -- -- (13,982)
Proceeds from borrowings from related parties........... 107,713 -- --
Principal payments on notes payable to related party.... (21,128) (13,677) (12,176)
Principal payments on capital lease obligations......... -- (39,872) (58,990)
Purchase of treasury stock.............................. (10,000) (13,800) --
--------- --------- ---------
Net cash provided (used) by financing
activities.................................... 76,585 (52,084) 69,580
--------- --------- ---------
Net increase (decrease) in cash................. 49,490 (13,776) (24,461)
Cash at beginning of year................................. 13,322 62,812 49,036
--------- --------- ---------
Cash at end of year....................................... $ 62,812 $ 49,036 $ 24,575
========= ========= =========
Supplemental disclosure of cash flow information -- cash
paid during the year for interest....................... $ 10,596 $ 39,621 $ 22,593
========= ========= =========
Noncash investing and financing activities -- equipment
acquired through capital lease obligations.............. $ 32,876 $ 146,912 $ 63,179
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-161
<PAGE> 244
LI NET, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1997 AND NINE MONTHS ENDED JANUARY 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
LI Net, Inc. (the Company) was incorporated in the State of New York and
provides regional internet access services to customers in New York.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Equipment
Equipment, including assets held under capital leases, is stated at cost,
less accumulated depreciation. Depreciation is recorded using the straight-line
method over the shorter of the estimated useful lives of the related assets or
the lease terms, which range from three to five years. Costs for normal repairs
and maintenance are expensed as incurred.
Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of (SFAS 121). SFAS 121 requires impairment losses to be recorded on long-lived
assets used in operations, including goodwill, when indications of impairment
are present and the undiscounted future cash flows estimated to be generated by
those assets are less than the assets' carrying amount. If such assets are
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the estimated fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying value or fair
value, less costs to sell.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and/or collected in advance.
Revenue from hardware sales is recognized upon shipment of the respective
products if the Company's future obligations are not significant and
collectibility is probable.
Income Taxes
Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, (SFAS 109).
Under SFAS 109, deferred income taxes are recognized for the future tax
consequences of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws and
statutory rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
Concentration of Credit Risk and Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized for
financial statement purposes. Management estimates that the fair values of all
financial instruments as of April 30, 1997 and January 31, 1998, approximate
their carrying values
F-162
<PAGE> 245
LI NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
based on their terms and interest rates. The use of different market assumptions
and/or estimation methodologies may have a significant effect on the estimated
fair values.
(2) EQUIPMENT
Equipment consisted of the following at April 30, 1997 and January 31,
1998:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Internet and computer equipment............................. $ 409,376 $ 641,881
Furniture and office equipment.............................. 67,532 80,677
Leasehold improvements...................................... 32,297 32,297
--------- ---------
509,205 754,855
Less accumulated depreciation and amortization.............. (153,299) (254,201)
--------- ---------
$ 355,906 $ 500,654
========= =========
</TABLE>
Equipment includes assets held under capital leases with a net book value
of approximately $139,000 and $155,000 at April 30, 1997 and January 31, 1998,
respectively.
(3) DEBT
During fiscal 1998, the Company entered into a loan agreement with a bank
and borrowed $130,000. The loan is secured by the Company's equipment, and bears
interest at 8.75%. Principal and interest payments of $2,683 are due monthly
through 2002. At January 31, 1998, the outstanding balance was $116,018.
At April 30, 1997 and January 31, 1998, the Company had a $50,000 revolving
line of credit agreement with a bank, secured by receivables, under which
$15,265 and $39,993 was outstanding, respectively. Borrowings under the line
bear interest at the bank's prime lending rate plus 2% (10.5% at January 31,
1997) and are due in 1998.
Maturities of the line of credit and note payable for each of the years
ending January 31 are as follows:
<TABLE>
<S> <C>
1999.............................................. $ 62,469
2000.............................................. 25,384
2001.............................................. 27,247
2002.............................................. 29,732
2003.............................................. 11,179
--------
$156,011
========
</TABLE>
(4) COMMITMENTS
The Company leases certain computer and office equipment under capital
leases. The Company also leases office space under noncancelable operating
leases expiring at various dates through 2002.
F-163
<PAGE> 246
LI NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum annual lease payments under capital and noncancelable
operating leases for each of the years ending January 31 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
1999........................................................ $100,042 $ 63,879
2000........................................................ 53,085 47,121
2001........................................................ 17,937 23,386
2002........................................................ 10,060 5,459
-------- --------
Total minimum payments.................................... 181,124 $139,845
========
Less amount representing interest........................... (37,019)
--------
Present value of net minimum lease payments............... 144,105
Less current portion........................................ (81,652)
--------
$ 62,453
========
</TABLE>
Rent expense for the years ended April 30, 1996 and 1997 and nine months
ended January 31, 1998, was $25,335, $35,353, and $52,779 respectively.
(5) INCOME TAXES
Income tax expense (benefit) for the years ended April 30, 1996 and 1997
and nine months ended January 31, 1998 differs from the amounts that would
result from applying the federal statutory rate of 34% as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- ---------
<S> <C> <C> <C>
Expected tax expense (benefit)...................... $19,543 $(5,861) $(130,777)
State income taxes, net of federal benefit.......... 2,300 (690) (15,374)
Nondeductible expenses.............................. -- 622 1,653
Change in valuation allowance for deferred tax
assets............................................ (14,243) 5,929 144,498
------- ------- ---------
Actual income tax expense................. $ 7,600 $ -- $ --
======= ======= =========
</TABLE>
Temporary differences that give rise to the components of deferred tax
assets and liabilities as of April 30, 1997 and January 31, 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 12,738 $ 148,824
Accounts receivable, due to allowance for doubtful
accounts for financial statement purposes only......... 11,000 30,000
Other..................................................... 173 140
-------- ---------
Total deferred tax assets......................... 23,911 178,964
Valuation allowance....................................... (5,929) (150,427)
-------- ---------
Net deferred tax assets........................... 17,982 28,537
-------- ---------
Deferred tax liability:
Equipment, due to differences in depreciation for
financial statement and tax purposes................... (17,982) (28,537)
-------- ---------
Net deferred tax asset (liability)................ $ -- $ --
======== =========
</TABLE>
F-164
<PAGE> 247
LI NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of January 31, 1998, the Company has a net operating loss carryforward
of approximately $392,000 for federal income tax purposes which will expire in
2013, if not utilized. A valuation allowance has been recorded for a portion of
the related deferred tax asset due to the uncertainty relating to the
realization of the net operating loss carryforward in the future.
(6) TRANSACTIONS WITH RELATED PARTIES
Notes payable to related party at April 30, 1997 and January 31, 1998
included $93,917 and $89,334, respectively, of unsecured notes due to
stockholders of the Company. The loans bear interest at 10% with the principal
and interest due in total on July 1, 1999 or upon sale of 50% or more of the
stock of the stockholders.
Also included in notes payable to related party at April 30, 1997 and
January 31, 1998 was an unsecured note due to a relative of a stockholder of the
Company. Principal outstanding on the note was $41,176 and $33,580 at April 30,
1997 and January 31, 1998, respectively. The note bears interest at 10% and is
payable in monthly principal and interest payments of $1,062 until 2001.
Maturities of notes payable to related parties for each of the years ending
January 31 are as follows:
<TABLE>
<S> <C>
1999.............................................. $ 8,885
2000.............................................. 100,087
2001.............................................. 11,878
2002.............................................. 2,064
--------
$122,914
========
</TABLE>
(7) STOCKHOLDERS' EQUITY
During the year ended April 30, 1997 and the nine months ended January 31,
1998, the Company issued treasury shares to an officer as compensation for
services. The Company recorded compensation expense of $11,900 and $285,000,
respectively, which, in the opinion of the Company's Board of Directors,
represented fair value of the shares at the date of issuance.
F-165
<PAGE> 248
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
Use of Proceeds....................... 19
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 21
Selected Consolidated Financial
Data................................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 31
Management............................ 47
Certain Transactions.................. 62
Principal Stockholders................ 65
Description of Capital Stock.......... 68
Shares Eligible for Future Sale....... 73
Underwriting.......................... 75
Legal Matters......................... 77
Experts............................... 77
Additional Information................ 77
Glossary of Terms..................... 79
Index to Financial Statements......... F-1
</TABLE>
Until May , 1998 (25 days after the commencement of the offering), all dealers
effecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as Underwriters
and with respect to their unsold allotments or subscriptions.
======================================================
======================================================
5,000,000 SHARES
VERIO INC.
COMMON STOCK
[VERIO INC. LOGO]
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
======================================================
<PAGE> 249
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, incurred in connection with the sale of
Common Stock being registered (all amounts are estimated except the SEC
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee).
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ----------
<S> <C>
SEC registration fee........................................ $ 29,500
NASD filing fee............................................. 10,500
NASDAQ National Market listing fee.......................... 50,000
Printing and engraving expenses............................. 250,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 400,000
Blue sky fees and expense................................... *
Transfer agent fees and expenses............................ 2,000
Miscellaneous............................................... *
----------
Total............................................. $1,000,000
==========
</TABLE>
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 145 of the General Corporation Law of the
State of Delaware (the "DGCL"), which provides for indemnification of directors,
officers and other employees in certain circumstances, and to Section 102(b)(7)
of the DGCL, which provides for the elimination or limitation of the personal
liability for monetary damages of directors under certain circumstances. Article
Eight of the Certificate of Incorporation of the Company eliminates the personal
liability for monetary damages of directors under certain circumstances and
provides indemnification to directors and officers of the Company to the fullest
extent permitted by the DGCL. Among other things, these provisions provide
indemnification for officers and directors against liabilities for judgments in
and settlements of lawsuits and other proceedings and for the advance and
payment of fees and expenses reasonably incurred by the director or officer in
defense of any such lawsuit or proceeding.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In June and July of 1996, the Registrant issued an aggregate of 6,033,333
shares of Series A Preferred Stock to Centennial Fund IV, L.P., Centennial
Holdings, Inc., Telecom Partners, L.P., Norwest Equity Partners, V and Brooks
Fiber Properties, Inc. for an aggregate of $18,100,001, pursuant to a Series A
Preferred Stock purchase agreement dated June 25, 1996, and Amendment No. 1
thereto, dated July 3, 1996. The transactions were exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act").
In December 1996, the Registrant issued an aggregate of 10,000,000 shares
of Series B Preferred Stock to Centennial Fund IV, L.P., Centennial Fund V,
L.P., Centennial Entrepreneurs Fund V, L.P., Centennial Holdings, Inc., Norwest
Equity Partners, V, Brooks Fiber Properties, Inc., Fleet Venture Resources,
Inc., Fleet Equity Partners VI, L.P., Providence Equity Partners L.P.,
Providence Equity Partners II L.P., Bessemer Venture Partners, WNA, Boston
Capital Ventures III, L.P., BCV Partners WNA, WNA-DMG Investors, LLC, Perkman
Associates, L.P., GC&H Investments and 11 individuals for an aggregate of
$60,000,000, pursuant to a Series B Preferred Stock purchase agreement, dated as
of December 5, 1996. The transaction was exempt from registration under Section
4(2) of the Securities Act.
II-1
<PAGE> 250
In May 1997, the Registrant issued an aggregate of 2,500,000 shares of
Series C Preferred Stock to Centennial Fund IV, L.P., Centennial Fund V, L.P.,
Centennial Entrepreneurs Fund V, L.P., Centennial Holdings I, LLC, Norwest
Equity Partners, V, Brooks Fiber Properties, Inc., Providence Equity Partners
L.P., Providence Equity Partners II L.P., Boston Capital Ventures III, L.P. and
BCV Partners WNA for an aggregate of $20,000,000, pursuant to a Series C
Preferred Stock purchase agreement dated May 20, 1997. The transaction was
exempt from registration under Section 4(2) of the Securities Act.
In connection with the issuance and sale of the 1997 Notes, the Registrant
issued warrants (the "Warrants") to purchase an aggregate of 2,112,480 shares of
Common Stock at an exercise price per share of $0.01. The Warrants will become
exercisable after the Offering. Issuance of the Warrants were made in reliance
on the exemption from registration provided by Rule 144A under the Securities
Act, Rule 501 under the Securities Act, and Regulation S under the Securities
Act.
During the period from April 1996 through February 1998, the Registrant
granted options to purchase an aggregate of 2,361,250 shares of Common Stock
(options for 2,023,967 shares of which are outstanding, options for 115,933
shares have been exercised and options for 221,350 shares have been forfeited)
to directors, employees and consultants pursuant to the Registrant's 1996 Stock
Option Plan in reliance on Rule 701 promulgated under the Securities Act.
During the period from April 1997 through April 1998, the Registrant
granted options to purchase an aggregate of 630,300 shares of Common Stock
(options for 467,850 shares of which are outstanding, none of which have been
exercised, and options for 162,450 shares of which have been forfeited) to
directors, employees and consultants pursuant to the Registrant's 1997
California Stock Option Plan in reliance on Rule 701 promulgated under the
Securities Act.
During the period of March 1998 through April 3, 1998, the Registrant
granted options to purchase an aggregate of 973,134 shares of Common Stock and
164,977 shares of Series D-1 Preferred Stock (all of which are outstanding) to
employees and consultants pursuant to the Registrant's 1998 Stock Incentive Plan
in reliance on Rule 701 promulgated under the Securities Act.
In January 1998, the Registrant issued an aggregate of 680,000 shares of
Series D-1 Preferred Stock to five investors pursuant to an Agreement and Plan
of Merger dated as of December 31, 1997, in connection with its acquisition of
iServer. The transaction was exempt from registration under Regulation 506 of
the Securities Act.
In February 1998, the Registrant issued an aggregate of 327,060 shares of
Series D-1 Preferred Stock to a total of 6* investors in connection with its
Buyout of Signet Partners, Inc., Internet Engineering Associates, Inc., and the
acquisition of NSNet, Inc. pursuant to an Agreement and Plan of Reorganization.
These transactions were exempt from registration under Regulation 506 of the
Securities Act.
In February 1998, the Registrant issued an aggregate of 694,385 shares of
Series D-1 Preferred Stock to a total of 18 investors in connection with its
Buyout of On-Ramp Technologies, Inc. and Clark Internet Services, Inc. pursuant
to an Agreement and Plan of Reorganization. These transactions were exempt from
registration under Section 4(2) of the Securities Act.
In March 1998, the Registrant issued and sold $175,000,000 principal amount
of 10 3/8% Senior Notes Due 2005 to Salomon Brothers Inc, Lazard Freres & Co.
LLC, Chase Securities Inc. and BancBoston Securities Inc. (together, the
"Initial Purchasers"). The aggregate underwriting discounts paid by the
Registrant to the Initial Purchasers was $4,812,500. Issuance of the Notes was
made in reliance on Rule 144A under the Securities Act, and Regulation S under
the Securities Act.
- ---------------
* Shares issued in the acquisition of NSNet, Inc. were issued to two investors
jointly in a single stock certificate.
II-2
<PAGE> 251
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.
3.1** -- Restated Certificate of Incorporation of the Registrant,
as amended.
3.2 -- Certificate of Amendment of Certificate of Incorporation
of the Registrant.
3.3** -- Certificate of Designation Establishing Series D
Preferred Stock of the Registrant.
3.4 -- Bylaws of the Registrant.
4.1* -- Specimen Stock Certificate of the Registrant.
5.1 -- Form of Opinion of Morrison & Foerster LLP.
10.1** -- Indenture, dated as of June 24, 1997, by and among the
Registrant and First Trust National Association (as
trustee).
10.2** -- Warrant Agreement, dated as of June 24, 1997, by and
between First Trust National Association and the
Registrant.
10.3** -- Common Stock Registration Rights Agreement, dated as of
June 17, 1997, by and among the Registrant, Brooks Fiber
Properties, Inc., Norwest Equity Partners V, Providence
Equity Partners, Centennial Fund V, L.P., Centennial Fund
IV, L.P. (as investors) and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, and Lazard
Freres & Co. LLC (collectively, the "Initial
Purchasers").
10.4** -- Registration Rights Agreement, dated as of June 17, 1997,
by and among the Registrant and the Initial Purchasers.
10.5** -- Lease Agreement, dated as of June 20, 1997, by and
between the Registrant and Highland Park Ventures, LLC,
with respect to the property in Englewood, Colorado,
including the First Amendment to Lease Agreement, dated
as of December 16, 1997.
10.6** -- Lease Agreement, dated as of May 24, 1997, by and between
the Registrant and IM Joint Venture, with respect to the
property in Dallas, Texas, as amended.
10.7 -- Form of Indemnification Agreement between the Registrant
and each of its officers and directors.
10.8** -- Amended and Restated Stockholders Agreement, dated as of
May 20, 1997, by and between the Registrant, the Series A
Purchasers, the Series B Purchasers, the Series C
Purchasers and members of the Registrant's management.
10.9 -- The Registrant's 1996 Stock Option Plan as amended.
10.10 -- The Registrant's 1997 California Stock Option Plan, as
amended.
10.11** -- The Registrant's 1998 Employee Stock Purchase Plan.
10.12 -- The Registrant's 1998 Stock Incentive Plan, as amended.
10.13 -- Form of Compensation Protection Agreement between the
Registrant and each of its executive officers.
10.14** -- Master Service Agreement, dated as of August 23, 1996, by
and between the Registrant and MFS Datanet, Inc.
10.15** -- Agreement for Terminal Facility Collocation Space, dated
August 8, 1996, by and between MFS Telecom, Inc. and the
Registrant.
10.16** -- Bilateral Peering Agreement, dated May 19, 1997, between
AT&T Corp. and the Registrant.
10.17** -- Master Lease Agreement, dated November 17, 1997, by and
between Insight Investments Corp. and the Registrant.
10.18** -- Master Lease Agreement, dated October 27, 1997, by and
between Cisco Capital Systems Corporation and the
Registrant.
</TABLE>
II-3
<PAGE> 252
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.19+ -- Lateral Exchange Networks Interconnection Agreement,
dated as of February 3, 1997, by and between the
Registrant and Sprint Communications Company L.P.
("Sprint").
10.20+ -- Cover Agreement, dated September 30, 1996, by and between
the Registrant and Sprint.
10.21+ -- Amendment One to Cover Agreement, dated November 7, 1996,
by and between the Registrant and Sprint.
10.22+ -- Amendment Two to Cover Agreement, dated March 2, 1998, by
and between the Registrant and Sprint.
10.23 -- Indenture, dated as of March 25, 1998, by and among the
Registrant and First Trust National Association (as
Trustee).
10.24 -- Registration Rights Agreement, dated as of March 25,
1998, by and among the Registrant, and Salomon Brothers
Inc, Lazard Freres & Co. LLC, Chase Securities Inc. and
BancBoston Securities Inc.
10.25+ -- Capacity and Services Agreement, dated as of March 31,
1998, by and among the Registrant and Qwest
Communications Corporation.
10.26 -- Credit Agreement, dated as of April 6, 1998, by and among
the Registrant, The Chase Manhattan Bank (as
administrative agent) and Fleet National Bank (as
documentation agent).
10.27 -- Stock Purchase and Master Strategic Relationship
Agreement, dated as of April 7, 1998, by and among the
Registrant and Nippon Telegraph and Telephone Corporation
("NTT"), a Japanese corporation.
10.28+ -- Investment Agreement, dated as of April 7, 1998, by and
among the Registrant and NTT.
10.29* -- Outside Service Provider Agreement, dated as of April 7,
1998, by and among the Registrant and NTT America, Inc.
10.30+ -- Master Services Agreement, dated as of June 13, 1997, by
and between the Registrant and MCI Telecommunications
Corporation ("MCI").
10.31+ -- MCI Domestic (US) Public Interconnection Agreement dated
as of June 12, 1997, by and between the Registrant and
MCI, as amended.
11.1 -- Not applicable.
21.1 -- List of Subsidiaries of the Registrant.
23.1 -- Consent of KPMG Peat Marwick LLP (Denver).
23.2 -- Consent of KPMG Peat Marwick LLP (Seattle).
23.3 -- Consent of Morrison & Foerster LLP (contained in Exhibit
5.1).
24.1** -- Power of Attorney (included on page II-5 hereof).
27.1** -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment
** Exhibit previously filed.
+ Document for which confidential treatment has been requested.
II-4
<PAGE> 253
FINANCIAL STATEMENTS AND SCHEDULE:
Financial Statements:
Financial Statements filed as a part of this Registration Statement are
listed in the Index to Financial Statements on page F-1.
Financial Statement Schedules:
<TABLE>
<CAPTION>
SCHEDULE NO. DESCRIPTION
------------ -----------
<C> <S>
II Valuation and Qualifying Accounts
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(b) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(c) The undersigned Registrant hereby undertakes that for the purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was declared
effective.
For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus 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.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE> 254
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Englewood, Colorado on April 10,
1998.
VERIO INC.
By: /s/ CARLA HAMRE DONELSON
----------------------------------
Carla Hamre Donelson
Vice President, General Counsel
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEVEN C. HALSTEDT* Chairman of the Board April 10, 1998
- -----------------------------------------------------
Steven C. Halstedt
/s/ JUSTIN L. JASCHKE* Chief Executive Officer and April 10, 1998
- ----------------------------------------------------- Director
Justin L. Jaschke
/s/ JAMES C. ALLEN* Director April 10, 1998
- -----------------------------------------------------
James C. Allen
/s/ TRYGVE E. MYHREN* Director April 10, 1998
- -----------------------------------------------------
Trygve E. Myhren
/s/ PAUL J. SALEM* Director April 10, 1998
- -----------------------------------------------------
Paul J. Salem
/s/ STEVEN W. SCHOVEE* Director April 10, 1998
- -----------------------------------------------------
Steven W. Schovee
/s/ GEORGE J. STILL, JR.* Director April 10, 1998
- -----------------------------------------------------
George J. Still, Jr.
/s/ PETER B. FRITZINGER* Chief Financial Officer April 10, 1998
- -----------------------------------------------------
Peter B. Fritzinger
/s/ DEB MAYFIELD GAHAN* Vice President of Finance and April 10, 1998
- ----------------------------------------------------- Administration (Principal
Deb Mayfield Gahan Accounting Officer)
*By: /s/ CARLA HAMRE DONELSON
------------------------------------------------
Carla Hamre Donelson
Vice President, General Counsel and Secretary
</TABLE>
II-6
<PAGE> 255
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
Under date of February 25, 1998, we reported on the consolidated balance
sheets of Verio Inc. and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the period from inception (March 1, 1996) to December 31, 1996 and the
year ended December 31, 1997, which are included in the prospectus. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule in the registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Denver, Colorado
February 25, 1998
S-1
<PAGE> 256
SCHEDULE II
VERIO INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Period from Inception (March 1, 1996) to
December 31, 1996:
Allowance for doubtful Accounts............. $ -- 117 -- 117
Year ended December 31, 1997:
Allowance for doubtful Accounts............. $ 117 1,116 -- 1,233
</TABLE>
S-2
<PAGE> 257
EXHIBIT INDEX
EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.
3.1** -- Restated Certificate of Incorporation of the Registrant,
as amended.
3.2 -- Certificate of Amendment of Certificate of Incorporation
of the Registrant.
3.3** -- Certificate of Designation Establishing Series D
Preferred Stock of the Registrant.
3.4 -- Bylaws of the Registrant.
4.1* -- Specimen Stock Certificate of the Registrant.
5.1 -- Form of Opinion of Morrison & Foerster LLP.
10.1** -- Indenture, dated as of June 24, 1997, by and among the
Registrant and First Trust National Association (as
trustee).
10.2** -- Warrant Agreement, dated as of June 24, 1997, by and
between First Trust National Association and the
Registrant.
10.3** -- Common Stock Registration Rights Agreement, dated as of
June 17, 1997, by and among the Registrant, Brooks Fiber
Properties, Inc., Norwest Equity Partners V, Providence
Equity Partners, Centennial Fund V, L.P., Centennial Fund
IV, L.P. (as investors) and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, and Lazard
Freres & Co. LLC (collectively, the "Initial
Purchasers").
10.4** -- Registration Rights Agreement, dated as of June 17, 1997,
by and among the Registrant and the Initial Purchasers.
10.5** -- Lease Agreement, dated as of June 20, 1997, by and
between the Registrant and Highland Park Ventures, LLC,
with respect to the property in Englewood, Colorado,
including the First Amendment to Lease Agreement, dated
as of December 16, 1997.
10.6** -- Lease Agreement, dated as of May 24, 1997, by and between
the Registrant and IM Joint Venture, with respect to the
property in Dallas, Texas, as amended.
10.7 -- Form of Indemnification Agreement between the Registrant
and each of its officers and directors.
10.8** -- Amended and Restated Stockholders Agreement, dated as of
May 20, 1997, by and between the Registrant, the Series A
Purchasers, the Series B Purchasers, the Series C
Purchasers and members of the Registrant's management.
10.9 -- The Registrant's 1996 Stock Option Plan, as amended.
10.10 -- The Registrant's 1997 California Stock Option Plan, as
amended.
10.11** -- The Registrant's 1998 Employee Stock Purchase Plan.
10.12 -- The Registrant's 1998 Stock Incentive Plan, as amended.
10.13 -- Form of Compensation Protection Agreement between the
Registrant and each of its executive officers.
10.14** -- Master Service Agreement, dated as of August 23, 1996, by
and between the Registrant and MFS Datanet, Inc.
10.15** -- Agreement for Terminal Facility Collocation Space, dated
August 8, 1996, by and between MFS Telecom, Inc. and the
Registrant.
10.16** -- Bilateral Peering Agreement, dated May 19, 1997, between
AT&T Corp. and the Registrant.
10.17** -- Master Lease Agreement, dated November 17, 1997, by and
between Insight Investments Corp. and the Registrant.
</TABLE>
<PAGE> 258
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.18** -- Master Lease Agreement, dated October 27, 1997, by and
between Cisco Capital Systems Corporation and the
Registrant.
10.19+ -- Lateral Exchange Networks Interconnection Agreement,
dated as of February 3, 1997, by and between the
Registrant and Sprint Communications Company L.P.
("Sprint").
10.20+ -- Cover Agreement, dated September 30, 1996, by and between
the Registrant and Sprint.
10.21+ -- Amendment One to Cover Agreement, dated November 7, 1996,
by and between the Registrant and Sprint.
10.22+ -- Amendment Two to Cover Agreement, dated March 2, 1998, by
and between the Registrant and Sprint.
10.23 -- Indenture, dated as of March 25, 1998, by and among the
Registrant and First Trust National Association (as
Trustee).
10.24 -- Registration Rights Agreement, dated as of March 25,
1998, by and among the Registrant, and Salomon Brothers
Inc, Lazard Freres & Co. LLC, Chase Securities Inc. and
BancBoston Securities Inc.
10.25+ -- Capacity and Services Agreement, dated as of March 31,
1998, by and among the Registrant and Qwest
Communications Corporation.
10.26 -- Credit Agreement, dated as of April 6, 1998, by and among
the Registrant, The Chase Manhattan Bank (as
administrative agent) and Fleet National Bank (as
documentation agent).
10.27 -- Stock Purchase and Master Strategic Relationship
Agreement, dated as of April 7, 1998, by and among the
Registrant and Nippon Telegraph and Telephone Corporation
("NTT"), a Japanese corporation.
10.28+ -- Investment Agreement, dated as of April 7, 1998, by and
among the Registrant and NTT.
10.29* -- Outside Service Provider Agreement, dated as of April 7,
1998, by and among the Registrant and NTT America, Inc.
10.30+ -- Master Services Agreement, dated as of January 15, 1998,
by and between the Registrant and MCI Telecommunications
Corporation ("MCI").
10.31+ -- MCI Domestic (US) Public Interconnection Agreement dated
as of June 12, 1997, by and between the Registrant and
MCI, as amended.
11.1 -- Not applicable.
21.1 -- List of Subsidiaries of the Registrant.
23.1 -- Consent of KPMG Peat Marwick LLP (Denver).
23.2 -- Consent of KPMG Peat Marwick LLP (Seattle).
23.3 -- Consent of Morrison & Foerster LLP (contained in Exhibit
5.1).
24.1** -- Power of Attorney (included on page II-5 hereof).
27.1** -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment
** Exhibit previously filed.
+ Document for which confidential treatment has been requested.
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF
VERIO INC.
VERIO INC., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation
duly held on February 18, 1998, resolutions were duly adopted setting forth a
proposed amendment of the Certificate of Incorporation of the Corporation,
declaring said amendment to be advisable and calling a meeting of the
stockholders of the Corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be,
and it hereby is, amended as follows:
1. The first two paragraphs of Article Four are hereby amended to read
in full as follows:
ARTICLE FOUR
CAPITAL STOCK
This Corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the Corporation is authorized to issue is
one hundred sixty-six million two hundred seventeen thousand
(166,217,000) shares, (a) one hundred twenty-five million
(125,000,000) shares of which shall be common stock, par value $.001
per share (the "Common Stock"), (b) eighteen million seven hundred
seventeen thousand (18,717,000) shares of which shall be Preferred
Stock, par value $.001 per share, the rights, preferences, privileges
and restrictions of which are set forth herein (the "Designated
Preferred Stock"), (c) ten million (10,000,000) shares of which shall
be additional Preferred Stock, par value $.001 per share (the
"Undesignated Preferred Stock"), and (d) twelve million five hundred
thousand (12,500,000) shares of which shall be further additional
Preferred Stock, par value $.001 per share (the "Additional
Undesignated Preferred Stock").
The Undesignated Preferred Stock authorized by this Certificate
of Incorporation may be issued from time to time in series. The Board
of Directors is hereby authorized to create or provide for, and to fix
or alter the rights, preferences, privileges, and restrictions granted
to or
1
<PAGE> 2
imposed upon any series of, Undesignated Preferred Stock (including
without limitation the dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and sinking fund
terms thereof), and the number of shares constituting any such series
and the designation thereof. Subject to compliance with applicable
protective voting rights which have been or may be granted to the
Series A, Series B, and Series C Preferred Stock, or other series of
Preferred Stock (collectively, "Preference Shares") in Certificates of
Designation or the Corporation's Certificate of Incorporation
("Protective Provisions"), but notwithstanding any other rights of the
Preference Shares or any series thereof, the rights, privileges,
preferences, and restrictions of any Undesignated Preferred Stock (a)
shall be junior to, and not pari passu with, Preference Shares with
respect to liquidation or dividends and (b) may be senior to, or pari
passu with, Common Stock. Undesignated Preferred Stock shall in no
case be redeemable nor shall it have any voting rights other than as
provided by The General Corporation Law of the State of Delaware.
Subject to the compliance with applicable Protective Provisions, the
Board of Directors is also authorized to increase or decrease the
number of shares of any series prior or subsequent to the issue of
that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
There shall be no limitation or restriction on any variation
between any of the different series of Undesignated Preferred Stock as
to the designations, preferences and relative, participating, optional
or other special rights, and the qualifications, limitations or
restrictions thereof; and the several series of Undesignated Preferred
Stock may, except as otherwise herein expressly provided, vary in any
and all respects as fixed and determined by the resolution or
resolutions of the Board of Directors, providing for the issuance of
the various series; provided, however, that all shares of any one
series of Undesignated Preferred Stock shall have the same
designation, preferences and relative, participating, optional or
other special rights and qualifications, limitations and restrictions.
The Additional Undesignated Preferred Stock authorized by this
Certificate of Incorporation may be issued from time to time in one or
more series. Subject to the limitations and restrictions set forth in
this Article Four, the Board of Directors or a Committee of the Board
of Directors, to the extent permitted by law and the bylaws of the
Corporation or a resolution of the Board of Directors, by resolution
or
2
<PAGE> 3
resolutions, is authorized to create or provide for any such series,
and to fix the designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, including, without limitation, the authority to
fix or alter the dividend rights, dividend rates, conversion rights,
exchange rights, voting rights, rights and terms of redemption
(including sinking and purchase fund provisions), the redemption price
or prices, the dissolution preferences and the rights in respect to
any distribution of assets of any wholly unissued series of Additional
Undesignated Preferred Stock and the number of shares constituting any
such series, and the designation thereof, or any of them and to
increase or decrease the number of shares of any series so created,
subsequent to the issue of that series but not below the number of
shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption
of the resolution originally fixing the number of shares of such
series.
There shall be no limitation or restriction on any variation
between any of the different series of the Additional Undesignated
Preferred Stock as to the designations, preferences and relative,
participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof; and the several
series of Additional Undesignated Preferred Stock may, except as
otherwise expressly provided herein, vary in any and all respects as
fixed and determined by the resolution or resolutions of the Board of
Directors or by Committee of the Board of Directors, providing for the
issuance of the various series; provided, however, that all shares of
any one series of the Additional Undesignated Preferred Stock shall
have the same designation, preferences and relative, participating,
optional or other special rights and qualifications, limitations and
restrictions.
2. A new Article Four, Section 2(d) is hereby added, as follows:
(d) BOARD OF DIRECTORS AFTER INITIAL PUBLIC OFFERING
(I) Number, Qualifications and Term of Office. Effective from and
after an initial public offering of the Common Stock of the
Corporation (an "IPO"), the Board of Directors shall be constituted as
follows:
(i) Except as otherwise provided herein or the General
Corporation Law of Delaware, the business and affairs of the
Corporation shall be managed by or under the direction of a board
of directors consisting of one or more members.
3
<PAGE> 4
(ii) Directors need not be stockholders of the Corporation.
(iii) The number of directors shall be fixed from time to
time, within the limits in the Bylaws, by a Bylaw or amendment
thereof duly adopted by the vote of a majority of the shares
entitled to vote represented at a duly held meeting at which a
quorum is present or by the board of directors.
(iv) The directors shall be divided into three classes,
designated Class I, Class II and Class III, as nearly equal in
number as the then total number of directors permits, serving
staggered terms so that the initial terms of each such class will
expire, respectively, at the first, second and third succeeding
annual meetings of the stockholders held following the IPO. At
each such succeeding annual meeting of stockholders, directors
elected to succeed those directors whose terms are expiring at
such meeting shall be elected for a term of office to expire at
the third succeeding annual meeting of stockholders following
such election. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal
as possible, and any additional directors of any class elected to
fill a vacancy resulting from an increase in such class shall
hold office for a term that shall coincide with the remaining
term of that class, but in no case will a decrease in the number
of directors shorten the term of any incumbent director.
Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of preferred stock issued by the
Corporation shall have the right, voting separately by class or
series, to elect directors at an annual or special meeting of
stockholders, the election, term of office, filling of vacancies
and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation or the Bylaws
applicable thereto, and such directors so elected shall not be
divided into classes pursuant to this Section 2 unless expressly
provided by such terms.
(v) Any amendment, change or repeal of this paragraph (d),
or any other amendment to this Certificate of Incorporation that
will have the effect of permitting circumvention of or modifying
this paragraph (d), shall require the favorable vote, at a
stockholders' meeting, of the holders of at least eighty percent
(80%) of the then-outstanding shares of stock of the Corporation
entitled to vote.
4
<PAGE> 5
(vi) Except as provided in sub-Clause (II) below, the
directors shall be elected by a plurality vote of the shares
represented in person or by proxy at the stockholders annual
meeting in each year and entitled to vote on the election of
directors. Elected directors shall hold office until the next
annual meeting for the years in which their terms expire and
until their successors shall be duly elected and qualified. If,
for any cause, the board of directors shall not have been elected
at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for
that purpose in the manner provided in this Certificate of
Incorporation or the Bylaws.
(II) Vacancies. Except as otherwise provided by the Certificate of
Incorporation or any amendments thereto, vacancies and newly created
directorships resulting from any increase in the number of authorized
directors may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director, and each
director so elected shall hold office for the unexpired portion of the term
of the director whose place shall be vacant, and until his successor shall
have been duly elected and qualified. A vacancy in the board of directors
shall be deemed to exist under this sub-Clause II in the case of the death,
removal or resignation of any director, or if the stockholders fail at any
meeting of stockholders at which directors are to be elected to elect the
number of directors then constituting the whole board.
(III) Resignation. Any director may resign by delivering his written
resignation to the Corporation at its principal office, addressed to the
president or secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the
happening of some other event. When one or more directors shall resign from
the board, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective, and each director so chosen shall
hold office for the unexpired portion of the term of the director whose
place shall be vacated and until his successor shall have been duly elected
and qualified.
3. Article Eight is hereby amended to read in full as follows:
5
<PAGE> 6
ARTICLE EIGHT
The Corporation shall indemnify, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as amended from
time to time, all officers and directors of the Corporation whom it may
indemnify pursuant thereto. The personal liability of a director of the
Corporation to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director shall be limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware,
as it now exists or may hereafter be amended. The Corporation may
indemnify, to the fullest extent permitted by Section 145 of the General
Corporation Law of Delaware, as amended from time to time, any or all
employees or agents of the Corporation whom it may indemnify pursuant
thereto. Any repeal or modification of this Article by the stockholders of
the Corporation shall not adversely affect any right or protection of an
officer or director of the Corporation existing at the time of such repeal
or modification.
4. Article Nine is hereby amended to read in full as follows:
ARTICLE NINE
The Corporation expressly elects to be governed by Section 203 of the
General Corporation Law of the State of Delaware.
5. Article Ten is hereby amended to read in full as follows:
ARTICLE TEN
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation in the manner
now or hereafter prescribed herein and by the laws of the State of
Delaware, and all rights conferred upon stockholders herein are granted
subject to this reservation, provided, that any amendment, alteration,
change or repeal of any provision of this Certificate of Incorporation that
will have the effect of permitting circumvention of or modifying Article
Eleven, and, after an IPO, Article Four, Section 2 and Article Eleven,
shall require the favorable vote, at a stockholders' meeting, of the
holders of at least 80% of the then-outstanding shares of stock of the
Corporation entitled to vote.
6. A new Article Eleven is hereby added, as follows:
6
<PAGE> 7
ARTICLE ELEVEN
Effective from and after an IPO, notwithstanding anything in this
Certificate of Incorporation to the contrary, any action required or
permitted to be taken by a vote of the stockholders of the Corporation
may not be taken by written consent.
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the stockholders of said corporation took action by executing a written consent
in lieu of a special meeting in accordance with Section 228 of the General
Corporation Law of the State of Delaware pursuant to which the necessary number
of shares was voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or
by reason of said amendment.
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IN WITNESS WHEREOF, Verio Inc. has caused this certificate to be signed by
Justin L. Jaschke, its Chief Executive Officer, this _____ day of
________________, 1998.
By:
--------------------------------------
Chief Executive Officer
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EXHIBIT 3.4
VERIO INC.
BYLAWS
ARTICLE I
Offices and Agent
1. Principal Office. The principal office of the
Corporation may be located within or without the State of Delaware, as
designated by the board of directors. The Corporation may have other offices
and places of business at such places within or without the State of Delaware
as shall be determined by the directors or as may be required by the business
of the Corporation.
2. Registered Office and Agent. The Corporation shall
have and maintain at all times (a) a registered office in the State of
Delaware, which office shall be located at 1013 Centre Road, Wilmington,
Delaware 19805, and (b) a registered agent located at such address whose name
is Corporation Service Company, until changed from time to time as provided by
the General Corporation Law of the State of Delaware ("Delaware Corporation
Law").
ARTICLE II
Stockholders Meetings
3. Annual Meetings. The annual meeting of stockholders
for the election of directors and for the transaction of such other business as
may properly be brought before the meeting shall be held on such date and at
such time as determined by resolution of the board of directors. If at the
place of the meeting, this date shall fall upon a legal holiday, then such
meeting shall be held on the next succeeding business day at the same hour. If
no annual meeting is held in accordance with the foregoing provisions, the
board of directors shall cause the meeting to be held as soon thereafter as
convenient.
4. Special Meetings. Special meetings of the stockholders of the
Corporation may be called for any purpose at any time by the president, and
shall be called by the secretary if directed by the board of directors. Special
meetings of the stockholders of the Corporation may not be called by any other
person or persons. No business may be transacted at any special meeting except
that referred to in the notice thereof. Any amendment, change or repeal of this
Section 4, or any other amendment to these Bylaws that will have the effect of
permitting circumvention of or modifying this Section 4, shall require the
favorable vote, at a stockholders' meeting, of the holders of at least eighty
percent (80%) of the then-outstanding shares of stock of the Corporation
entitled to vote.
5. Place of Meetings. All meetings of stockholders of
the Corporation shall be held within or without the State of Delaware as may be
designated by the board of directors or the president, or, if not designated,
at the registered office of the Corporation.
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6. Notice of Meeting.
(a) Except as otherwise provided in these Bylaws
or Delaware Corporation Law, written notice of any meeting of stockholders,
stating the place, date and hour of the meeting and, in the case of a special
meeting, the purpose for which the meeting is called, shall be delivered either
personally or by mail to each stockholder of record entitled to vote at such
meeting not less than ten (10) nor more than sixty (60) days before the date of
the meeting by or at the direction of the board of directors, the president or
the secretary. If mailed, such notice shall be deemed to be delivered as to
any stockholder of record when deposited in the United States mail addressed to
the stockholder at his address as it appears on the stock transfer books of the
Corporation, with postage prepaid.
(b) When a meeting is adjourned to another time
or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting the Corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
7. Waiver of Notice. Any stockholder, either before or
after any stockholders' meeting, may waive in writing notice of the meeting,
and his waiver shall be deemed the equivalent of giving notice. Attendance at
a meeting by a stockholder shall constitute a waiver of notice, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
8. Fixing of Record Date. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors of the Corporation may fix in
advance a record date, which shall be not more than sixty (60) days nor less
than ten (10) days prior to the date of such meeting, nor more than sixty (60)
days prior to any other action. If no record date is fixed, the record date for
determining the stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. The record date
for determining stockholders for any purpose shall be at the close of business
on the day on which the board of directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or
vote at a meeting of stockholders shall apply to any adjournment of the meeting,
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
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9. Stockholders List. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting arranged in alphabetical order and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days prior to the meeting at a place within the city where
the meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof and may be inspected by
any stockholder who is present.
10. Proxies.
(a) A stockholder entitled to vote at a meeting
of stockholders may authorize another person or persons to act for him by
proxy, which proxy shall be filed with the secretary at or before the meeting
at which it is used. No proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period.
(b) Without limiting the manner in which a
stockholder may authorize another person or persons to act for him as proxy
pursuant to subsection (a) of this Section, the following shall constitute a
valid means by which a stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing
another person or persons to act for him as proxy. Execution may be
accomplished by the stockholder or his authorized officer, director, employee or
agent signing such writing or causing his signature to be affixed to such
writing by any reasonable means including, but not limited to, by facsimile
signature.
(2) A stockholder may authorize another person or persons
to act for him as proxy by transmitting or authorizing the transmission of a
telegram, cablegram or other means of electronic transmission to the person who
will be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will be the
holder of the proxy to receive such transmission, provided, that any such
telegram, cablegram or other means of electronic transmission must either set
forth or be submitted with information from which it can be determined that the
telegram, cablegram or other electronic transmission was authorized by the
stockholder. Such authorization can be established by the signature of the
stockholder on the proxy, either in writing or by a signature stamp or facsimile
signature, or by a number or symbol from which the identity of the stockholder
can be determined, or by any other procedure deemed appropriate by the
inspectors or other persons making the determination as to due authorization.
If it is determined that such telegrams, cablegrams or other electronic
transmissions are valid, the inspectors or, if there are no inspectors, such
other persons making that determination shall specify the information upon which
they relied.
(c) Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to subsection (c)
of this section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for
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which the original writing or transmission could be used, provided, that such
copy, facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
11. Voting. Each stockholder shall have one vote for each share
of stock entitled to vote held of record by such stockholder and a proportionate
vote for each fractional share so held, unless otherwise provided in the
Certificate of Incorporation.
Persons holding stock in a fiduciary capacity shall be
entitled to vote the shares so held. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
Corporation he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent such stock and vote thereon.
If shares having voting power stand of record in the names of
two or more persons, whether fiduciaries, members of a partnership, joint
tenants, tenants in common, tenants by the entirety, or otherwise, or if two or
more persons have the same fiduciary relationship respecting the same shares,
unless the secretary is given written notice to the contrary and is furnished
with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting shall
have the following effect: (i) if only one votes, his act binds all; (ii) if
more than one vote, the act of the majority so voting binds all; and (iii) if
more than one vote, but the vote is evenly split on any particular matter, each
fraction may vote the securities in question proportionately, or any person
voting the shares or a beneficiary, if any, may apply to the Court of Chancery
or any court of competent jurisdiction in the State of Delaware to appoint an
additional person to act with the persons so voting the shares. The shares
shall then be voted as determined by a majority of such persons and the person
appointed by the court. If a tenancy is held in unequal interests, a majority
or even-split for the purpose of this sub-section shall be a majority or
even-split in interest.
12. Quorum and Required Vote. Except as otherwise provided by
law, the Certificate of Incorporation or these Bylaws, the holders of a majority
of the shares entitled to vote at the meeting, present in person or by proxy,
shall constitute a quorum for the transaction of business. If a quorum is
present, the affirmative vote of a majority of the shares present or represented
by proxy at the meeting and entitled to vote on the subject matter shall be the
act of the stockholders, and, if there are two or more classes of stock entitled
to vote as separate classes, then, in the case of each such class, the
affirmative vote of a majority of the shares of that class present or
represented by proxy at the meeting shall be the vote of such class unless a
different vote is required by an express provision of law, the Certificate of
Incorporation or these Bylaws.
13. Voting Procedures and Inspections of Elections.
(a) The Corporation shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The Corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is able to act at a meeting of stockholders, the person presiding
at the meeting shall appoint one or more inspectors to act at the meeting. Each
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inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting and their count of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance of
the duties of the inspectors.
(c) The date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote at a meeting shall
be announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the inspectors after the
closing of the polls unless the Court of Chancery upon application by a
stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and
ballots, the inspectors shall be limited to an examination of the proxies, any
envelopes submitted with those proxies, any information provided in accordance
with Section 212(c)(2) of the Delaware Corporation Law, the ballots and the
regular books and records of the corporation, except that the inspectors may
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder holds
of record. If the inspectors consider other reliable information for the
limited purpose permitted herein, the inspectors at the time they make their
certification pursuant to sub-section (b)(v) above shall specify the precise
information considered by them, including the person or persons from whom they
obtained the information, when the information was obtained, the means by which
the information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
14. Stockholder Proposals at Annual Meetings.
(a) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the board of directors, otherwise properly brought before the
meeting by or at the direction of the board of directors or otherwise properly
brought before the meeting by a stockholder. In addition to any other
applicable requirements, for business to be properly brought before an annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the secretary. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than thirty (30) days nor more than sixty (60) days prior
to the meeting; provided, that in the event that less than forty (40) days'
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
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later than the close of business on the tenth (10th) day following the day on
which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the secretary shall set forth,
as to each matter the stockholder proposes to bring before the annual meeting,
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and record address of the stockholder proposing such business,
(iii) the class and number of shares of the corporation which are beneficially
owned by the stockholder, and (iv) any material interest of the stockholder in
such business;
(b) Notwithstanding anything in these Bylaws to
the contrary, no business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Section 14; provided, that
nothing in this Section 14 shall be deemed to preclude discussion by any
stockholder of any business properly brought before the annual meeting in
accordance with said procedure.
(c) The presiding officer of an annual meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 14, and any such business not properly brought before the meeting shall
not be transacted.
15. Nominations of Persons for Election to the Board of Directors.
(a) In addition to any other applicable requirements, only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors. Nominations of persons for election to the
board of directors may be made at a meeting of stockholders by or at the
direction of the board of directors, by any nominating committee or person
appointed by the board of directors or by any stockholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 15.
(b) Such nominations, other than those made by or at the
direction of the board of directors, shall be made pursuant to timely notice in
writing to the secretary. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than thirty (30) days nor more than sixty (60) days prior
to the meeting; provided, that in the event that less than forty (40) days'
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set forth (i) as to each
person whom the stockholder proposes to nominate for election or re- election as
a director, (A) the name, age, business address and residence address of the
person, (B) the principal occupation or employment of the person, (C) the class
and number of shares of the Corporation which are beneficially owned by the
person, and (D) any other information relating to the person that is required to
be disclosed in solicitations for proxies for election of directors pursuant to
Rule 14a under the Securities Exchange Act of 1934; and (ii) as to the
stockholder giving the notice,
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(A) the name and record address of the stockholder, and (B) the class and number
of shares of the Corporation which are beneficially owned by the stockholder.
The Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee to serve as a director of the Corporation.
No person shall be eligible for election as a director of the Corporation unless
nominated in accordance with the procedures set forth herein. These provisions
shall not apply to nomination of persons, if any, entitled to be separately
elected by holders of preferred stock.
(c) The presiding officer of the meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedure, and the defective nomination
shall be disregarded.
16. Conduct of Meetings. The board of directors may adopt by
resolution such rules and regulations for the conduct of meetings of
stockholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the board of directors, the
presiding officer of any meeting of stockholders shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such presiding officer, are appropriate for the
proper conduct of the meeting. Such rules, regulations and procedures, whether
adopted by the board of directors or prescribed by the presiding officer of the
meeting, may include, without limitation, the following: (i) the establishment
of an agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and the safety of those present; (iii)
limitations on attendance at or participation in the meeting to stockholders of
record, their duly authorized and constituted proxies or such other persons as
the presiding officer of the meeting shall determine; (iv) restrictions on entry
to the meeting after the time fixed for the commencement thereof; and (v)
limitations on the time allotted to questions and/or comments by participants.
Unless and to the extent determined by the board of directors or the presiding
officer of the meeting, meetings of stockholders shall not be required to be
held in accordance with the rules of parliamentary procedure.
17. Adjournment. In case a quorum shall not be present at any
meeting, the presiding officer of the meeting or a majority in interest of the
stockholders entitled to vote thereat present in person or by proxy shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be represented. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed, but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof. In addition, the board of directors may adjourn a meeting of the
stockholders if the board of directors determines that adjournment is necessary
or appropriate in order to enable the stockholders (i) to consider fully
information that the board of directors determines has not been made
sufficiently or timely available to stockholders or (ii) to otherwise
effectively exercise their voting rights.
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18. Informal Action by Stockholders. Effective from and
after an initial public offering of the Common Stock of the Corporation (an
"IPO"), any action required by the provisions of Delaware Corporation Law to be
taken by the stockholders of the Corporation must be taken at a stockholders'
meeting and not by written consent or consents without a meeting. Prior to an
IPO, any such action may be taken without a meeting, by a consent or consents
in writing, and the Board of Directors shall determine the procedures for
obtaining such written consent or consents from the stockholders of the
Corporation in accordance with the provisions of the Delaware Corporation Law.
Any amendment, change or repeal of this Section 18, or any other amendment to
these Bylaws that will have the effect of permitting circumvention of or
modifying this Section 18, shall require the favorable vote, at a stockholders'
meeting, of the holders of at least eighty percent (80%) of the
then-outstanding shares of stock of the Corporation entitled to vote.
ARTICLE III
Board of Directors
19. Number, Qualifications and Term of Office.
(a) Prior to an IPO, except as otherwise provided
in the Certificate of Incorporation or the Delaware Corporation Law, the
business and affairs of the Corporation shall be managed by or under the
direction of a board of directors consisting of one or more members. Directors
need not be stockholders of the Corporation. The board of directors, by
resolution, may increase or decrease the number of directors from time to time.
Except as otherwise provided in these Bylaws, each director shall be elected at
each annual meeting of stockholders and shall hold such office until the next
annual meeting of stockholders and until his successor shall be elected and
shall qualify. No decrease in the number of directors shall have the effect of
shortening the term of any incumbent director.
(b) Effective from and after an IPO, the Board of Directors
shall be constituted as follows:
(1) Except as otherwise provided in the
Certificate of Incorporation or the Delaware Corporation Law, the business and
affairs of the Corporation shall be managed by or under the direction of a
board of directors consisting of one or more members.
(2) Directors need not be stockholders of the Corporation.
(3) The number of directors of the Corporation shall not
be less than five (5) nor more than nine (9) until changed by amendment of the
Certificate of Incorporation or by a Bylaw amending this Section 19 duly adopted
by the vote or written consent of holders of a majority of the outstanding
shares or by the board of directors. The exact number of directors shall be
fixed from time to time, within the limits specified in the Certificate of
Incorporation or in this Section 19, by a Bylaw or amendment thereof duly
adopted by the vote of a majority of the shares entitled to vote represented at
a duly held meeting at which a quorum is present or by the board of directors.
Subject to the foregoing provisions for changing the number of directors, the
number of directors of the Corporation has been fixed at nine (9).
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(4) Upon consummation of an IPO, the directors shall be
divided into three classes, designated Class I, Class II and Class III, as
nearly equal in number as the then total number of directors permits, serving
staggered terms so that the initial terms of each such class will expire,
respectively, at the first, second and third succeeding annual meetings of the
stockholders held following the IPO. At each such succeeding annual meeting of
stockholders, directors elected to succeed those directors whose terms are
expiring at such meeting shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders following such election. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional directors of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director. Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of preferred stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of these Bylaws applicable thereto, and such directors so elected shall
not be divided into classes pursuant to this Section 19 unless expressly
provided by such terms.
(5) Any amendment, change or repeal of this Section 19,
or any other amendment to these Bylaws that will have the effect of permitting
circumvention of or modifying this Section 19, shall require the favorable vote,
at a stockholders' meeting, of the holders of at least eighty percent (80%) of
the then-outstanding shares of stock of the Corporation entitled to vote.
(6) Except as provided in Section 20 of these Bylaws,
the directors shall be elected by a plurality vote of the shares represented in
person or by proxy at the stockholders annual meeting in each year and entitled
to vote on the election of directors. Elected directors shall hold office until
the next annual meeting for the years in which their terms expire and until
their successors shall be duly elected and qualified. If, for any cause, the
board of directors shall not have been elected at an annual meeting, they may be
elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
20. Vacancies. Except as otherwise provided by the Certificate
of Incorporation or any amendments thereto, vacancies and newly created
directorships resulting from any increase in the number of authorized directors
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director, and each director so elected shall
hold office for the unexpired portion of the term of the director whose place
shall be vacant, and until his successor shall have been duly elected and
qualified. A vacancy in the board of directors shall be deemed to exist under
this Section 20 in the case of the death, removal or resignation of any
director, or if the stockholders fail at any meeting of stockholders at which
directors are to be elected to elect the number of directors then constituting
the whole board.
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21. Resignation. Any director may resign by delivering
his written resignation to the Corporation at its principal office, addressed
to the president or secretary. Such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event. When one or more directors shall resign from
the board, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office for the unexpired portion of the term of the director whose place shall
be vacated and until his successor shall have been duly elected and qualified.
22. Compensation. Directors may be paid such
compensation for their services and such reimbursements for expenses of
attendance at meetings as the board of directors may from time to time
determine. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
Meetings of the Board
23. Place of Meetings. The regular or special meetings
of the board of directors or any committee designated by the board shall be
held at the principal office of the Corporation or at any other place within or
without the State of Delaware that a majority of the board of directors or any
such committee, as the case may be, may designate from time to time by
resolution.
24. Regular Meetings. The board of directors shall meet
each year immediately after and at the same place as the annual meeting of the
stockholders for the purpose of electing officers and transacting such other
business as may come before the meeting. The board of directors or any
committee designated by the board may provide, by resolution, for the holding
of additional regular meetings within or without the State of Delaware without
notice of the time and place of such meeting other than such resolution;
provided, that any director who is absent when such resolution is made shall be
given notice of said resolution.
25. Special Meetings. Special meetings of the board of
directors or any committee designated by the board may be held at any time and
place, within or without the State of Delaware, designated in a call by the
chairman of the board, if any, by the president or by a majority of the members
of the board of directors or any such committee, as the case may be.
26. Notice of Special Meetings. Except as otherwise
provided by these Bylaws or the laws of the State of Delaware, written notice
of each special meeting of the board of directors or any committee thereof
setting forth the time and place of the meeting shall be given to each director
by the secretary or by the officer or director calling the meeting not less
than two (2) days prior to the time fixed for the meeting. Notice of special
meetings may be either given in person, by telephone, or by sending a copy of
the notice through the United States mail or by telegram, telex or telecopy,
charges prepaid, to the address of each director appearing on the books of the
Corporation. If mailed, such notice shall be deemed to be delivered when
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deposited in the United States mail so addressed, with postage prepaid thereon.
If notice be given by telegram, telex or telecopy, such notice shall be deemed
to be delivered when the telegram, telex or telecopy is delivered to the
telegraph, telex or telecopy operator. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the board of
directors need be specified in the notice or waiver of notice of such meeting.
27. Waiver of Notice. A director may waive, in writing,
notice of any special meeting of the board of directors or any committee
thereof, either before, at, or after the meeting, and his waiver shall be
deemed the equivalent of giving notice. By attending or participating in a
regular or special meeting, a director waives any required notice of such
meeting unless the director, at the beginning of the meeting, objects to the
holding of the meeting or the transaction of business at the meeting.
28. Quorum and Action at Meeting. At meetings of the
board of directors or any committee designated by the board, a majority of the
total number of directors, or a majority of the members of any such committee,
as the case may be, shall constitute a quorum for the transaction of business.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such
director so disqualified; provided, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. If a quorum is present, the
act of the majority of directors in attendance shall be the act of the board of
directors or any committee thereof, as the case may be, unless the act of a
greater number is required by these Bylaws, the Certificate of Incorporation or
the Delaware Corporation Law. If a quorum shall not be present at any meeting
of the board of directors, the directors present thereat may adjourn that
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
29. Presumption of Assent. A director who is present at
a meeting of the board of directors or a committee thereof when action is taken
is deemed to have assented to the action taken unless: (i) he objects at the
beginning of such meeting to the holding of the meeting or the transacting of
business at the meeting; (ii) he contemporaneously requests that his dissent
from the action taken be entered in the minutes of such meeting; or (iii) he
gives written notice of his dissent to the presiding officer of such meeting
before its adjournment or to the secretary of the Corporation immediately after
adjournment of such meeting. The right of dissent as to a specific action
taken at a meeting of the board or a committee thereof is not available to a
director who votes in favor of such action.
30. Committees. The board of directors may, by a
resolution passed by a majority of the whole board of directors, designate one
or more committees, each committee to consist of one or more of the directors
of the Corporation. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member
of a committee, the member or members of the committee present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in the place of the absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors
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and subject to the provisions of Delaware Corporation Law, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all such papers which may require
it. Each such committee shall keep minutes and make such reports as the board
of directors may from time to time request. Except as the board of directors
may otherwise determine, any committee may make rules for the conduct of its
business, but, unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these Bylaws for the board of directors.
31. Informal Action by Directors. Except as otherwise
provided in the Certificate of Incorporation, any action required or permitted
by Delaware Corporation Law to be taken at any meeting of the board of
directors or any committee thereof may be taken without a meeting if all
members of the board or committee, as the case may be, consent to the action in
writing and the written consents are filed with the minutes of proceedings of
the board or committee.
32. Telephonic Meetings. Directors or any members of any
committee may participate in a meeting of the board or committee by means of a
conference telephone or similar communications equipment by which all persons
participating in the meeting can hear each other at the same time. Such
participation shall constitute presence in person at the meeting.
ARTICLE V
Officers and Agents
33. Enumeration, Election and Term. The officers of the
Corporation shall consist of a president, a secretary, a treasurer and such
other officers with such other titles as may be deemed necessary or desirable
by the board of directors, including a chief executive officer, chief financial
officer, one or more vice presidents, a controller, assistant treasurers and
assistant secretaries and a chairman of the board. Any number of offices may
be held by the same person, and no officer need be a stockholder or a resident
of the State of Delaware. Except as otherwise provided by law, the Certificate
of Incorporation or these Bylaws, each officer shall hold office until his
successor is elected and qualified or until his earlier death, resignation or
removal. The officers of the Corporation shall be elected annually by the
board of directors at the first meeting of the board held after each annual
meeting of the stockholders.
34. General Duties. All officers and agents of the Corporation,
as between themselves and the Corporation, shall have such authority and shall
perform such duties in the management of the Corporation as may be provided in
these Bylaws or as may be determined by resolution of the board of directors not
inconsistent with these Bylaws. In all cases where the duties of any officer,
agent or employee are not prescribed by these Bylaws or by the board of
directors, such officer, agent or employee shall follow the orders and
instructions of the president.
35. Vacancies. The board of directors may fill any vacancy
occurring in any office for any reason and may, in its discretion, leave any
vacancy unfilled for such period as it may determine, other than a vacancy in
the office of president or secretary. The officer so
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selected shall hold office until his successor is elected and qualified or
until his earlier death, resignation or removal.
36. Compensation. The board of directors from time to
time shall fix the compensation of the officers of the Corporation. The
compensation of other agents and employees of the Corporation may be fixed by
the board of directors, by any committee designated by the board or by an
officer to whom that function has been delegated by the board.
37. Resignation and Removal. Any officer may resign by
delivering his written resignation to the Corporation at its principal office,
addressed to the president or secretary. Such resignation shall be effective
upon receipt, unless it is specified to be effective at some other time or upon
the happening of some other event. Any officer or agent of the Corporation may
be removed, with or without cause, by a vote of the majority of the members of
the board of directors whenever in its judgment the best interests of the
Corporation may be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment of an officer or an agent shall not of itself create contract
rights.
38. Chairman of the Board. The chairman of the board, if any,
shall preside as chairman at meetings of the stockholders and the board of
directors. He shall, in addition, have such other duties as the board may
prescribe that he perform. At the request of the president, the chairman of the
board may, in the case of the president's absence or inability to act,
temporarily act in his place. In the case of death of the president or in the
case of his absence or inability to act without having designated the chairman
of the board to act temporarily in his place, the chairman of the board shall
perform the duties of the president, unless the board of directors, by
resolution, provides otherwise. If the chairman of the board shall be unable to
act in place of the president, the vice presidents may exercise such powers and
perform such duties as provided below.
39. Chief Executive Officer. The chief executive officer, if any,
shall see that all orders and resolutions of the board of directors are carried
into effect and shall oversee the strategic planning and policy development of
the Corporation. The chief executive officer shall have the authority to
execute bonds, mortgages and other contracts requiring a seal, under the seal of
the Corporation, except where required by law to be otherwise signed and
executed and except where the signing and execution thereof shall be expressly
delegated by the board of directors to some other officer or agent of the
Corporation. The chief executive officer shall perform other duties commonly
incident to this office and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
40. President. The president shall have general supervision of
the business of the Corporation. In the event the position of chairman of the
board shall not be occupied or the chairman shall be absent or otherwise unable
to act, the president shall preside at meetings of the stockholders and
directors and shall discharge the duties of the presiding officer. The
president shall have the authority to execute bonds, mortgages and other
contracts requiring a seal under the seal of the Corporation, except where
required by law to be otherwise signed and executed
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and except where the signing and execution thereof shall be expressly delegated
by the board of directors to some other officer or agent of the Corporation.
At each annual meeting of the stockholders, the president shall give a report
of the business of the Corporation for the preceding fiscal year and shall
perform whatever other duties the board of directors may from time to time
prescribe.
41. Chief Financial Officer. The chief financial officer, or if
none the treasurer, shall have custody of corporate funds and securities and
shall keep full and accurate accounts of receipts and disbursements and shall
deposit all corporate monies and other valuable effects in the name and to the
credit of the Corporation in the depository or depositories of the Corporation,
and shall render an account of his or her transactions as chief financial
officer and of the financial condition of the Corporation to the president
and/or the board of directors upon request. Such power given to the treasurer
to deposit and disburse funds shall not, however, preclude any other officer or
employee of the Corporation from also depositing and disbursing funds when
authorized to do so by the board of directors. The chief financial officer
shall, if required by the board of directors, give the Corporation a bond in
such amount and with such surety or sureties as may be ordered by the board of
directors for the faithful performance of the duties of his office. The chief
financial officer shall have such other powers and perform such other duties as
may be from time to time prescribed by the board of directors or the president.
In the absence of the chief financial officer or his inability to act, the
treasurer (or, in his absence, the assistant treasurers or controller, if any)
shall act with the same authority and shall be subject to the same restrictions
as are applicable to the chief financial officer.
42. Vice Presidents. Each vice president shall have such
powers and perform such duties as the board of directors may from time to time
prescribe or as the president may from time to time delegate to him. At the
request of the president, in the case of the president's absence or inability
to act, any vice president may temporarily act in his place. In the case of
the death of the president, or in the case of his absence or inability to act
without having designated a vice president or vice presidents to act
temporarily in his place, the board of directors, by resolution, may designate
a vice president or vice presidents to perform the duties of the president. If
no such designation shall be made, the chief executive officer, if any, shall
exercise such powers and perform such duties, as provided above, but, if the
Corporation has no chief executive officer, or if the chief executive officer
is unable to act in place of the president, all of the vice presidents may
exercise such powers and perform such duties.
43. Secretary. The secretary shall keep or cause to be kept in
books provided for that purpose, the minutes of the meetings of the
stockholders, executive committee, if any, and any other committees, and of the
board of directors; shall see that all notices are duly given in accordance with
the provisions of these Bylaws and as required by law; shall be custodian of the
records and of the seal of the Corporation and see that the seal is affixed to
all documents, the execution of which on behalf of the Corporation under its
seal is duly authorized and in accordance with the provisions of these Bylaws;
and, in general, shall perform all duties incident to the office of secretary
and such other duties as may, from time to time, be assigned to him by the board
of directors or by the president. In the absence of the secretary or his
inability to act,
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the assistant secretaries, if any, shall act with the same powers and shall be
subject to the same restrictions as are applicable to the secretary.
44. Delegation of Duties. Whenever an officer is absent,
or whenever, for any reason, the board of directors may deem it desirable, the
board may delegate the powers and duties of an officer to any other officer or
officers or to any director or directors.
ARTICLE VI
Indemnification of Officers, Directors and Others
45. Indemnification.
(a) Each person who was or is a party or is threatened to
be made a party to or is involved (as a party, witness or otherwise), in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "Proceeding"), by
reason of the fact that he, or a person of whom he is the legal representative,
is or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another corporation or of
a partnership, joint venture, trust, or other enterprise, including service with
respect to employee benefit plans, whether the basis of the Proceeding is
alleged action in an official capacity as a director or officer or in any other
capacity while serving as a director or officer, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
Corporation Law, as the same exists or may hereafter be amended or interpreted
(but, in the case of any such amendment or interpretation, only to the extent
that such amendment or interpretation permits the Corporation to provide broader
indemnification rights than were permitted prior thereto) against all expenses,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties, and amounts paid or to be paid in settlement, and any
interest, assessments or other charges imposed thereon, and any federal, state,
local or foreign taxes imposed on any person indemnified hereby as a result of
the actual or deemed receipt of any payments under this Article VI) reasonably
incurred or suffered by such person in connection with investigating, defending,
being a witness in, or participating in (including on appeal), or preparing for
any of the foregoing in, any Proceeding (hereinafter "Losses"); provided,
however, that except as to actions to enforce indemnification rights pursuant to
Section 47, the Corporation shall indemnify any officer or director seeking
indemnification in connection with a Proceeding (or part thereof) initiated by
such person only if the Proceeding (or part thereof) was authorized by the Board
of Directors of the Corporation. The right to indemnification conferred in this
Article VI shall be a contract right.
(b) Each person who was or is a party or is threatened to
be made a party to or is involved (as a party, witness or otherwise), in any
threatened, pending or completed Proceeding, by reason of the fact that he, or a
person of whom he is the legal representative, is or was an employee or agent
(other than an officer or director) of the Corporation or is or was serving at
the request of the Corporation as an employee or agent (other than an officer or
director) of another corporation or of a partnership, joint venture, trust, or
other enterprise, including service with respect to employee benefit plans,
whether the basis of the Proceeding is
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alleged action in an official capacity as an employee or agent or in any other
capacity while serving as an employee or agent, may be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
Corporation Law, as the same exists or may hereafter be amended or interpreted
(but, in the case of any such amendment or interpretation, only to the extent
that such amendment or interpretation permits the Corporation to provide
broader indemnification rights than were permitted prior thereto) against all
Losses.
46. Authority to Advance Expenses. Expenses incurred by
an officer or director (acting in his capacity as such) in defending a
Proceeding shall be paid by the Corporation in advance of the final disposition
of such Proceeding, provided, that if required by the Delaware Corporation Law,
as amended, such expenses shall be advanced only upon delivery to the
Corporation of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized in this Article VI or
otherwise. Expenses incurred by employees or other agents of the Corporation
(or by the directors or officers not acting in their capacity as such,
including service with respect to employee benefit plans) may be advanced upon
such terms and conditions as the Board of Directors deems appropriate. Any
obligation to reimburse the Corporation for expense advances shall be unsecured
and no interest shall be charged thereon.
47. Right of Claimant to Bring Suit. If a claim under Section 45
or 46 is not paid in full by the Corporation within 30 days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense (including attorneys' fees) of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending a Proceeding in advance of
its final disposition where the required undertaking has been tendered to the
corporation) that the claimant has not met the standards of conduct that make it
permissible under the Delaware Corporation Law for the Corporation to indemnify
the claimant for the amount claimed. The burden of proving such a defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper under the circumstances because he has met the applicable
standard of conduct set forth in the Delaware Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel or stockholders) that the claimant had not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct.
48. Provisions Nonexclusive. The rights conferred on any
person by this Article shall not be exclusive of any other rights that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office. To the extent that any
provision of the Certificate,
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agreement or vote of the stockholders or disinterested directors is
inconsistent with these bylaws, the provision, agreement or vote shall take
precedence.
49. Authority to Insure. The corporation may purchase
and maintain insurance to protect itself and any director, officer, employee or
other agent (collectively, "Agents") against any Losses, whether or not the
Corporation would have the power to indemnify the Agent against such Losses
under applicable law or the provisions of these Bylaws.
50. Survival of Rights. The rights provided by this
Article VI shall continue as to a person who has ceased to be an Agent and
shall inure to the benefit of the heirs, executors, and administrators of such
a person.
51. Settlement of Claims. The Corporation shall not be
liable to indemnify any Agent under this Article (a) for any amounts paid in
settlement of any action or claim effected without the Corporation's written
consent, which consent shall not be unreasonably withheld; or (b) for any
judicial award if the Corporation was not given a reasonable and timely
opportunity, at its expense, to participate in the defense of such action.
52. Effect of Amendment. Any amendment, repeal or modification
of this Article shall not adversely affect any right or protection of any Agent
existing at the time of such amendment, repeal or modification.
53. Subrogation. In the event of payment under this Article VI,
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Agent, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Corporation effectively to
bring suit to enforce such rights.
54. No Duplication of Payments. The Corporation shall not be
liable under this Article to make any payment in connection with any claim made
against the Agent to the extent the Agent has otherwise actually received
payment (under any insurance policy, agreement, vote or otherwise) of the
amounts otherwise indemnifiable hereunder.
ARTICLE VII
Capital Stock
55. Certificates of Stock. The shares of the Corporation
shall be represented by certificates, provided that the board of directors of
the Corporation may, by resolution, provide that some or all of any or all
classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the board of directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the Corporation by,
the chairman or vice chairman of the board of directors, or the president or
vice president, and by the treasurer or an assistant treasurer, or the
secretary or an assistant secretary, representing the number of shares
registered in certificate form. Any or all the signatures on the
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certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
56. Issuance of Stock. Unless otherwise voted by the
stockholders and subject to the provisions of the Certificate of Incorporation,
the whole or any part of any unissued balance of the authorized capital stock
of the Corporation or the whole or any part of any unissued balance of the
authorized capital stock of the Corporation held in its treasury may be issued,
sold, transferred or otherwise disposed of by resolution of the board of
directors in such manner, for such consideration and on such terms as the board
of directors may determine. Consideration for such shares of capital stock
shall be expressed in dollars, and shall not be less than the par value or
stated value therefor, as the case may be. The par value for shares, if any,
shall be stated in the Certificate of Incorporation, and the stated value for
shares, if any, shall be fixed from time to time by the board of directors.
57. Lost Certificates. The board of directors may direct
a new certificate to be issued in place of any previously issued certificate
alleged to have been destroyed or lost if the owner makes an affidavit or
affirmation of that fact and produces such evidence of loss or destruction as
the board may require. The board, in its discretion, may as a condition
precedent to the issuance of a new certificate require the owner to give the
Corporation a bond as indemnity against any claim that may be made against the
Corporation relating to the allegedly destroyed or lost certificate.
58. Transfer of Shares. Subject to applicable law, shares of
stock of the Corporation may be transferred on its books upon the surrender to
the Corporation or its transfer agent of the certificates representing such
shares, if any, duly endorsed or accompanied by a written assignment or power of
attorney duly executed and with such proof of authority or authenticity of
signature as the Corporation or its transfer agent may reasonably require. In
that event, the surrendered certificates shall be cancelled, new certificates
issued to the persons entitled to them, if any, and the transaction recorded on
the books of the Corporation.
59. Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of the other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the State of Delaware.
60. Stock Ledger. An appropriate stock journal and ledger shall
be kept by the secretary or such registrars or transfer agents as the directors
by resolution may appoint in which all transactions in the shares of stock of
the Corporation shall be recorded.
61. Restriction on Transfer of Shares. Notice of any restriction
on the transfer of the stock of the Corporation shall be placed on each
certificate of stock issued or, in the case
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of uncertificated shares, contained in the notice sent to the registered owner
of such shares in accordance with the provisions of the Delaware Corporation
Law.
ARTICLE VIII
Fiscal Year
The fiscal year of the Corporation shall be determined by the
board of directors and set forth in the minutes of the meetings of the
directors. Said fiscal year may be changed from time to time by the board of
directors in its discretion.
ARTICLE IX
Dividends
Dividends upon the capital stock of the Corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation. Before payment
of any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the directors shall
think in the best interests of the Corporation, and the directors may modify or
abolish any such reserve in the manner in which it was created.
ARTICLE X
Amendments
These Bylaws may be repealed, altered or amended or new Bylaws
adopted at any meeting of the stockholders, either annual or special, by the
affirmative vote of a majority of the stock entitled to vote at such meeting,
unless a larger vote is required by these Bylaws or the Certificate of
Incorporation. The board of directors shall also have the authority to repeal,
alter or amend these Bylaws or adopt new Bylaws (including, without limitation,
the amendment of any Bylaws setting forth the number of directors who shall
constitute the whole board of directors) by unanimous written consent or at any
annual, regular or special meeting by the affirmative vote of a majority of the
whole number of directors, subject to the power of the stockholders to change
or repeal such Bylaws; provided, that the board of directors shall not make or
alter any Bylaws fixing the qualifications, classifications, or term of office
of directors.
ARTICLE XI
Miscellaneous
62. Gender. Whenever required by the context, the singular shall
include the plural, the plural the singular, and one gender shall include all
genders.
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63. Invalid Provision. The invalidity or unenforceability of any
particular provision of these Bylaws shall not affect the other provisions
herein, and these Bylaws shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
64. Governing Law. These Bylaws shall be governed by and
construed in accordance with the laws of the State of Delaware.
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I, Carla Donelson, as Secretary of the Corporation, do hereby
certify that the foregoing Bylaws were adopted by the Board of Directors of the
Corporation effective as of February 18, 1998.
--------------------------------------
Carla Donelson, Secretary
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Exhibit 5.1
April , 1998
Verio Inc.
8005 South Chester Street, Suite 200
Englewood, CO 80112
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form
S-1 filed by Verio Inc., a Delaware corporation (the "Company"), with the
Securities and Exchange Commission (the "Registration Statement") on February
27, 1998, relating to the registration under the Securities Act of 1933, as
amended, of up to 5,750,000 shares of the Company's common stock, $.001 par
value (the "Common Stock"), all of which are shares of authorized but unissued
stock to be offered and sold by the Company (including 750,000 shares of Common
Stock subject to the underwriters' over- allotment option). The Common Stock
is to be sold to the underwriters named in the Registration Statement for
resale to the public.
As counsel to the Company, we have examined the proceedings taken by
the Company in connection with the issuance and sale by the Company of up to
5,750,000 shares of Common Stock.
We are of the opinion that the up to 5,750,000 shares of Common Stock
which may be issued and sold by the Company, when issued and sold by the
Company in the manner described in the Registration Statement and the related
prospectus and in accordance with the resolutions adopted by the Board of
Directors of the Company, will be validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to all references to us in the
Registration Statement, the prospectus constituting a part thereof and any
amendments thereto.
Very truly yours,
Morrison & Foerster, LLP
<PAGE> 1
EXHIBIT 10.7
VERIO INC.
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into, effective as of ____________, 1998 by
and between Verio Inc., a Delaware corporation (the "Company"), and
___________________ ("Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as
directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director and/or officer of the Company; and
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued and
effective service to the Company, and in order to induce Indemnitee to provide
services to the Company as a director and/or officer, the Company wishes to
provide in this Agreement for the indemnification of and the advancing of
expenses to Indemnitee to the fullest extent (whether partial or complete)
permitted by Delaware law and as set forth in this Agreement, and, to the extent
insurance is maintained, for the coverage of Indemnitee under the Company's
directors' and officers' liability insurance policies.
NOW, THEREFORE, in consideration of the above premises and of
Indemnitee's continuing to serve the Company directly or, at its request, with
another enterprise, and intending to be legally bound hereby, the parties agree
as follows:
1. CERTAIN DEFINITIONS.
(a) Board: the Board of Directors of the Company.
(b) Change In Control: shall be deemed to have occurred if (i)
any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Act")), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company
(collectively "excluded persons"), is or becomes the "Beneficial Owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 30% or more of the total voting power represented by
the Company's then outstanding Voting Securities, or (ii) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board and any new director whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority of the Board, or (iii) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than a merger
or consolidation that would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent
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(either by remaining outstanding or by being converted into Voting Securities of
the surviving entity) at least 50% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (iv) the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company (in one transaction or a series of
transactions) of all or substantially all of the Company's assets.
(c) Expenses: any expense, liability, or loss, including
attorneys' fees, judgments, fines, ERISA excise taxes and penalties, amounts
paid or to be paid in settlement, any interest, assessments, or other charges
imposed thereon, and any federal, state, local, or foreign taxes imposes as a
result of the actual or deemed receipt of any payments under this Agreement,
paid or incurred in connection with investigating, defending, being a witness
in, or participating in (including on appeal), or preparing for any of the
foregoing in, any Proceeding relating to any Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence that takes
place either prior to or after the effective date of this Agreement, related to
the fact that Indemnitee is or was a director or an officer of the Company, or
while a director or officer is or was serving at the request of the Company as a
director, officer, employee, trustee, agent, or fiduciary of another foreign or
domestic corporation, partnership, joint venture, employee benefit plan, trust,
or other enterprise, or was a director, officer, employee, or agent of a foreign
or domestic corporation that was a predecessor corporation of the Company or of
another enterprise at the request of such predecessor corporation, or related to
anything done or not done by Indemnitee in any such capacity.
(e) Independent Counsel: the person or body appointed in
connection with Section 3.
(f) Potential Change In Control: shall be deemed to have
occurred if (i) the Company enters into an agreement or arrangement, the
consummation of which would result in the occurrence of a Change in Control,
(ii) any person (including the Company) publicly announces an intention to take
or to consider taking actions that, if consummated, would constitute a Change in
Control, (iii) any person (other than an Excluded Person) who is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's then
outstanding Voting Securities, increases his beneficial ownership of such
securities by 5% or more over the percentage so owned by such person on the date
hereof, or (iv) the Board adopts a resolution to the effect that, for purposes
of this Agreement, a Potential Change in Control has occurred.
(g) Proceeding: (i) any threatened, pending, or complete action,
suit, or proceeding, whether civil, criminal, administrative, investigative, or
other, or (ii) any inquiry, hearing, or investigation, whether conducted by the
Company or any other party, that Indemnitee in good faith believes might lead to
the institution of any such action, or proceeding.
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<PAGE> 3
(h) Reviewing Party: the person or body appointed in accordance
with Section 3.
(i) Voting Securities: any securities of the Company that vote
generally in the election of directors.
2. AGREEMENT TO INDEMNIFY.
(a) General Agreement. In the event Indemnitee was, is, or become
a party to or witness or other participant in, or is threatened to be made a
party to or witness or other participant in, a Proceeding by reason of (or
arising in part out of) an Indemnifiable Event, the Company shall indemnify
Indemnitee from and against any and all Expenses to the fullest extent permitted
by law, as the same exists or may hereafter be amended or interpreted (but in
the case of any such amendment or interpretation, only to the extent that such
amendment or interpretation permits the Company to provide broader
indemnification rights than were permitted prior thereto). The parties hereto
intend that this Agreement shall provide for indemnification in excess of that
expressly permitted by statute, including, without limitation, any
indemnification provided by the Company's Certificate of Incorporation, its
bylaws, vote of its stockholders or disinterested directors, or applicable law.
(b) Initiation Of Proceeding. Notwithstanding anything in this
Agreement to the contrary, Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with any Proceeding initiated by
Indemnitee against the Company or any director or officer of the Company unless
(i) the Company has joined in or the Board has consented to the initiation of
such Proceeding, (ii) the Proceeding is one to enforce indemnification rights
under Section 5, or (iii) the Proceeding is instituted after a Change in Control
and Independent Counsel has approved its initiation.
(c) Expense Advances. If so requested by Indemnitee, the Company
shall advance (within ten business days of such request) any and all Expenses to
Indemnitee (an "Expense Advance"); provided that such request shall be
accompanied by reasonable evidence of the expenses incurred by Indemnitee and
that, if and to the extent that the Reviewing Party determines that Indemnitee
would not be permitted to be so indemnified under applicable law, the Company
shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse
the Company) for all such amounts theretofore paid. If Indemnitee has commenced
legal proceedings in a court of competent jurisdiction to secure a determination
that Indemnitee should be indemnified under applicable law, as provided in
Section 4, any determination made by the Reviewing Party that Indemnitee would
not be permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to
which all rights of appeal therefrom have been exhausted or have lapsed).
(d) Mandatory Indemnification. Notwithstanding any other
provision of this Agreement (other than Section 2(f) below), to the extent that
Indemnitee has been successful on the merits in defense of any Proceeding
relating in whole or in part to an
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<PAGE> 4
Indemnifiable Event or in defense of any issue or matter therein, Indemnitee
shall be indemnified against all Expenses incurred in connection therewith.
(e) Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.
(f) Prohibited Indemnification. No indemnification pursuant to
this Agreement shall be paid by the Company on account of any Proceeding in
which judgment is rendered against Indemnitee for an accounting of profits made
from the purchase or sale by Indemnitee of securities of the Company pursuant to
the provisions of Section 16(b) of the Act or similar provisions of any federal,
state or local laws.
3. REVIEWING PARTY.
Prior to any Change in Control, the Reviewing Party shall be any
appropriate person or body consisting of a member or members of the Board or any
other person or body appointed by the Board who is not a party to the particular
Proceeding with respect to which Indemnitee is seeking indemnification; after a
Change in Control, the Reviewing Party shall be the Independent Counsel referred
to below. With respect to all matters arising after a Change in Control (other
than a Change in Control approved by a majority of the directors on the Board
who were directors immediately prior to such Change in Control) concerning the
rights of Indemnitee to indemnity payments and Expense Advances under this
Agreement or any other agreement or under applicable law or the Company's
Certificate of Incorporation or bylaws now or hereafter in effect relating to
indemnification for Indemnifiable Events, the Company shall seek legal advice
only from Independent Counsel selected by Indemnitee and approved by the Company
and who has not otherwise performed services for the Company or the Indemnitee
(other than in connection with indemnification matters) within the last five
years. The Independent Counsel shall not include any person who, under the
applicable standards of professional conduct then prevailing would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement. Such counsel,
among other things, shall render its written opinion to the Company and
Indemnitee as to whether and to what extent the Indemnitee should be permitted
to be indemnified under applicable law. The Company agrees to pay the reasonable
fees of the Independent Counsel and to indemnify fully such counsel against any
and all expenses (including attorney's fees), claims, liabilities, loss, and
damages arising out of or relating to this Agreement or the engagement of
Independent Counsel pursuant hereto.
4. INDEMNIFICATION PROCESS AND APPEAL.
(a) Suit To Enforce Rights. Regardless of any action by the
Reviewing Party, if Indemnitee has not received full indemnification within 60
days after making a request in accordance with Section 2(c), Indemnitee shall
have the right to enforce its indemnification rights under this Agreement by
commencing litigation, in any
4
<PAGE> 5
appropriate court having subject matter jurisdiction thereof and in which venue
is proper, seeking an initial determination by the court or challenging any
determination by the Reviewing Party or any aspect thereof, provided, however,
that such 60-day period shall be extended for reasonable time, not to exceed
another 60 days, if the reviewing party in good faith requires additional time
for the obtaining or evaluating of documentation and information relating
thereto. The Company hereby consents to service of process and to appear in any
such proceeding. Any determination by the Reviewing Party not challenged by the
Indemnitee shall be binding on the Company and Indemnitee. The remedy provided
for in this Section 4 shall be in addition to any other remedies available to
Indemnitee in law or equity.
(b) Defense To Indemnification, Burden Of Proof, And
Presumptions. It shall be a defense to any action brought by Indemnitee against
the Company to enforce this Agreement (other than an action brought to enforce a
claim for Expenses incurred in defending a Proceeding in advance of its final
disposition where the required undertaking has been tendered to the Company)
that is not permissible under applicable law for the Company to indemnify
Indemnitee for the amount claimed. In connection with any such action or any
determination by the Reviewing Party or otherwise as to whether Indemnitee is
entitled to be indemnified hereunder, the burden of proving such a defense or
determination shall be on the Company. Neither the failure of the Reviewing
Party or the Company (including its Board, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action by Indemnitee that indemnification of the claimant is proper under the
circumstances because Indemnitee has met the standard of conduct set forth in
applicable law, nor an actual determination by the Reviewing Party or Company
(including its Board, independent legal counsel, or its stockholders) that the
Indemnitee had not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that the Indemnitee has not met the
applicable standard of conduct. For purposes of this Agreement, the termination
of any claim, action, suit, or proceeding, by judgment, order, settlement
(whether with or without court approval), conviction, or upon a plea of nolo
contendere, or its equivalent shall not create a presumption that Indemnitee did
not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law.
5. INDEMNIFICATION FOR EXPENSES INCURRED IN ENFORCING RIGHTS.
The Company shall indemnify Indemnitee against any and all Expenses
and, if requested by Indemnitee, shall (within ten business days of such
request), advance such Expenses to Indemnitee, that are incurred by Indemnitee
in connection with any claim asserted against or covered action brought by
Indemnitee for (i) indemnification of Expenses or Expense Advances by the
Company under this Agreement or any other agreement or under applicable law or
the Company's Certificate of Incorporation or bylaws now or hereafter in effect
relating to indemnification for Indemnifiable Events, and or (ii) recovery under
directors' and officers' liability insurance policies maintained by the Company,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, Expense Advances, or insurance recovery, as the case may be.
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<PAGE> 6
6. NOTIFICATION AND DEFENSE OF PROCEEDING.
(a) Notice. Promptly after receipt by Indemnitee of notice of the
commencement of any Proceeding, Indemnitee shall, if a claim in respect thereof
is to be made against the Company under this Agreement, notify the Company of
the commencement thereof, but the omission so to notify the Company will not
relieve the Company from any liability that it may have to Indemnitee, except as
provided in Section 6(c).
(b) Defense. With respect to any Proceeding as to which
Indemnitee notifies the Company of the commencement thereof, the Company shall
be entitled to participate in the Proceeding at its own expense and except as
otherwise provided below, to the extent the Company so wishes, it may assume the
defense thereof with counsel reasonably satisfactory to Indemnitee. After notice
from the Company to Indemnitee of its election to assume the defense of any
Proceeding, the Company shall not be liable to Indemnitee under this Agreement
or otherwise for any Expenses subsequently incurred by Indemnitee in connection
with the defense of such Proceeding other than reasonable costs of investigation
or as otherwise provided below. Indemnitee shall have the right to employ his or
her own legal counsel in such Proceeding, but all Expenses related thereto
incurred after notice from the Company of its assumption of the defense shall be
at Indemnitee's expense unless: (i) the employment of legal counsel by
Indemnitee has been authorized by the Company, (ii) Indemnitee has reasonably
determined that there may be a conflict of interest between Indemnitee and the
Company in the defense of the Proceeding, (iii) after a Change in Control, the
employment of counsel by Indemnitee has been approved by the Independent
Counsel, or (iv) the Company shall not in fact have employed counsel to assume
the defense of such Proceeding, in each of which case all Expenses of the
Proceeding shall be borne by the Company. The Company shall not be entitled to
assume the defense of any Proceeding brought by or on behalf of the Company or
as to which Indemnitee shall have made the determination provided for in (ii)
above.
(c) Settlement Of Claims. The Company shall not be liable to
indemnify Indemnitee under this Agreement or otherwise for any amounts paid in
settlement of any Proceeding effected without the Company's written consent,
provided, however, that if a Change in Control has occurred, the Company shall
be liable for indemnification of Indemnitee for amounts paid in settlement if
the Independent Counsel has approved the settlement. The Company shall not
settle any Proceeding in any manner that would impose any penalty or limitation
on Indemnitee without Indemnitee's written consent. The Company shall not be
liable to indemnify the Indemnitee under this Agreement with regard to any
judicial award if the Company was not given a reasonable and timely opportunity,
at its expense, to participate in the defense of such action; the Company's
liability hereunder shall not be excused if participation in the Proceeding by
the Company was barred by this Agreement.
7. NON-EXCLUSIVITY.
The rights of Indemnitee hereunder shall be in addition to any other
rights Indemnitee may have under the Company's Certificate of Incorporation,
bylaws,
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applicable law, or otherwise. To the extent that a change in applicable law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Company's Certificate of
Incorporation, bylaws, applicable law, or this Agreement, it is the intent of
the parties that Indemnitee enjoy by this Agreement the greater benefits so
afforded by such change.
8. LIABILITY INSURANCE.
To the extent the Company maintains an insurance policy or policies
providing directors' and officers' liability insurance, Indemnitee shall be
covered by such policy or policies, in accordance with its or their terms, to
the maximum extent of the coverage available for any Company director or
officer.
9. AMENDMENT OF THIS AGREEMENT.
No supplement, modification, or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall operate as a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver. Except as specifically provided herein, no failure to
exercise or any delay in exercising any right or remedy hereunder shall
constitute a waiver thereof.
10. SUBROGATION.
In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
11. NO DUPLICATION OF PAYMENTS.
The Company shall not be liable under this Agreement to make any
payment in connection with any claim made against Indemnitee to the extent
Indemnitee has otherwise received payment (under any insurance policy, bylaw, or
otherwise) of the amounts otherwise indemnifiable hereunder.
12. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors (including any
direct or indirect successor by purchase, merger, consolidation, or otherwise to
all or substantially all of the business and/or assets of the Company), assigns,
spouses, heirs, and personal and legal representatives. The indemnification
provided under this Agreement shall continue as to Indemnitee for any action
taken or not taken while serving in an indemnified capacity pertaining to an
Indemnifiable Event even though he or she may have ceased to serve in such
capacity at the time of any Proceeding.
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13. SEVERABILITY.
If any provision (or portion thereof) of this Agreement shall be held
by a court of competent jurisdiction to be invalid, void, or otherwise
unenforceable, the remaining provisions shall remain enforceable to the fullest
extent permitted by law. Furthermore, to the fullest extent possible, the
provisions of this Agreement (including, without limitation, each portion of
this Agreement containing any provision held to be invalid, void, or otherwise
unenforceable, that is not itself invalid, void, or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, void, or unenforceable.
14. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed in such State without giving effect to the principles of
conflicts of laws.
15. NOTICES.
All notices, demands, and other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly given
if delivered by hand, against receipt, or mailed, postage prepaid, certified or
registered mail, return receipt requested, and addressed to the Company at:
Verio Inc.
8005 South Chester Street, Suite 200
Englewood, Colorado 80112
Attention: General Counsel
Notice of change of address shall be effective only when given in
accordance with this Section. All notices complying with this Section shall be
deemed to have been received on the date of delivery or on the third business
day after mailing.
16. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Indemnification Agreement as of the day specified above.
VERIO INC.
By:
-----------------------------------------
Title:
--------------------------------------
INDEMNITEE:
---------------------------------
Indemnitee
9
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EXHIBIT 10.9
VERIO INC.
1996 STOCK OPTION PLAN
ADOPTED MAY 29, 1996
AMENDED MARCH 19, 1998
1. PURPOSES.
(a) The purpose of the 1996 Stock Option Plan (the "Plan") of
Verio Inc., a Delaware corporation (the "Company"), is to provide a means by
which selected Employees and Directors of, and Consultants to, the Company, and
its Affiliates, may be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the
services of persons who are now Employees or Directors of or Consultants to the
Company or its Affiliates, to secure and retain the services of new Employees,
Directors and Consultants, and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either Incentive Stock Options or Nonstatutory Stock Options. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "COMPANY" means Verio Inc., a Delaware corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged
by the Company or an Affiliate to render consulting services and who is
compensated for such services, provided that
1.
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the term "Consultant" shall not include Directors who are paid only a
director's fee by the Company or who are not compensated by the Company for
their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT"
means the employment or relationship as a Director or Consultant is not
interrupted or terminated. The Board, in its sole discretion, may determine
whether Continuous Status as an Employee, Director or Consultant shall be
considered interrupted in the case of: (i) any leave of absence approved by
the Board, including sick leave, military leave, or any other personal leave;
or (ii) transfers between locations of the Company or between the Company,
Affiliates or their successors.
(h) "DIRECTOR" means a member of the Board.
(i) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(k) "FAIR MARKET VALUE" means the value of the Common Stock of
the Company as determined in good faith by the Board.
(l) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(m) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(n) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "OPTION" means a stock option granted pursuant to the Plan.
(p) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.
(q) "OPTIONEE" means an Employee, Director or Consultant who
holds an outstanding option.
(r) "PLAN" means this 1996 Stock Option Plan.
(s) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
2.
<PAGE> 3
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until
the Board delegates administration to a Committee, as provided in subsection
3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the
persons eligible under the Plan shall be granted Options; when and how each
Option shall be granted; whether an Option will be an Incentive Stock Option or
a Nonstatutory Stock Option; the provisions of each Option granted (which need
not be identical), including the time or times such Option may be exercised in
whole or in part; and the number of shares for which an Option shall be granted
to each such person.
(2) To construe and interpret the Plan and
Options granted under it, and to establish, amend and revoke rules and
regulations for its administration. The Board, in the exercise of this power,
may correct any defect, omission or inconsistency in the Plan or in any Option
Agreement, in a manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective.
(3) To amend the Plan or an Option as provided in
Section 11.
(4) Generally, to exercise such powers and to
perform such acts as the Board deems necessary or expedient to promote the best
interests of the Company.
(c) The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore
possessed by the Board (and references in this Plan to the Board shall
thereafter be to the Committee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest
in the Board the administration of the Plan. Additionally, and notwithstanding
anything to the contrary contained herein, the Board may delegate
administration of the Plan to any person or persons and the term "Committee"
shall apply to any person or persons to whom such authority has been delegated.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to Options shall not
exceed in the aggregate Two Million Two Hundred Five Thousand Three Hundred
(2,205,300) shares of Common Stock of the Company or shares of Preferred Stock
of the Company that are convertible into Common Stock of the Company. If any
Option shall for any reason expire or otherwise terminate, in whole or in part,
without having been exercised in full, the stock not purchased under such Option
shall revert to and again become available for issuance under the Plan.
3.
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(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants.
(b) No person shall be eligible for the grant of an Incentive
Stock Option if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of such stock at
the date of grant and the Option is not exercisable after the expiration of
five (5) years from the date of grant.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option
shall be not less than one hundred percent (100%) of the Fair Market Value of
the stock subject to the Option on the date the Option is granted. The
exercise price of each Nonstatutory Stock Option shall be not less than
eighty-five percent (85%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted.
(c) CONSIDERATION. The purchase price of stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of either the grant
or the exercise of the Option, (A) by delivery to the Company of other Common
Stock of the Company, (B) according to a deferred payment or other arrangement
(which may include, without limiting the generality of the foregoing, the use
of other Common Stock of the Company) with the person to whom the Option is
granted or to whom the Option is transferred pursuant to subsection 6(d), or
(C) in any other form of legal consideration that may be acceptable to the
Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions
of the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
4.
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(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option shall
not be transferable except by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order satisfying the requirements
of Rule 16b-3 under the Exchange Act and the rules thereunder (a "QDRO"), and
shall be exercisable during the lifetime of the person to whom the Option is
granted only by such person or any transferee pursuant to a QDRO. The person
to whom the Option is granted may, by delivering written notice to the Company,
in a form satisfactory to the Company, designate a third party who, in the
event of the death of the Optionee, shall thereafter be entitled to exercise
the Option.
(e) VESTING. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period, and
may be exercised with respect to some or all of the shares allotted to such
period and/or any prior period as to which the Option became vested but was not
fully exercised. The Option may be subject to such other terms and conditions
on the time or times when it may be exercised (which may be based on
performance or other criteria) as the Board may deem appropriate. The
provisions of this subsection 6(e) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(f) SECURITIES LAW COMPLIANCE. The Company may require any
Optionee, or any person to whom an Option is transferred under subsection 6(d),
as a condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Option; and (2) to give written assurances satisfactory to the
Company stating that such person is acquiring the stock subject to the Option
for such person's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (i) the
issuance of the shares upon the exercise of the Option has been registered
under a then currently effective registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), or (ii) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that
the Optionee was entitled to exercise it at the date of termination) but only
within such period of time ending on the earlier of (i) the date three (3)
months after the termination of the
5.
<PAGE> 6
Optionee's Continuous Status as an Employee, Director or Consultant, or such
longer or shorter period specified in the Option Agreement, or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of
the term of the Option as set forth in the Option Agreement. If, at the date
of termination, the Optionee is not entitled to exercise his or her entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become available for issuance under the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option Agreement after the
termination of, the Optionee's Continuous Status as an Employee, Director or
Consultant, the Option may be exercised (to the extent the Optionee was
entitled to exercise the Option at the date of death) by the Optionee's estate,
by a person who acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the option upon the
Optionee's death pursuant to subsection 6(d), but only within the period ending
on the earlier of (i) the date eighteen (18) months following the date of death
(or such longer or shorter period specified in the Option Agreement), or (ii)
the expiration of the term of such Option as set forth in the Option Agreement.
If, at the time of death, the Optionee was not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of the Option
shall revert to and again become available for issuance under the Plan. If,
after death, the Option is not exercised within the time specified herein, the
Option shall terminate, and the shares covered by such Option shall revert to
and again become available for issuance under the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee,
Director or Consultant to exercise the Option as to any part or all of the
shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased may be subject to a repurchase right in favor of
the Company or to any other restriction the Board determines to be appropriate.
(k) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following
means or by a combination of such means: (1) tendering a cash payment; (2)
authorizing the Company to withhold shares from the shares of the Common Stock
of the Company otherwise issuable to the participant as a result of the
exercise of the Option; or (3) delivering to the Company owned and unencumbered
shares of the Common Stock of the Company.
6.
<PAGE> 7
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Options.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the Options;
provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any Option or any stock
issued or issuable pursuant to any such Option. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission or agency
the authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock upon exercise of such Options
unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which
an Option may first be exercised or the time during which an Option or any part
thereof will vest pursuant to subsection 6(e), notwithstanding subsection 10(b)
or the provisions in the Option stating the time at which it may first be
exercised or the time during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is
transferred under subsection 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
Option unless and until such person has satisfied all requirements for exercise
of the Option pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Option
granted pursuant thereto shall confer upon any Employee, Director, Consultant
or Optionee any right to continue in the employ of the Company or any Affiliate
(or to continue acting as a Director or Consultant) or shall affect the right
of the Company or any Affiliate to terminate the employment or relationship as
a Director or Consultant of any Employee, Director, Consultant or Optionee with
or without cause.
(d) To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options
granted after 1986 are exercisable for the first time by any Optionee during
any calendar year under all plans of the Company and its Affiliates exceeds One
Hundred Thousand Dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
7.
<PAGE> 8
(e) (1) The Board or the Committee shall have the authority
to effect, at any time and from time to time (i) the repricing of any
outstanding Options under the Plan to reduce the exercise price of such Options
and/or (ii) with the consent of the affected holders of Options, the
cancellation of any outstanding Options and the grant in substitution therefor
of new Options under the Plan covering the same or different numbers of shares
of Common Stock, but having an exercise price per share not less than fifty
percent (50%) of the Fair Market Value (one hundred percent (100%) of the Fair
Market Value in the case of an Incentive Stock Option or, in the case of a ten
percent (10%) stockholder (as defined in subsection 5(b)), not less than one
hundred and ten percent (110%) of the Fair Market Value)) per share of Common
Stock on the new grant date.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any Option (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Plan will be appropriately adjusted
in the class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a) and the outstanding Options will be appropriately adjusted in
the class(es) and number of shares and price per share of stock subject to such
outstanding Options.
(b) In the event of: (1) a dissolution or liquidation of the
Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4)
any other capital reorganization in which the Company's stockholders receive
less than fifty percent (50%) of the outstanding voting shares of the new or
surviving corporation: (i) any surviving corporation shall assume any Options
outstanding under the Plan or shall substitute similar stock options for
Options outstanding under the Plan, (ii) such Options shall continue in full
force and effect or (iii) the Options shall terminate if not exercised prior to
such event.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 10 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(1) Increase the number of shares reserved for Options
under the Plan;
(2) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of
the Code); or
8.
<PAGE> 9
(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other
amendment to the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m)
of the Code and the regulations promulgated thereunder regarding the exclusion
of performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide Optionees with
the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under
it into compliance therewith.
(d) Rights and obligations under any Option granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan unless (i) the Company requests the consent of the person to whom the
Option was granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the
terms of any one or more Options; provided, however, that the rights and
obligations under any Option shall not be altered or impaired by any such
amendment unless (i) the Company requests the consent of the person to whom the
Option was granted and (ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the ten (10) year
anniversary of the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier. No Options may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except with the consent of the person to whom the Option was granted.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Options granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board.
9.
<PAGE> 1
EXHIBIT 10.10
VERIO INC.
1997 CALIFORNIA STOCK OPTION PLAN
AMENDED MARCH 19, 1998
1. Purposes of the Plan. The purposes of this Stock Option Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees,
Directors and Consultants of the Company and its Parents and Subsidiaries and
to promote the success of the Company's business. Options granted under the
Plan may be Incentive Stock Options or Non-Qualified Stock Options, as
determined by the Administrator at the time of grant.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of the
Committees appointed to administer the Plan.
(b) "Applicable Laws" means the legal requirements
relating to the administration of stock option plans, if any, under applicable
provisions of federal securities laws, California corporate and securities
laws, the Code, the rules of any applicable stock exchange or national market
system, and the rules of any foreign jurisdiction applicable to Options granted
to residents therein.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means any committee appointed by the
Board to administer the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Verio Inc., a Delaware corporation.
(h) "Consultant" means any person who is engaged by the
Company or any Parent or Subsidiary to render consulting or advisory services
as an independent contractor and is compensated for such services.
(i) "Continuous Status as an Employee, Director or
Consultant" means that the provision of services to the Company, a Parent or
Subsidiary in any capacity of Employee, Director or Consultant, is not
interrupted or terminated. Continuous Status as an Employee, Director or
Consultant shall not be considered interrupted in the case of (i) any approved
leave of absence or (ii) transfers between locations of the Company or among
the Company, its Parent, any Subsidiary, or any successor in any capacity of
Employee, Director or Consultant. An approved leave of absence shall include
sick leave, military leave, or any other authorized
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<PAGE> 2
personal leave. For purposes of Incentive Stock Options, no such leave may
exceed ninety (90) days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract.
(j) "Corporate Transaction" means any of the following
stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which the
Company is not the surviving entity, except for a transaction the principal
purpose of which is to change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of
all or substantially all of the assets of the Company (including the capital
stock of the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company; or
(iii) any reverse merger in which the Company is
the surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from those who held
such securities immediately prior to such merger.
(k) "Director" means a member of the Board.
(l) "Employee" means any person, including an Officer or
Director, who is an employee of the Company or any Parent or Subsidiary of the
Company for purposes of Section 422 of the Code. The payment of a director's
fee by the Company shall not be sufficient to constitute "employment" by the
Company.
(m) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(n) "Fair Market Value" means, as of any date, the value
of Common Stock determined as follows:
(i) Where there exists a public market for the
Common Stock, the Fair Market Value shall be (A) the closing price for a Share
for the last market trading day prior to the time of the determination (or, if
no closing price was reported on that date, on the last trading date on which a
closing price was reported) on the stock exchange determined by the
Administrator to be the primary market for the Common Stock or the Nasdaq
National Market, whichever is applicable or (B) if the Common Stock is not
traded on any such exchange or national market system, the average of the
closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the
day prior to the time of the determination (or, if no such prices were reported
on that date, on the last date on which such prices were reported), in each
case, as reported in The Wall Street Journal or such other source as the
Administrator deems reliable; or
(ii) In the absence of an established market of
the type described in (i), above, for the Common Stock, the Fair Market Value
thereof shall be determined by the
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<PAGE> 3
Administrator in good faith and in a manner consistent with Section 260.140.50
of Title 10 of the California Code of Regulations.
(o) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code
(p) "Non-Qualified Stock Option" means an Option not
intended to qualify as an Incentive Stock Option.
(q) "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the
Plan.
(s) "Option Agreement" means the written agreement
evidencing the grant of an Option executed by the Company and the Optionee,
including any amendments thereto.
(t) "Optioned Stock" means the Common Stock subject to an
Option.
(u) "Optionee" means an Employee, Director or Consultant
who receives an Option under the Plan.
(v) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 1997 California Stock Option Plan.
(x) "Registration Date" means the closing of the first
sale of Common Stock to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
(y) "Share" means a share of the Common Stock.
(z) "Subsidiary" means a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 11(a), below, the
maximum aggregate number of Shares which may be optioned and sold under the Plan
is seven hundred ninety-five thousand four hundred (795,400) Shares. The Shares
may be authorized, but unissued, or reacquired Common Stock. Notwithstanding the
foregoing, the total number of Shares issuable upon exercise of all outstanding
Options shall not exceed a number of Shares which is equal to 30% of the then
outstanding shares of the Company, as calculated in accordance with the
conditions and exclusions of California Corporate Securities Rule 260.140.45,
unless a percentage higher than 30% is approved by at least two-thirds of the
outstanding Shares entitled to vote.
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<PAGE> 4
(b) If an Option expires or becomes unexercisable without
having been exercised in full, or is surrendered pursuant to an Option exchange
program, or if any unissued Shares are retained by the Company upon exercise of
an Option in order to satisfy the exercise price for such Option or any
withholding taxes due with respect to such Option, such unissued or retained
Shares shall become available for future grant under the Plan (unless the Plan
has terminated). Shares that actually have been issued under the Plan shall
not be returned to the Plan and shall not become available for future
distribution under the Plan, except that if unvested Shares are forfeited, or
repurchased by the Company at their original purchase price, such Shares shall
become available for future grant under the Plan.
4. Administration of the Plan.
(a) Plan Administrator. With respect to grants of
Options to Employees, Directors, Officers or Consultants, the Plan shall be
administered by (A) the Board or (B) a Committee (or a subcommittee of the
Committee) designated by the Board, which Committee shall be constituted in
such a manner as to satisfy Applicable Laws. Once appointed, such Committee
shall continue to serve in its designated capacity until otherwise directed by
the Board.
(b) Multiple Administrative Bodies. The Plan may be
administered by different bodies with respect to Directors, Officers,
Consultants and Employees who are neither Directors nor Officers.
(c) Powers of the Administrator. Subject to Applicable
Laws and the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and
Consultants to whom Options may be granted from time to time hereunder;
(ii) to determine whether and to what extent
Options are granted hereunder;
(iii) to determine the number of Shares to be
covered by each Option granted hereunder;
(iv) to approve forms of Option Agreement for use
under the Plan;
(v) to determine the terms and conditions of any
Option granted hereunder;
(vi) to establish additional terms, conditions,
rules or procedures to accommodate the rules or laws of applicable foreign
jurisdictions and to afford Optionees favorable treatment under such laws;
provided, however, that no Option shall be granted under
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<PAGE> 5
any such additional terms, conditions, rules or procedures with terms or
conditions which are inconsistent with the provisions of the Plan;
(vii) to amend the terms of any outstanding Option
granted under the Plan, including a reduction in the exercise price of any
Option to reflect a reduction in the Fair Market Value of the Common Stock
since the grant date of the Option, provided that any amendment that would
adversely affect the Optionee's rights under an outstanding Option shall not be
made without the Optionee's written consent;
(viii) to construe and interpret the terms of the
Plan and Options granted pursuant to the Plan; and
(ix) to take such other action, not inconsistent
with the terms of the Plan, as the Administrator deems appropriate.
(d) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be conclusive and
binding on all persons.
5. Eligibility. Non-Qualified Stock Options may be granted to
Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee, Director or Consultant who has been granted an
Option may, if otherwise eligible, be granted additional Options. Options may
be granted to such Employees, Directors or Consultants who are residing in
foreign jurisdictions as the Administrator may determine from time to time.
6. Terms and Conditions of Options.
(a) Designation of Options. Each Option shall be
designated as either an Incentive Stock Option or a Non-Qualified Stock Option.
However, notwithstanding such designation, to the extent that the aggregate
Fair Market Value of Shares subject to Options designated as Incentive Stock
Options which become exercisable for the first time by an Optionee during any
calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as
Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall
be taken into account in the order in which they were granted, and the Fair
Market Value of the Shares shall be determined as of the date the Option with
respect to such Shares is granted.
(b) Conditions of Option. Subject to the terms of the
Plan, the Administrator shall determine the provisions, terms, and conditions
of each Option including, but not limited to, the Option vesting schedule,
repurchase provisions, rights of first refusal, forfeiture provisions, and
satisfaction of any performance criteria. The performance criteria established
by the Administrator may be based on any one of, or combination of, increase in
share price, earnings per share, total stockholder return, return on equity,
return on assets, return on investment, net operating income, cash flow,
revenue, economic value added, personal management objectives, or other measure
of performance selected by the Administrator. Partial achievement of the
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<PAGE> 6
specified criteria may result in vesting corresponding to the degree of
achievement as specified in the Option Agreement.
(c) Early Exercise. The Option may, but need not,
include a provision whereby the Optionee may elect at any time while an
Employee, Director or Consultant to exercise any part or all of the Option
prior to full vesting of the Award. Any unvested Shares received pursuant to
such exercise may be subject to a repurchase right in favor of the Company or
to any other restriction the Administrator determines to be appropriate.
(d) Term of Option. The term of each Option shall be the
term stated in the Option Agreement, provided, however, that the term shall be
no more than ten (10) years from the date of grant thereof. However, in the
case of an Incentive Stock Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.
(e) Non-Transferability of Options. Options may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
(f) Time of Granting Options. The date of grant of an
Option shall for all purposes, be the date on which the Administrator makes the
determination to grant such Option, or such other date as is determined by the
Administrator. Notice of the grant determination shall be given to each
Employee, Director or Consultant to whom an Option is so granted within a
reasonable time after the date of such grant.
7. Option Exercise Price, Consideration, Taxes and Reload
Options.
(a) Exercise Price. The exercise price for an
Option shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the
time of the grant of such Incentive Stock Option owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall be not
less than one hundred ten percent (110%) of the Fair Market Value per Share on
the date of grant.
(B) granted to any Employee other than
an Employee described in the preceding paragraph, the per Share exercise price
shall be not less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a Non-Qualified Stock Option:
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<PAGE> 7
(A) granted to a person who, at the time
of the grant of such Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be not less than one hundred
ten percent (110%) of the Fair Market Value per Share on the date of grant.
(B) granted to any person other than a
person described in the preceding paragraph, the per Share exercise price shall
be not less than eighty-five percent (85%) of the Fair Market Value per Share
on the date of grant.
(b) Consideration. Subject to Applicable Laws, the
consideration to be paid for the Shares to be issued upon exercise of an Option
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for
Shares issued under the Plan the following:
(i) cash;
(ii) check;
(iii) delivery of Optionee's promissory note with
such recourse, interest, security, and redemption provisions as the
Administrator determines as appropriate;
(iv) if the exercise occurs on or after the
Registration Date, surrender of Shares or delivery of a properly executed form
of attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of the
Option) which have a Fair Market Value on the date of surrender or attestation
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised (but only to the extent that such exercise of the Option
would not result in an accounting compensation charge with respect to the
Shares used to pay the exercise price unless otherwise determined by the
Administrator);
(v) if the exercise occurs on or after the
Registration Date, delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price; or
(vi) any combination of the foregoing methods of
payment.
(c) Taxes. No Shares shall be delivered under the Plan
to any Optionee or other person until such Optionee or other person has made
arrangements acceptable to the Administrator for the satisfaction of any
foreign, federal, state, or local income and employment tax withholding
obligations, including, without limitation, obligations incident to the receipt
of Shares or the disqualifying disposition of Shares received on exercise of an
Incentive Stock
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<PAGE> 8
Option. Upon exercise of an Option the Company shall withhold or collect from
Optionee an amount sufficient to satisfy such tax obligations.
(d) Reload Options. In the event the exercise price or
tax withholding of an Option is satisfied by the Company or the Optionee's
employer withholding Shares otherwise deliverable to the Optionee, the
Administrator may issue the Optionee an additional Option, with terms identical
to the Option Agreement under which the Option was exercised, but at an
exercise price as determined by the Administrator in accordance with the Plan.
8. Exercise of Option.
(a) Procedure for Exercise: Rights as a Stockholder.
(i) Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Administrator under the terms of the Plan and specified in the Option Agreement
but in no case at a rate of less than 20% per year over five (5) years from the
date the Option is granted, subject to reasonable conditions such as continued
employment. However, in the case of an Option granted to an Officer, Director
or Consultant, the Option Agreement may provide that the Option may become
fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established in the Option
Agreement.
(ii) An Option shall be deemed to be exercised
when written notice of such exercise has been given to the Company in
accordance with the terms of the Option by the person entitled to exercise the
Option and full payment for the Shares with respect to which the Option is
exercised has been received by the Company. Until the issuance (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder
shall exist with respect to Optioned Stock, notwithstanding the exercise of an
Option. The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in the Option Agreement or
Section 11(a), below.
(b) Exercise of Option Following Termination of
Employment, Director or Consulting Relationship. In the event of termination
of an Optionee's Continuous Status as an Employee, Director or Consultant for
any reason other than disability or death (but not in the event of an
Optionee's change of status from Employee to Consultant or from Consultant to
Employee), such Optionee may, but only within three (3) months after the date
of such termination (but in no event later than the expiration date of the term
of such Option as set forth in the Option Agreement), exercise his or her
Option to the extent that the Optionee was entitled to exercise it at the date
of such termination or to such other extent as may be determined by the
Administrator. The Optionee's Option Agreement may provide that upon the event
of termination of the Optionee's Continuous Status as an Employee, Director or
Consultant for "Cause," the Optionee's right to exercise the Option shall
terminate concurrently with the termination of Optionee's Continuous Status as
an Employee, Director or Consultant. The term
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"Cause" shall be as defined in the Option Agreement. If the Optionee should
die within three (3) months after the date of such termination, the Optionee's
estate or the person who acquired the right to exercise the Option by bequest
or inheritance may exercise the Option to the extent that the Optionee was
entitled to exercise it at the date of such termination within twelve (12)
months of the Optionee's date of death, but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement. In the event of an Optionee's change of status from Employee to
Consultant, an Employee's Incentive Stock Option shall convert automatically to
a Non-Qualified Stock Option on the ninety-first (91) day following such change
of status. If the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event of termination
of an Optionee's Continuous Status as an Employee, Director or Consultant as a
result of his or her disability, Optionee may, but only within twelve (12)
months from the date of such termination (and in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination; provided, however, that if such disability is
not a "disability" as such term is defined in Section 22(e)(3) of the Code, in
the case of an Incentive Stock Option such Incentive Stock Option shall
automatically convert to a Non-Qualified Stock Option on the day three (3)
months and one day following such termination. To the extent that Optionee is
not entitled to exercise the Option at the date of termination, or if Optionee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement), by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of death. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall immediately revert to
the Plan. If, after death, the Optionee's estate or a person who acquired the
right to exercise the Option by bequest or inheritance does not exercise the
Option within the time specified herein, the Option shall terminate.
(e) Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares, an Option previously granted,
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise
of an Option unless the exercise of such Option and the issuance and delivery
of such Shares pursuant thereto shall comply with all Applicable Laws, and
shall be further subject to the approval of counsel for the Company with
respect to such compliance.
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(b) As a condition to the exercise of an Option, the
Company may require the person exercising such Option to represent and warrant
at the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required by any Applicable Laws.
10. Repurchase Rights. If the provisions of an Option Agreement
grant to the Company the right to repurchase Shares upon termination of the
Optionee's Continuing Status as an Employee, Director or Consultant, the Option
Agreement shall provide that the repurchase price will be either:
(a) Not less than the Fair Market Value of the Shares to
be repurchased on the date of termination of the Grantee's Continuous Status as
an Employee, Director or Consultant, and the right to repurchase must be
exercised for cash or cancellation of purchase money indebtedness for the
Shares within ninety (90) days of the termination of the Grantee's Continuous
Status as an Employee, Director or Consultant (or in the case of Shares issued
upon exercise of Options after the date of termination of the Grantee's
Continuous Status as an Employee, Director or Consultant, within ninety (90)
days after the date of the Option exercise), and the right terminates when the
Company's securities become publicly traded; or
(b) The original purchase price, provided that the right
to repurchase at the original purchase price lapses at the rate of at least
twenty percent (20%) of the Shares subject to the Option per year over five (5)
years from the date the Option is granted (without respect to the date the
Option was exercised or became exercisable), and the right to repurchase must
be exercised for cash or cancellation of purchase money indebtedness for the
Shares within ninety (90) days of termination of the Grantee's Continuous
Status as an Employee, Director or Consultant (or in the case of Shares issued
upon exercise of Options after the date of termination of the Grantee's
Continuous Status as an Employee, Director or Consultant, within ninety (90)
days after the date of the Option exercise).
(c) In addition to the restrictions set forth in (a) and
(b) above, the Shares held by an Officer, Director or Consultant of the Company
or any Parent or Subsidiary may be subject to additional or greater
restrictions.
11. Adjustments Upon Changes in Capitalization or Corporate
Transaction.
(a) Adjustments Upon Changes in Capitalization. Subject
to any required action by the stockholders of the Company, the number of Shares
covered by each outstanding Option, and the number of Shares which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan, as well as the price per share
of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
similar event resulting in an increase or decrease in the number of issued
shares of Common Stock. Except as expressly provided herein, no issuance by
the Company of shares of stock of any class, or securities convertible into
shares
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of stock of any class, shall affect, and no adjustment by reason hereof shall
be made with respect to, the number or price of Shares subject to an Option.
(b) Corporate Transaction. In the event of a proposed
Corporate Transaction, the Administrator shall notify the Optionee at least
fifteen (15) days prior to such proposed Corporate Transaction. To the extent
it has not been previously exercised, the Option will terminate immediately
prior to the consummation of such proposed Corporate Transaction, unless the
Option is assumed or an equivalent Option is substituted by the successor
corporation or a Parent or Subsidiary of such successor corporation. For the
purposes of this subsection, the Option shall be considered assumed if,
following the Corporate Transaction, the Option confers the right to purchase,
for each Share subject to the Option immediately prior to the Corporate
Transaction, (i) the consideration (whether stock, cash, or other securities or
property) received in the Corporate Transaction by holders of Common Stock for
each Share subject to the Option held on the effective date of the Corporate
Transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares),
or (ii) the right to purchase such consideration; provided, however, that if
such consideration received in the Corporate Transaction was not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise or exchange of the Option for each Share subject to
the Option to be solely common stock of the successor corporation or its Parent
equal in fair market value to the per share consideration received by holders
of Common Stock in the Corporate Transaction.
12. Term of Plan. The Plan shall become effective upon the
earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate
the Plan. To the extent necessary to comply with Applicable Laws, the Company
shall obtain stockholder approval of any Plan amendment in such a manner and to
such a degree as required.
(b) No Option may be granted during any suspension of the
Plan or after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan
shall not affect Options already granted, and such Options shall remain in full
force and effect as if the Plan had not been amended, suspended or terminated,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
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14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all
times reserve and keep available such number of Shares as shall be sufficient
to satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from
any regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have been obtained.
15. No Effect on Terms of Employment. The Plan shall not confer
upon any Optionee any right with respect to continuation of employment or
consulting relationship with the Company, nor shall it interfere in any way
with his or her right or the Company's right to terminate his or her employment
or consulting relationship at any time, with or without cause.
16. Stockholder Approval. Continuance of the Plan shall be
subject to approval by the stockholders of the Company within twelve (12)
months before or after the date the Plan is adopted. Such stockholder approval
shall be obtained in the degree and manner required under Applicable Laws. Any
Option exercised before stockholder approval is obtained shall be rescinded if
stockholder approval is not obtained within the time prescribed, and Shares
issued on the exercise of any such Option shall not be counted in determining
whether stockholder approval is obtained.
17. Information to Optionees. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of financial statements at least annually and all annual
reports and other information which is provided to all stockholders of the
Company.
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EXHIBIT 10.12
VERIO INC.
1998 STOCK INCENTIVE PLAN
(amended and restated as of March 19, 1998)
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel, to provide additional
incentive to Employees, Directors and Consultants and to promote the success of
the Company's business.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
(c) "Applicable Laws" means the legal requirements relating to the
administration of stock incentive plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Awards granted to residents therein.
(d) "Award" means the grant of an Option, SAR, Dividend Equivalent
Right, Restricted Stock, Performance Unit, Performance Share, or other right or
benefit under the Plan.
(e) "Award Agreement" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.
(f) "Board" means the Board of Directors of the Company.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means any committee appointed by the Board to
administer the Plan.
(i) "Common Stock" means the common stock of the Company.
(j) "Company" means Verio Inc., a Delaware corporation.
(k) "Consultant" means any person who is engaged by the Company or
any Related Entity to render consulting or advisory services as an independent
contractor and is compensated for such services.
(l) "Continuous Status as an Employee, Director or Consultant"
means that the provision of services to the Company or a Related Entity in any
capacity of Employee, Director or Consultant, is not interrupted or terminated.
Continuous Status as an Employee,
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Director or Consultant shall not be considered interrupted in the case of (i)
any approved leave of absence, (ii) transfers between locations of the Company
or among the Company, any Related Entity, or any successor, in any capacity of
Employee, Director or Consultant, or (iii) any change in status as long as the
individual remains in the service of the Company or a Related Entity in any
capacity of Employee, Director or Consultant (except as otherwise provided in
the Award Agreement). An approved leave of absence shall include sick leave,
military leave, or any other authorized personal leave. For purposes of
Incentive Stock Options, no such leave may exceed ninety (90) days, unless
reemployment upon expiration of such leave is guaranteed by statute or
contract.
(m) "Conversion Date" shall mean the date on which shares of the
Company's Series D Preferred Stock are automatically converted to Common Stock
pursuant to the provisions of the Certificate of Designation Establishing Series
D Preferred Stock of Verio Inc.
(n) "Director" means a member of the Board.
(o) "Dividend Equivalent Right" means a right entitling the Grantee
to compensation measured by dividends paid with respect to the Shares.
(p) "Employee" means any person, including an Officer or Director,
who is an employee of the Company or any Related Entity. The payment of a
director's fee by the Company shall not be sufficient to constitute "employment"
by the Company.
(q) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(r) "Fair Market Value" means, as of any date, the value of Common
Stock or other property determined as follows:
(i) Where there exists a public market for the Common Stock,
the Fair Market Value shall be (A) the closing price for a Share for the last
market trading day prior to the time of the determination (or, if no closing
price was reported on that date, on the last trading date on which a closing
price was reported) on the stock exchange determined by the Administrator to be
the primary market for the Common Stock or the Nasdaq National Market, whichever
is applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market of the type
described in (i), above, for the Common Stock, the Fair Market Value thereof
shall be determined by the Administrator in good faith.
(iii) In the case of property other than Common Stock, the Fair
Market Value thereof shall be determined by the Administrator in good faith.
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(s) "Grantee" means an Employee, Director or Consultant who
receives an Award under the Plan.
(t) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(u) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(v) "Officer" means a person who is an officer of the Company with
in the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(w) "Option" means a stock option granted pursuant to the Plan.
(x) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(y) "Performance Shares" means Shares or an award denominated in
Shares which may be earned in whole or in part upon attainment of performance
criteria established by the Administrator.
(z) "Performance Units" means an award which may be earned in
whole or in part upon attainment of performance criteria established by the
Administrator and which may be settled for cash, Shares or other securities or
a combination of cash, Shares or other securities as established by the
Administrator.
(aa) "Plan" means this 1998 Stock Incentive Plan.
(bb) "Prior Plans" means the Company's 1996 Stock Option Plan and
the Company's 1997 California Stock Option Plan.
(cc) "Related Entity" means any Parent, Subsidiary and any
business, corporation, partnership, limited liability company or other entity
in which the Company, a Parent or a Subsidiary holds a substantial ownership
interest, directly or indirectly.
(dd) "Restricted Stock" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture
provisions, and other terms and conditions as established by the Administrator.
(ee) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor thereto.
(ff) "SAR" means a stock appreciation right entitling the Grantee
to Shares or cash compensation, as established by the Administrator, measured
by appreciation in the value of a Share.
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(gg) "Series D-1 Share" means a share of Series D-1 Convertible
Preferred Stock of the Company.
(hh) "Share" shall be deemed to refer to both a share of the
Common Stock and a Series D-1 Share, unless specifically indicated otherwise.
(ii) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
(a) Prior to the Conversion Date, subject to the provisions of
Section 10, below, the maximum aggregate number of Shares which may be issued
pursuant to all Awards is 165,000 Series D-1 Shares and 1,749,300 shares of
Common Stock together with any Shares that are represented by Awards under the
Company's 1996 Stock Option Plan which are forfeited, expire or are cancelled
without delivery of Shares or which result in the forfeiture of Shares back to
the Company following the date of adoption of this Plan. Notwithstanding the
foregoing, subject to the provisions of Section 10, below, the maximum
aggregate number of Shares available for grant of Incentive Stock Options prior
to the Conversion Date shall be 165,000 Series D-1 Shares and 1,749,300 shares
of Common Stock. The Shares to be issued pursuant to Awards may be authorized,
but unissued, or reacquired Shares.
(b) On and after the Conversion Date, subject to the provisions of
Section 10, below, the maximum aggregate number of Shares which may be issued
pursuant to all Awards is 6,199,300 shares of Common Stock, increased by (i)
any Shares available for future awards under the Company's 1997 California
Stock Option Plan as of the Conversion Date and (ii) any Shares that are
represented by Awards under the Prior Plans which are forfeited, expire or are
cancelled without delivery of Shares or which result in the forfeiture of
Shares back to the Company on or after the Conversion Date. Notwithstanding the
foregoing, subject to the provisions of Section 10, below, the maximum
aggregate number of Shares available for grant of Incentive Stock Options on
and after the Conversion Date shall be 6,199,300 shares of Common Stock. The
Shares to be issued pursuant to Awards may be authorized, but unissued, or
reacquired Shares.
(c) Any Shares covered by an Award (or portion of an Award) which
is forfeited or canceled, expires or is settled in cash, shall be deemed not to
have been issued for purposes of determining the maximum aggregate number of
Shares which may be issued under the Plan. If any unissued Shares are retained
by the Company upon exercise of an Award in order to satisfy the exercise price
for such Award or any withholding taxes due with respect to such Award, such
retained Shares subject to such Award shall become available for future
issuance under the Plan (unless the Plan has terminated). Shares that actually
have been issued under the Plan pursuant to an Award shall not be returned to
the Plan and shall not become available for future issuance under the Plan,
except that if unvested Shares are forfeited, or repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
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4. Administration of the Plan.
(a) Plan Administrator.
(i) Administration with Respect to Directors and Officers.
With respect to grants of Awards to Directors or Employees who are also
Officers or Directors of the Company, the Plan shall be administered by (A) the
Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws and to permit
such grants and related transactions under the Plan to be exempt from Section
16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board.
(ii) Administration With Respect to Consultants and Other
Employees._ With respect to grants of Awards to Employees or Consultants who
are neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
Committee shall be constituted in such a manner as to satisfy the Applicable
Laws. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. The Board may authorize one or
more Officers to grant such Awards and may limit such authority as the Board
determines from time to time.
(iii) Administration Errors. In the event an Award is granted
in a manner inconsistent with the provisions of this subsection (a), such Award
shall be presumptively valid as of its grant date to the extent permitted by
the Applicable Laws.
(b) Powers of the Administrator. Subject to Applicable Laws and
the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to
whom Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are
granted hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreement for use under the
Plan;
(v) to determine the terms and conditions of any Award granted
hereunder, including terms relating to acceleration or termination of Awards in
the event of one or more types of transactions involving the ownership of the
Company, a Subsidiary or Related Entity;
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(vi) to amend the terms of any outstanding Award granted under
the Plan, including a reduction in the exercise price (or base amount on which
appreciation is measured) of any Award to reflect a reduction in the Fair Market
Value of a Share since the grant date of the Award, provided that any amendment
that would adversely affect the Grantee's rights under an outstanding Award
shall not be made without the Grantee's written consent;
(vii) to construe and interpret the terms of the Plan and
Awards granted pursuant to the Plan;
(viii) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such laws; provided, however,
that no Award shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan; and
(ix) to take such other action, not inconsistent with the
terms of the Plan, as the Administrator deems appropriate.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be conclusive and
binding on all persons.
5. Eligibility. Awards other than Incentive Stock Options may be
granted to Employees, Directors and Consultants. Incentive Stock Options may
be granted only to Employees of the Company, a Parent or a Subsidiary. An
Employee, Director or Consultant who has been granted an Award may, if
otherwise eligible, be granted additional Awards. Awards may be granted to
such Employees, Directors or Consultants who are residing in foreign
jurisdictions as the Administrator may determine from time to time.
6. Terms and Conditions of Awards.
(a) Type of Awards. The Administrator is authorized under the Plan
to award any type of arrangement to an Employee, Director or Consultant that is
not inconsistent with the provisions of the Plan and that by its terms involves
or might involve the issuance of (i) Shares, (ii) an Option, a SAR or similar
right with a fixed or variable price related to the Fair Market Value of the
Shares and with an exercise or conversion privilege related to the passage of
time, the occurrence of one or more events, or the satisfaction of performance
criteria or other conditions, or (iii) any other security with the value derived
from the value of the Shares. Such awards include, without limitation, Options,
SARs, sales or bonuses of Restricted Stock, Dividend Equivalent Rights,
Performance Units or Performance Shares, and an Award may consist of one such
security or benefit, or two or more of them in any combination or alternative.
(b) Designation of Award. Each Award shall be designated in the
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive
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Stock Options which become exercisable for the first time by a Grantee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as
Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the date the Option with respect
to such Shares is granted.
(c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total stockholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.
(d) Deferral of Award Payment. The Administrator may establish one
or more programs under the Plan to permit selected Grantees the opportunity to
elect to defer receipt of consideration upon exercise of an Award, satisfaction
of performance criteria, or other event that absent the election would entitle
the Grantee to payment or receipt of Shares or other consideration under an
Award. The Administrator may establish the election procedures, the timing of
such elections, the mechanisms for payments of, and accrual of interest or other
earnings, if any, on amounts, Shares or other consideration so deferred, and
such other terms, conditions, rules and procedures that the Administrator deems
advisable for the administration of any such deferral program.
(e) Award Exchange Programs. The Administrator may establish one or
more programs under the Plan to permit selected Grantees to exchange an Award
under the Plan for one or more other types of Awards under the Plan on such
terms and conditions as determined by the Administrator from time to time.
(f) Separate Programs. The Administrator may establish one or more
separate programs under the Plan for the purpose of issuing particular forms of
Awards to one or more classes of Grantees on such terms and conditions as
determined by the Administrator from time to time.
(g) Acquisitions and Other Transactions. The Administrator may
issue Awards under the Plan in settlement, assumption or substitution for,
outstanding awards or obligations to grant future awards in connection with the
Company or a Related Entity acquiring another entity, an interest in another
entity or an additional interest in a Related Entity whether by merger, stock
purchase, asset purchase or other form of transaction.
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(h) Early Exercise. The Award may, but need not, include a
provision whereby the Grantee may elect at any time while an Employee, Director
or Consultant to exercise any part or all of the Award prior to full vesting of
the Award. Any unvested Shares received pursuant to such exercise may be
subject to a repurchase right in favor of the Company or to any other
restriction the Administrator determines to be appropriate.
(i) Term of Award. The term of each Award shall be the term stated
in the Award Agreement, provided, however, that the term of an Incentive Stock
Option shall be no more than ten (10) years from the date of grant thereof.
However, in the case of an Incentive Stock Option granted to a Grantee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Incentive Stock Option shall be five (5) years
from the date of grant thereof or such shorter term as may be provided in the
Award Agreement.
(j) Transferability of Awards. Incentive Stock Options may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee; provided,
however, that the Grantee may designate a beneficiary of the Grantee's Incentive
Stock Option in the event of the Grantee's death on a beneficiary designation
form provided by the Administrator. Other Awards shall be transferable to the
extent provided in the Award Agreement.
(k) Time of Granting Awards. The date of grant of an Award shall
for all purposes be the date on which the Administrator makes the determination
to grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.
(l) Conversion of Awards. Any Award granted with respect to Series
D-1 Shares shall convert automatically, without further action by the Company or
the Grantee, into an Award with respect to Common Stock upon automatic
conversion of outstanding Series D-1 Shares into Common Stock pursuant to the
provisions of the certificate of designation establishing the Company's Series D
Preferred Stock.
7. Award Exercise or Purchase Price, Consideration, Taxes and Reload
Options.
(a) Exercise or Purchase Price. The exercise or purchase
price, if any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise
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price shall be not less than one hundred ten percent (110%) of the Fair Market
Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be not
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant.
(ii) In the case of other Awards, the per Share exercise or
purchase price, if any, shall be not less than eighty-five percent (85%) of the
Fair Market Value per Share on the date of grant.
(iii) Notwithstanding the provisions of (i) and (ii), above,in
the case of an Award issued pursuant to Section 6(g) hereof, the exercise or
purchase price for the Award shall be determined in accordance with the
principles of Section 424(a) of the Code.
(b) Consideration. Subject to Applicable Laws, the consideration to
be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for
Shares issued under the Plan the following:
(i) cash;
(ii) check;
(iii) surrender of Shares or delivery of a properly executed
form of attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of the
Award) which have a Fair Market Value on the date of surrender or attestation
equal to the aggregate exercise price of the Shares as to which said Award
shall be exercised (but only to the extent that such exercise of the Award
would not result in an accounting compensation charge with respect to the
Shares used to pay the exercise price unless otherwise determined by the
Administrator);
(iv) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Award and delivery to the
Company of the sale or loan proceeds required to pay the exercise price; or
(v) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan
to any Grantee or other person until such Grantee or other person has made
arrangements acceptable to the Administrator for the satisfaction of any
foreign, federal, state, or local income and employment tax withholding
obligations, including, without limitation, obligations incident to the receipt
of Shares or the disqualifying disposition of Shares received on exercise of an
Incentive Stock
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Option. Upon exercise of an Award, the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.
(d) Reload Options. In the event the exercise price or tax
withholding of an Option is satisfied by the Company or the Grantee's employer
withholding Shares otherwise deliverable to the Grantee, the Administrator may
issue the Grantee an additional Option, with terms identical to the Award
Agreement under which the Option was exercised, but at an exercise price as
determined by the Administrator in accordance with the Plan.
8. Exercise of Award.
(a) Procedure for Exercise; Rights as a Stockholder.
(i) Any Award granted hereunder shall be exercisable at
such times and under such conditions as determined by the Administrator under
the terms of the Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Award by the person entitled to exercise the Award and full payment
for the Shares with respect to which the Award is exercised has been received by
the Company. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to
Shares subject to an Award, notwithstanding the exercise of an Option or other
Award. The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Award. No adjustment will be made for a dividend
or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in the Award Agreement or Section 10,
below.
(b) Exercise of Award Following Termination of Employment,
Director or Consulting Relationship.
(i) An Award may not be exercised after the termination
date of such Award set forth in the Award Agreement and may be exercised
following the termination of a Grantee's Continuous Status as an Employee,
Director or Consultant only to the extent provided in the Award Agreement.
(ii) Where the Award Agreement permits a Grantee to
exercise an Award following the termination of the Grantee's Continuous Status
as an Employee, Director or Consultant for a specified period, the Award shall
terminate to the extent not exercised on the last day of the specified period or
the last day of the original term of the Award, whichever occurs first.
(iii) Any Award designated as an Incentive Stock Option to
the extent not exercised within the time permitted by law for the exercise of
Incentive Stock Options following the termination of a Grantee's Continuous
Status as an Employee, Director or
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Consultant shall convert automatically to a Non-Qualified Stock Option and
thereafter shall be exercisable as such to the extent exercisable by its terms
for the period specified in the Award Agreement.
(c) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Award previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Grantee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an
Award unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. Adjustments Upon Changes in Capitalization. Subject to any
required action by the stockholders of the Company, the number of Shares
covered by each outstanding Award, and the number of Shares which have been
authorized for issuance under the Plan but as to which no Awards have yet been
granted or which have been returned to the Plan, the exercise price of each
such outstanding Award, as well as any other terms that the Administrator
determines require adjustment shall be proportionately adjusted for any
increase or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Shares, merger, consolidation, acquisition of the property or equity
securities of the Company, any separation of the Company (including a spin-off
or other distribution of equity securities or property of the Company),
reorganization (whether or not such reorganization comes within the definition
of Code Section 368), partial or complete liquidation, or any other similar
event resulting in an increase or decrease in the number of issued Shares.
Except as the Administrator determines, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason hereof shall be made with
respect to, the number or price of Shares subject to an Award.
11. Effective Date and Term of Plan. The Plan shall become effective upon
the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated. Subject to Section 16, below, and Applicable
Laws, Awards may be granted under the Plan upon its becoming effective.
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12. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary to comply with Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan(including
termination of the Plan under Section 11, above) shall not affect Awards already
granted, and such Awards shall remain in full force and effect as if the Plan
had not been amended, suspended or terminated, unless mutually agreed otherwise
between the Grantee and the Administrator, which agreement must be in writing
and signed by the Grantee and the Company.
13. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
14. No Effect on Terms of Employment/Consulting Relationship. The
Plan shall not confer upon any Grantee any right with respect to continuation of
employment or consulting relationship with the Company, nor shall it interfere
in any way with his or her right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without cause.
15. Stockholder Approval for Incentive Stock Option Awards. The
grant of Incentive Stock Options under the Plan shall be subject to approval by
the stockholders of the Company within twelve (12) months before or after the
date the Plan is adopted excluding Incentive Stock Options issued in
substitution for outstanding Incentive Stock Options pursuant to Section 424(a)
of the Code. Such stockholder approval shall be obtained in the degree and
manner required under Applicable Laws. The Administrator may grant Incentive
Stock Options under the Plan prior to approval by the stockholders, but until
such approval is obtained, no such Incentive Stock Option shall be exercisable.
In the event that stockholder approval is not obtained within the twelve (12)
month period provided above, all Incentive Stock Options previously granted
under the Plan shall be exercisable as Non-Qualified Stock Options.
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EXHIBIT 10.13
COMPENSATION PROTECTION AGREEMENT
THIS COMPENSATION PROTECTION AGREEMENT (this "Agreement"), made
effective as of the ___ day of ________, 1998, by and between VERIO INC., a
corporation incorporated under the laws of Delaware (the "Company"), and
____________ ("Protected Officer").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change in Control can result in
significant distractions of its key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of Protected
Officer in the event of a threat or occurrence of a Change in Control and to
ensure Protected Officer's continued dedication and efforts in such event
without undue concern for Protected Officer's personal financial and employment
security; and
WHEREAS, in order to induce Protected Officer to remain in the employ
of the Company, particularly in the event of a threat or the occurrence of a
Change in Control, the Company desires to enter into this Agreement with
Protected Officer to provide Protected Officer with certain benefits in the
event Protected Officer's employment is terminated as a result of, or in
connection with, a Change in Control;
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of _______ __,
1998 (the "Effective Date") and shall continue in effect until the third
anniversary of the Effective Date; provided, that commencing on the third
anniversary of the Effective Date and on each subsequent anniversary thereof,
the term of this Agreement shall automatically be extended for one (1) year
unless either the Company or Protected Officer shall have given written notice
to the other at least ninety (90) days prior thereto that the term of this
Agreement shall not be so extended; and provided, further, that notwithstanding
any such notice by the Company not to extend, the term of this Agreement shall
not expire prior to the expiration of twelve (12) months after the occurrence of
a Change in Control.
2. Definitions.
2.1. Accrued Compensation. "Accrued Compensation" shall mean an
amount which shall include all amounts earned or accrued through the Termination
Date (as hereinafter defined) but not paid as of the Termination Date,
including, without limitation, (i) base salary, (ii) reimbursement for
reasonable and necessary expenses incurred by Protected Officer on behalf of the
Company during the period ending on the Termination Date, and (iii) vacation
pay.
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2.2. Base Amount. "Base Amount" shall mean the amount of Protected
Officer's annual base salary at the rate in effect immediately prior to the
Change in Control, and shall include all amounts of Protected Officer's base
salary that are deferred under the qualified and non-qualified employee benefit
plans of the Company or any other agreement or arrangement.
2.3. Bonus Amount. "Bonus Amount" shall mean the greater of (i) 100% of
the last annual incentive payment paid or payable to Protected Officer prior to
the Termination Date under the Company's cash bonus incentive plan, and (ii)
Protected Officer's incentive target for the fiscal year in which the Change in
Control occurs.
2.4. Cause. A termination of employment is for "Cause" if Protected
Officer has been convicted of a felony involving fraud or dishonesty or the
termination is evidenced by a resolution adopted in good faith by two-thirds of
the Board to the effect that Protected Officer (i) intentionally and continually
failed substantially to perform Protected Officer's reasonably assigned duties
with the Company (other than a failure resulting from Protected Officer's
incapacity due to physical or mental illness or from Protected Officer's
assignment of duties that would constitute Good Reason (as hereinafter
defined)), which failure continued for a period of at least thirty (30) days
after a written notice of demand for substantial performance has been delivered
to Protected Officer specifying the manner in which Protected Officer has failed
substantially to perform, or (ii) intentionally engaged in conduct which is
demonstrably and materially injurious to the Company; provided, that no
termination of Protected Officer's employment shall be for Cause as set forth in
clause (ii) above until (a) there shall have been delivered to Protected Officer
a copy of a written notice setting forth that Protected Officer was guilty of
the conduct set forth in clause (ii) and specifying the particulars thereof in
detail, and (b) Protected Officer shall have been provided an opportunity to be
heard in person by the Board (with the assistance of Protected Officer's counsel
if Protected Officer so desires). No act, nor failure to act, on Protected
Officer's part shall be considered "intentional" unless Protected Officer has
acted, or failed to act, with a lack of good faith and with a lack of reasonable
belief that Protected Officer's action or failure to act was in the best
interest of the Company.
2.5. Change in Control. "Change in Control" shall mean any of the
following:
(a) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any Person (as the
term "person" is used for purposes of Section 13 or 14 of the Securities
Exchange Act of 1934, as amended (the "1934 Act")) immediately after which such
Person has Beneficial Ownership (as the term "beneficial ownership" is defined
under Rule 13d-3 promulgated under the 1934 Act) of forty percent (40%) or more
of the combined voting power of the Company's then outstanding Voting
Securities; provided, that in determining whether a Change in Control has
occurred, Voting Securities which are acquired in a Non-Control Acquisition (as
hereinafter defined) shall not constitute an acquisition which would cause a
Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i)
an
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employee benefit plan (or a trust forming a part thereof) maintained by (1) the
Company or (2) any corporation or other Person of which a majority of its voting
power or its equity securities or equity interest is owned directly or
indirectly by the Company (a "Subsidiary"), (ii) the Company or any Subsidiary,
or (iii) any Person in connection with a Non-Control Transaction (as hereinafter
defined);
(b) The individuals who, as of date this Agreement is approved by
the Board, are members of the Board (the "Incumbent Board"), cease for any
reason to constitute at least a majority of the Board; provided, that if the
appointment, election or nomination for election by the Company's stockholders
of any new director was approved by a vote of at least two-thirds of the
Incumbent Board, such new director shall, for purposes of this Agreement, be
considered a member of the Incumbent Board; and provided, further, that no
individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
1934 Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board (a "Proxy Contest") including by
reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest;
(c) Approval by stockholders of the Company of:
(1) A merger, consolidation or reorganization involving the
Company, unless such merger, consolidation or reorganization satisfies the
conditions set forth in clauses (i) and (ii) below (any transaction(s)
meeting the requirements of clauses (i) and (ii) below being referred to
herein as "Non-Control Transactions"):
(i) the stockholders of the Company immediately
before such merger, consolidation or reorganization own, directly
or indirectly, immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger, consolidation or
reorganization (the "Surviving Corporation") in substantially the
same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization;
and
(ii) the individuals who were members of the
Incumbent Board immediately prior to the execution of the
agreement providing for such merger, consolidation or
reorganization constitute at least a majority of the members of
the board of directors of the Surviving Corporation;
(2) A complete liquidation or dissolution of the Company; or
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(3) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary); and
(d) Any other event that at least two-thirds of the Incumbent
Board in its sole discretion shall determine constitutes a Change in Control.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the outstanding Voting Securities
as a result of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person; provided, that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition by the Company the Subject Person becomes the Beneficial Owner
of any additional voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
(e) Notwithstanding anything contained in this Agreement to the
contrary, if Protected Officer's employment is terminated prior to a Change in
Control and the Board determines that such termination (i) was at the request of
a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who subsequently effectuates a
Change in Control (a "Third Party") or (ii) otherwise occurred in connection
with, or in anticipation of, a Change in Control which actually occurs, then,
for all purposes of this Agreement, the date of a Change in Control with respect
to Protected Officer shall mean the date immediately prior to the date of such
termination of Protected Officer's employment.
2.6. Company. The "Company" shall mean Verio Inc. and shall include its
"Successors and Assigns" (as hereinafter defined).
2.7. Disability. "Disability" shall mean a physical or mental infirmity
which impairs Protected Officer's ability to substantially perform Protected
Officer's duties with the Company for a period of one hundred eighty (180)
consecutive days; provided, that Protected Officer has not returned to Protected
Officer's full-time employment prior to the Termination Date as stated in the
Notice of Termination (as hereinafter defined).
2.8. Good Reason.
(a) "Good Reason" shall mean the occurrence after a Change in
Control of any of the events or conditions described in subsections (i) through
(viii) hereof:
(i) (A) a change in Protected Officer's status, title,
position or responsibilities (including reporting responsibilities)
which, in Protected Officer's reasonable judgment, represents an
adverse change from
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Protected Officer's status, title, position or responsibilities as in
effect at any time within ninety (90) days preceding the date of a
Change in Control or at any time thereafter; (B) the assignment to
Protected Officer of any duties or responsibilities which, in Protected
Officer's reasonable judgment, are inconsistent with Protected
Officer's status, title, position or responsibilities as in effect at
any time within ninety (90) days preceding the date of a Change in
Control or at any time thereafter; or (C) any removal of Protected
Officer from or failure to reappoint or reelect Protected Officer to
any of such offices or positions, except in connection with the
termination of Protected Officer's employment for Disability, Cause, as
a result of Protected Officer's death or by Protected Officer other
than for Good Reason;
(ii) reduction in Protected Officer's base salary to a level
below that in effect at any time within ninety (90) days preceding the
date of a Change in Control or at any time thereafter (except to the
extent such reduction is part of a comprehensive reduction in salary
applicable to employees of the Company generally so long as the
reduction applicable to Protected Officer is comparable to the
reduction applied to other senior executives of the Company), or any
failure to pay Protected Officer any compensation or benefits to which
Protected Officer is entitled within five (5) days of the date due;
(iii) the Company's requiring Protected Officer to be based at
any place outside a 50-mile radius from Protected Officer's job
location or residence prior to the Change in Control, except for
reasonably required travel on the Company's business which is not
materially greater than such travel requirements prior to the Change in
Control;
(iv) the failure by the Company to (A) continue in effect
(without reduction in benefit level and/or reward opportunities) any
material compensation or employee benefit plan in which Protected
Officer was participating at any time within ninety (90) days preceding
the date of the Change in Control or at any time thereafter, including,
but not limited to, the plans listed on Appendix A (which shall include
vacation policies), unless such plan is replaced with a plan that
provides substantially equivalent compensation or benefits to Protected
Officer, or (B) provide Protected Officer with compensation and
benefits, in the aggregate, at least equal (in terms of benefit levels
and/or reward opportunities) to those provided for under each other
employee benefit plan, program and practice in which Protected Officer
was participating at any time within ninety (90) days preceding the
date of the Change in Control or at any time thereafter or which are
provided to other similarly situated executives of the Company;
(v) the insolvency or the filing (by any party, including the
Company) of a petition for bankruptcy of the Company, which petition is
not dismissed within sixty (60) days;
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(vi) any material breach by the Company of any provision of
this Agreement:
(vii) any purported termination of Protected Officer's
employment for Cause by the Company which does not comply with the
terms of Section 2.4; or
(viii) the failure of the Company to obtain an agreement,
satisfactory to Protected Officer, from any Successors and Assigns (as
hereinafter defined) to assume and agree to perform this Agreement, as
contemplated in Section 6 hereof.
(b) Any event or condition described in this Section 2.8 which
occurs prior to a Change in Control, but which the Board determines (i) was at
the request of a Third Party, or (ii) otherwise arose in connection with, or in
anticipation of, a Change in Control which actually occurs, shall constitute
Good Reason for purposes of this Agreement notwithstanding that it occurred
prior to the Change in Control.
(c) Protected Officer's right to terminate Protected Officer's
employment pursuant to this Section 2.8 shall not be affected by Protected
Officer's incapacity due to physical or mental illness. Protected Officer must
determine whether to invoke the right to terminate employment pursuant to
Section 2.8(a)(i) or 2.8(a)(iii) within ninety (90) days of the change in status
or relocation referred to therein.
2.9. Notice of Termination. Following a Change in Control, "Notice of
Termination" shall mean a written notice from the Company of termination of
Protected Officer's employment which indicates the specific termination
provision in this Agreement relied upon and which sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Protected Officer's employment under the provision so indicated.
2.10. Pro-Rata Bonus. "Pro-Rata Bonus" shall mean an amount equal to
the Bonus Amount multiplied by a fraction the numerator of which is the number
of days in the fiscal year through the Termination Date and the denominator of
which is 365.
2.11. Successors and Assigns. "Successors and Assigns" shall mean a
corporation or other entity acquiring all or substantially all the assets and
business of the Company (including this Agreement), whether by operation of law
or otherwise.
2.12. Termination Date. "Termination Date" shall mean (i) in the case
of Protected Officer's death, Protected Officer's date of death, (ii) in the
case of Good Reason, the last day of Protected Officer's employment, and (iii)
in all other cases, the date specified in the Notice of Termination; provided,
that if Protected Officer's employment is terminated by the Company for Cause or
due to Disability, the date specified in the Notice of Termination shall be at
least thirty (30) days from the date the Notice of Termination is given to
Protected Officer; and provided, further, that in the case of Disability
Protected Officer shall not have returned to the full-time performance of
Protected Officer's duties during such period of at least thirty (30) days.
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3. Protected Officer Obligations. During the term of this Agreement, and
excluding any periods of vacation and sick leave to which Protected Officer is
entitled, Protected Officer agrees to devote his full time and attention spent
on business matters to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to Protected Officer
by the Company that do not constitute Good Reason, to use Protected Officer's
reasonable best efforts to perform faithfully and efficiently such
responsibilities; provided, that it shall not be a violation of this Agreement
for Protected Officer to, without limitation, (i) serve on corporate, civic or
charitable boards or committees, (ii) deliver lectures, fulfill speaking
engagements or teach at educational institutions, (iii) manage personal
investments and (iv) perform such other activities as the Board may approve, so
long as such activities do not interfere materially with the performance of
Protected Officer's responsibilities as an employee of the Company. It is
expressly understood and agreed that to the extent that any such activities have
been conducted by Protected Officer prior to the date of a Change of Control,
the continued conduct of such activities (or the conduct of activities similar
in nature and scope thereto) subsequent to such date shall not thereafter be
deemed to interfere with the performance of Protected Officer's responsibilities
to the Company.
4. Termination of Employment.
4.1. Termination Benefits. If, during the term of this Agreement,
Protected Officer's employment with the Company shall be terminated within
twelve (12) months following a Change in Control, Protected Officer shall be
entitled to the following compensation and benefits:
(a) If Protected Officer's employment with the Company shall be
terminated (i) by the Company for Cause or Disability, (ii) by reason of
Protected Officer's death, (iii) due to Protected Officer's retirement pursuant
to the Company's policies applying to executive officers generally, or (iv) by
Protected Officer other than for Good Reason, the Company shall pay to Protected
Officer the Accrued Compensation;
(b) If Protected Officer's employment with the Company shall be
terminated for any reason other than as specified in Section 4.1(a), Protected
Officer shall be entitled to the following:
(i) the Company shall pay Protected Officer all Accrued
Compensation and a Pro-Rata Bonus;
(ii) the Company shall pay Protected Officer as severance pay
and in lieu of any further compensation for periods subsequent to the
Termination Date, an amount in cash equal to [three (3) times] [two (2)
times] the sum of (A) the Base Amount and (B) the Bonus Amount;
(iii) until the third anniversary of the Date of Termination,
Protected Officer shall have such rights with respect to benefits
provided by the Company, including without limitation life insurance,
disability,
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<PAGE> 8
medical, dental and hospitalization benefits and pension and retirement
benefits as were provided to Protected Officer as of the Effective Date
or, if greater, at any time within ninety (90) days preceding the date
of the Change in Control; and
(iv) the restrictions on any outstanding incentive awards
(including restricted stock and granted performance shares or units)
granted to Protected Officer under the Company's stock option and other
stock incentive plans or under any other incentive plan or arrangement
shall lapse and such incentive award shall become 100% vested, all
stock options and stock appreciation rights granted to Protected
Officer shall become immediately exercisable and shall become 100%
vested and all performance units granted to Protected Officer shall
become 100% vested.
(c) The amounts provided for in Sections 4.1(a) and 4.1(b)(i), and
(ii) shall be paid in a single lump sum cash payment within thirty (30) days
after the Termination Date (or earlier, if required by applicable law).
(d) The Protected Officer shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, and no such payment shall be offset or reduced by the amount of
any compensation or benefits provided to Protected Officer in any subsequent
employment.
4.2. Other Benefit Policies. The severance pay and benefits provided
for in this Section 4 shall be in lieu of any other severance or termination pay
to which Protected Officer may be entitled under any Company severance or
termination plan, program, practice or arrangement. The Protected Officer's
entitlement to any other compensation or benefits shall be determined in
accordance with the Company's employee benefit plans (including the plans listed
on Appendix A) and other applicable programs, policies and practices then in
effect. The Company may condition the payment to Protected Officer of severance
benefits pursuant to Section 4.1(b)(ii) upon Protected Officer's delivery of a
reasonable form of release in favor of the Company containing customary terms
and conditions for the release of employment related claims. Nothing in this
Agreement shall alter Protected Officer's status as an "at will" employee of the
Company.
5. Notice of Termination. Following a Change in Control, any purported
termination of Protected Officer's employment by the Company shall be
communicated by Notice of Termination to Protected Officer. For purposes of this
Agreement, no such purported termination shall be effective without such Notice
of Termination.
6. Excise Tax Payments.
6.1 In the event that any payment or benefit (within the
meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
(the "Code")) to Protected Officer or for Protected Officer's benefit, paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise in connection with, or arising out of, Protected Officer's
employment with the Company or a Change in Control
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(a "Payment" or "Payments"), would be subject to the excise tax imposed by Code
Section 4999, or any interest or penalties are incurred by Protected Officer
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then Protected Officer will be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by Protected Officer
of all taxes (including any interest or penalties (other than interest and
penalties imposed by reason of Protected Officer's failure to file timely a tax
return or pay taxes shown due on Protected Officer's return) imposed with
respect to such taxes and the Excise Tax), including any Excise Tax imposed upon
the Gross-Up Payment, Protected Officer retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
6.2 An initial determination as to whether a Gross-Up Payment is
required pursuant to this Agreement and the amount of such Gross-Up Payment
shall be made by the Company. The Company shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation, to Protected Officer within fifteen (15) days of the Termination
Date, if applicable, or such other time as requested by Protected Officer
(provided Protected Officer reasonably believes that any of the Payments may be
subject to the Excise Tax). If requested by Protected Officer, the Company shall
furnish Protected Officer, at the Company's expense, with an opinion reasonably
acceptable to Protected Officer from the Company's accounting firm (or an
accounting firm of equivalent stature reasonably acceptable to Protected
Officer) that there is a reasonable basis for the Determination. Any Gross-Up
Payment determined pursuant to this Section 6.2 shall be paid by the Company to
Protected Officer within five (5) days of receipt of the Determination.
6.3 As a result of the uncertainty in the application of Sections
4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion
thereof) will be paid which should not have been paid (an "Excess Payment") or a
Gross-Up Payment (or a portion thereof) which should have been paid will not
have been paid (an "Underpayment").
(a) An Underpayment shall be deemed to have occurred (i) upon
notice (formal or informal) to Protected Officer from any governmental taxing
authority that Protected Officer's tax liability (whether in respect of
Protected Officer's current taxable year or in respect of any prior taxable
year) may be increased by reason of the imposition of the Excise Tax on a
Payment or Payments with respect to which the Company has failed to make a
sufficient Gross-Up Payment, (ii) upon a determination by a court, or (iii) by
reason of determination by the Company (which shall include the position taken
by the Company, together with its consolidated group, on its federal income tax
return). If an Underpayment occurs, Protected Officer shall promptly notify the
Company and the Company shall promptly, but in any event at least five (5) days
prior to the date on which the applicable government taxing authority has
requested payment, pay to Protected Officer an additional Gross-Up Payment equal
to the amount of the Underpayment plus any interest and penalties (other than
interest and penalties imposed by reason of Protected Officer's failure to file
timely a tax return or pay taxes shown due on Protected Officer's return)
imposed on the Underpayment.
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(b) An Excess Payment shall be deemed to have occurred upon a
Final Determination (as hereinafter defined) that the Excise Tax shall not be
imposed upon a Payment or Payments (or portion thereof) with respect to which
Protected Officer had previously received a Gross-Up Payment. A "Final
Determination" shall be deemed to have occurred when Protected Officer has
received from the applicable government taxing authority a refund of taxes or
other reduction in Protected Officer's tax liability by reason of the Excise
Payment and upon either (i) the date a determination is made by, or an agreement
is entered into with, the applicable governmental taxing authority which finally
and conclusively binds Protected Officer and such taxing authority, or in the
event that a claim is brought before a court of competent jurisdiction, the date
upon which a final determination has been made by such court and either all
appeals have been taken and finally resolved or the time for all appeals has
expired or (ii) the statute of limitations with respect to Protected Officer's
applicable tax return has expired. If an Excess Payment is determined to have
been made, the amount of the Excess Payment shall be treated as a loan by the
Company to Protected Officer, which loan Protected Officer must repay to the
Company together with interest at the applicable federal rate under Code Section
7872(f)(2); provided, that no loan shall be deemed to have been made and no
amount will be payable by Protected Officer to the Company unless, and only to
the extent that, the deemed loan and payment would either reduce the amount on
which Protected Officer is subject to tax under Code Section 4999 or generate a
refund of tax imposed under Code Section 4999.
6.4 Notwithstanding anything contained in this Agreement to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Payment or Payments, the Company shall pay to the applicable
government taxing authorities, as Excise Tax withholding, the amount of the
Excise Tax that the Company has actually withheld from the Payment or Payments.
7. Cooperation. Notwithstanding anything to the contrary contained
herein, payment of the amounts specified in Section 4.1(b)(ii) hereof is
conditional upon Protected Officer cooperating with the Company in connection
with any Change of Control or proposed Change of Control and all matters
relating to Protected Officer's employment with the Company and assisting the
Company as reasonably requested in transitioning Protected Officer's
responsibilities to Protected Officer's replacement as well as upon Protected
Officer refraining from doing or saying anything derogatory about the Company or
its businesses or personnel; provided, that Protected Officer shall not be
required to perform any duties or take any action that would constitute Good
Reason.
8. Confidential Information. Protected Officer shall hold in confidence
for the benefit of the Company all secret or confidential information, knowledge
or data relating to the Company and its businesses, which shall have been
obtained by Protected Officer in the course of Protected Officer's employment by
the Company and which shall not be public knowledge (other than by acts by
Protected Officer in violation of this Agreement) ("Confidential Information").
Whether before or after termination of the Protected Officer's employment with
the Company, Protected Officer shall not, without the prior written consent of
the Company, communicate or divulge any Confidential Information, other than to
the Company and to those persons or entities designated by the Company or
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<PAGE> 11
as otherwise is reasonably necessary for Protected Officer to carry out his or
her responsibilities as an executive of the Company. In no event shall an
asserted violation of the provisions of this Section 8 constitute a basis for
deferring or withholding any amounts otherwise payable to Protected Officer
under this Agreement.
9. Covenant Not to Compete.
9.1. Non-Competition. In the event that Protected Officer receives
severance payments pursuant to Section 4.1(b)(ii), Protected Officer agrees
that, from the date of Protected Officer's receipt of such payment until the
sooner to occur of (i) the end of the twelve month following the Date of
Termination or (ii) the second anniversary of the date of the Change in Control,
Protected Officer will not, directly or indirectly, engage in any business
activity that is or may reasonably be found to be in competition with the
internet access service provider business of the Company and its subsidiaries as
such business may exist at any time from the Effective Date through the
Termination Date, unless Protected Officer can demonstrate that any action that
otherwise would contravene this Section 9.1 was done without use in any way of
Confidential Information; provided, that nothing in this Agreement shall be
deemed to prohibit Protected Officer from owning not more than five percent (5%)
of any class of publicly traded securities of a competitor.
9.2. Non-Solicitation. Protected Officer agrees that from the date
hereof to the sooner to occur of (i) the end of the twelfth month following the
Date of Termination or (ii) the second anniversary of the date of the Change in
Control, Protected Officer will not:
(a) Solicit, raid, entice or induce any employee of the Company to
be employed by any competitor of the Company;
(b) Solicit internet access service provider business for any
competitor from, or transact such business for any competitor with, any person,
firm or corporation which was, at any time during Protected Officer's employment
hereunder, an internet access service customer of the Company; or
(c) Assist a competitor in taking such action.
9.3. Remedies.
(a) Protected Officer agrees that any breach or threatened breach
by Protected Officer of any provision of this Section 9 will entitle the
Company, in addition to any other legal remedies available to it, to apply to
any court of competent jurisdiction to enjoin the breach or threatened breach,
it being acknowledged and agreed that any such material breach will cause
irreparable injury to the Company and that any damages will not provide adequate
remedies to the Company.
(b) In no event shall an asserted violation of the provisions of
this Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to Protected Officer under this Agreement.
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10. Exclusive Remedy.
10.1. Protected Officer's right to salary continuation and other
severance benefits pursuant to Section 4.1 shall be Protected Officer's sole and
exclusive remedy for any termination of Protected Officer's employment by the
Company other than for Death, Disability or Cause or by Protected Officer for
Good Reason. The payments, severance benefits and severance protections provided
to Protected Officer pursuant to this Agreement are provided in lieu of any
severance payments, severance benefits and severance protections provided in any
other plan or policy of the Company, except as may be expressly provided in
writing under the terms of any plan or policy of the Company, or in a written
agreement between the Company and Protected Officer entered into after the date
of this Agreement. Notwithstanding the foregoing, nothing in this Agreement
shall prevent or limit Protected Officer's continuing or future participation in
any benefit, bonus, incentive or other plan or program provided by the Company
(except for any severance or termination policies, plans, programs or practices)
and for which Protected Officer may qualify, nor shall anything herein limit or
reduce such rights as Protected Officer may have under any other agreements with
the Company (except for any severance or termination agreement). Amounts which
are vested benefits or which Protected Officer is otherwise entitled to receive
under any plan or program of the Company shall be payable in accordance with
such plan or program, except as explicitly modified by this Agreement.
10.2. The Company agrees to pay, to the full extent permitted by
law, all legal fees and expenses which Protected Officer may reasonably incur as
a result of any contest by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement which is
ultimately decided in favor of Protected Officer.
11. Successors; Binding Agreement.
11.1. This Agreement shall be binding upon and shall inure to the
benefit of the Company and its Successors and Assigns, and the Company shall
require any Successors and Assigns to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place.
11.2. Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by Protected Officer or Protected Officer's
beneficiaries or legal representatives, except by will or by the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by Protected Officer's legal personal representative.
12. Fees and Expenses. The Company shall pay all reasonable legal fees
and related expenses (including the reasonable costs of experts, evidence and
counsel) incurred by Protected Officer as they become due as a result of (a)
Protected Officer's termination of employment (including all such fees and
expenses, if any, incurred in contesting or disputing any such termination of
employment), (b) Protected Officer's
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<PAGE> 13
seeking to obtain or enforce any right or benefit provided by this Agreement
(including, but not limited to, any such fees and expenses incurred in
connection with any Dispute) or by any other plan or arrangement maintained by
the Company under which Protected Officer is or may be entitled to receive
benefits, and (c) Protected Officer's hearing before the Board as contemplated
in Section 2.4; provided, that the circumstances set forth in clauses (a) and
(b) of this Section 12 (other than as a result of Protected Officer's
termination of employment under circumstances described in Section 2.5(d))
occurred on or after a Change in Control.
13. Notice. Notices and all other communications provided for in this
Agreement (including the Notice of Termination) shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses last given by each party to the other; provided, that all notices to
the Company shall be directed to the attention of the Board with a copy to the
Secretary of the Company. All notices and communications shall be deemed to have
been received on the date of delivery thereof or on the third business day after
the mailing thereof, except that notice of change of address shall be effective
only upon receipt.
14. Settlement of Claims. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against Protected Officer or others.
15. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by Protected Officer and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreement or
representation, oral or otherwise, express or implied, with respect to the
subject matter hereof has been made by either party which is not expressly set
forth in this Agreement.
16. Governing Law; Arbitration.
(a) This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Colorado without giving effect to
the conflict of laws principles thereof.
(b) Any controversy or claim arising out of, relating to or in
connection with this Agreement, or the breach thereof, shall be settled by
arbitration administered by the American Arbitration Association ("AAA") in
accordance with its then existing Commercial Arbitration rules and judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
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(c) It is the express agreement of the parties that the provisions
of this Section, including the rules of the AAA , as modified by the terms of
this Section 16, shall govern the arbitration of any disputes arising pursuant
to this Agreement. In the event of any conflict between the law of the State of
Colorado, the law of the arbitral location, and the U.S. Arbitration Act (Title
9, U.S. Code), with respect to any arbitration conducted pursuant to this
Agreement, to the extent permissible, it is the express intent of the parties
that the law of Colorado, as modified herein, shall prevail. To the extent this
Section 16 is deemed a separate agreement, independent from this Agreement,
Sections 12, 13, 15, 17 and 18 are incorporated herein by reference. Either
party (the "Initiating Party") may commence an arbitration by submitting a
Demand for Arbitration under the AAA Rules and by notice to the other Party (the
"Respondent") in accordance with Section 13. Such notice shall set forth in
reasonable detail the basic operative facts upon which the Initiating Party
seeks relief and specific reference to the clauses of this Agreement, the amount
claimed, if any, and any nonmonetary relief sought against the Respondent. After
the initial list of issues to be resolved has been submitted, the arbitrators
shall permit either party to propose additional issues for resolution in the
pending proceedings.
(d) The place of arbitration shall be Denver, Colorado, or any
other place selected by mutual agreement.
(e) The parties shall attempt, by agreement, to nominate a sole
arbitrator for confirmation by the AAA. If the parties fail so to nominate a
sole arbitrator within 30 days from the date when the Initiating Party's Demand
for Arbitration has been communicated to the other party, a board of three
arbitrators shall be appointed by the parties jointly or, if the parties cannot
agree as to three arbitrators within 30 days after the commencement of the
arbitration proceeding, then one arbitrator shall be appointed by each of
Protected Officer and the Company within 60 days after the commencement of the
arbitration proceeding and the third arbitrator shall be appointed by mutual
agreement of such two arbitrators. If such two arbitrators shall fail to agree
within 75 days after commencement of the arbitration proceeding upon the
appointment of the third arbitrator, the third arbitrator shall be appointed by
the AAA in accordance with its then existing rules. Notwithstanding the
foregoing, if any party shall fail to appoint an arbitrator within the specified
time period, such arbitrator and the third arbitrator shall be appointed by the
AAA in accordance with its then existing rules. For purposes of this Section 16,
the "commencement of the arbitration proceeding" shall be deemed to be the date
upon which the Demand for Arbitration has been received by the AAA. Any award
shall be rendered by a majority of the members of the board of arbitration.
(f) An award rendered in connection with an arbitration pursuant
to this Section 16 shall be final and binding upon the parties, and any judgment
upon such an award may be entered and enforced in any court of competent
jurisdiction.
(g) The parties agree that the award of the arbitral tribunal will
be the sole and exclusive remedy between them regarding any and all claims
between them with respect to the subject matter of the arbitrated dispute. The
parties hereby waive all jurisdictional defenses in connection with any
arbitration hereunder or the enforcement of
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<PAGE> 15
any order or award rendered pursuant thereto (assuming that the terms and
conditions of this arbitration clause have been complied with).
(h) With respect to any award issued by the arbitrators pursuant
to this Agreement, the parties expressly agree (i) that such order shall be
conclusive proof of the validity of the determination(s) of the arbitrators
underlying such order; and (ii) any federal court sitting in Denver, Colorado,
or any other court having jurisdiction, may enter judgment upon and enforce such
order, whether pursuant to the U.S. Arbitration Act, or otherwise.
(i) The arbitrators shall issue a written explanation of the
reasons for the award and a full statement of the facts as found and the rules
of law applied in reaching their decision to both parties. The arbitrators shall
apportion to each party all costs (other than attorneys' fees) incurred in
conducting the arbitration in accordance with what the arbitrators deem just and
equitable under the circumstances. The prevailing party shall be entitled to
recover its attorneys' fees from the other party. Any provisional remedy which
would be available to a court of law shall be available from the arbitrators
pending arbitration of the dispute. Either party may make an application to the
arbitrators seeking injunctive or other interim relief, and the arbitrators may
take whatever interim measures they deem necessary in respect of the subject
matter of the dispute, including measures to maintain the status quo until such
time as the arbitration award is rendered or the controversy is otherwise
resolved. The arbitrator shall have the authority to award any remedy or relief
that a court of the State of Colorado could order or grant, including, without
limitation, specific performance of any obligation created under this Agreement,
the issuance of an injunction, or the imposition of sanctions for abuse or
frustration of the arbitration process, but specifically excluding punitive
damages (the parties specifically agree that punitive damages shall not be
available in the event of any dispute).
(j) The parties may file an application in any proper court for a
provisional remedy in connection with an arbitrable controversy, but only upon
the ground that the award to which the application may be entitled may be
rendered ineffectual without provisional relief.
17. Severability. The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
18. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or otherwise, between the parties hereto
with respect to the subject matter hereof.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and Protected Officer has executed this
Agreement as of the day and year first above written.
VERIO INC.
ATTEST: By:
-------------------------------
Name:
------------------------
- ------------------------- Title:
Secretary -----------------------
PROTECTED OFFICER
----------------------------------
Signature
----------------------------------
Print Name
16
<PAGE> 1
EXHIBIT 10.19
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
[SPRINT LOGO]
LATERAL EXCHANGE NETWORKS INTERCONNECTION AGREEMENT
This Agreement is made by and between Sprint Communications Company
L.P., having its principal place of business at 2002 Edmund Halley Drive,
Reston, Virginia 22091-3437 (hereinafter "Sprint"), and WorldNet Access,
(hereinafter "WNA" or "Customer") having its principal place of business at
9250 E. Costilla Avenue, Suite 400, Englewood, Colorado 80112.
RECITALS
WHEREAS, the parties desire to further the development of the Open
System Protocol Network Service Providers ("OSPNSPs") industry, the parties
will assist the industry in the development and implementation of standards and
interconnection protocols that will provide a basis for greater interconnection
to the public and global data network called "Internet" for the industry as a
whole;
WHEREAS, the parties in furtherance of creating greater
interconnectivity throughout the industry has established operational,
technical and administrative mechanisms to ensure fair and open communications
among OSPNSPs providing a "peer relationship" for routing data packets over
their respective networks;
WHEREAS, the parties have a requirement to exchange data traffic
between their respective networks; and
WHEREAS, the parties have a desire to interconnect their data networks
in order to enable their respective customers to communicate with each other;
NOW, THEREFORE, in consideration of the covenants set forth herein,
the parties hereby agree as follows:
DEFINITIONS
1. INTERNET SERVICE PROVIDERS. It is understood that the parties to this
Agreement provide TCP/IP or OSI public data internet working services
to the public in one or more geographic areas, also called an Internet
Service Provider (ISP).
2. SHARED MEDIA PROVIDER. A communications company such as a LEC (Local
Exchange Carrier), CAP (Competitive Access Provider) or IXC
(Inter-Exchange Carrier) that provides ATM, FR, SMDS, FDDI, OC3, T1 or
T3 style communication services.
AGREEMENTS
1. NO RESTRICTIONS IN USE. The parties agree not to restrict the use of
their respective networks based on the subject matter of the traffic,
subject only to applicable laws.
2. NO LIABILITY FOR TRAFFIC. The parties agree that they neither incur
nor present any liability to the other party, by submitting data
traffic to or accepting data traffic from the other party.
3. DELIVERY OF SERVICES. The parties agree that they will establish a
mutually acceptable schedule for the interconnection of their
respective networks.
4. PROTECTION OF TRAFFIC.
WorldNet Access - LEN IX Agreement (1 of 4) January 27, 1997
<PAGE> 2
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
A. NO WIRETAPPING. No ISP shall monitor or capture the contents of
any data or other traffic which transit a/Sprint Interconnect
Exchange. No ISP can wiretap the infrastructure to examine any data
unless an appropriate legal court order is in force. No statistical
information itemized by ISP, by company, or by IP address can be
supplied to any third party under any circumstances.
B. AGGREGATED STATISTICS. Aggregated interface statistics on shared
media or other packet switch media/transmission is available to
export as long as it is not broken down by ISP. This aggregated
statistical information can be made available to third parties but not
unilaterally by the shared media provider or either party. Release of
these statistics will occur only upon the mutual agreement of the
parties.
C. ORGANIZATIONAL AVAILABILITY. Any organization which is a
customer of an ISP has the right to request from that ISP that its
statistical information be made available to it on whatever basis and
in whatever detail it desires for its own internal uses.
5. PHYSICAL CONNECTION.
A. CIRCUIT. Each party will provide a connection at its own
expense, from a location of its choice to an interconnection service
provided by MFS, MAE-E, MAE-W or the Sprint NAP.
B. EQUIPMENT. Each party will provide circuit termination and
packet switching equipment at its end of the circuit, at its own
expense, terminating with an interface appropriate to the exchange
medium, which interface may be changed from time to time as the
parties agree.
C. NETWORK OPERATIONS. Each party will, at its own expense and on a
best efforts basis, provide Network Operations Center ("NOC") support
in cooperation with the other so as to maintain the smooth operation
of internetwork service.
D. MULTIPLE CONNECTIONS. Each party may choose to connect at more
than one location.
6. LIABILITY. Neither party shall be liable to the other, except as
stated in the next paragraph herein, for any loss, damage, liability,
claim or expense arising out of or in relation to this agreement,
however caused, whether grounded in contract, tort (including
negligence) or strict liability. In no event shall either party be
liable for any incidental or consequential damages arising out of or
in relation to this agreement.
7. INDEMNITY. Each party shall indemnify and hold the other party
harmless from and against any loss, damage, liability, claim or
expense, whether actual or alleged, which results from a claim or
claims asserted by unrelated third parties concerning an action or
omission of such party with respect to its actions under this
Agreement. Each party's maximum liability under this provision shall
not exceed $50,000 in the aggregate for all claims, losses, expenses
or damages.
8. INSURANCE. Each party is responsible for assessing its own need for
property, casualty and liability insurance each shall obtain such
insurance as each sees fit. Each party shall bear the risk of loss to
its own equipment and agrees not to make any claims against the other
for any property loss or assign that right to any third party.
9. CONFIDENTIAL INFORMATION. No confidential or proprietary information
is protected or implied by this Agreement, and the parties are not
responsible to one another for any confidential information which may
be inadvertently transmitted over the networks.
10. SPECIAL ISSUES.
A. CONNECTION SPEED. Customer and Sprint will connect their
respective networks at a minimum of DS-3 at MAE-East, MAE-West, NY NAP
and Palo Alto Internet Exchange.
B. CHARGES. By agreeing to become a Lateral Exchange Network,
Customer will pay Sprint a Monthly Recurring charge of (*) and a
non-recurring set up fee of (*)
WorldNet Access - LEN IX Agreement (2 of 4) January 27, 1997
<PAGE> 3
C. JOINT PRESS RELEASE. Any announcement of this Agreement must
be mutually agreed upon by both parties including the wording of any
announcement to third parties/press, the press release(s) and the
timing of the press release(s).
D. REGULATORY APPROVAL. The parties acknowledge that this
Agreement, and any or all of the terms hereof, may become subject to
regulatory approval by various local, state or federal agencies.
Should such approval be required from time to time, or at any time,
the parties shall cooperate, to the extent reasonable and lawful, in
providing such information as is necessary to complete any required
filing. Notwithstanding the above, Section 4 "Protection of Traffic"
shall remain in full force and effect.
E. NETWORK OPERATIONS. The parties agree to define operating
procedures for providing reliable service to the customers of each
party, and for resolving customer difficulties encountered on the
interconnected services. Each party will use its best efforts to
repair any reported and actual outages within four (4) hours of notice
of any outage.
F. PERFORMANCE EXPECTATIONS. Sprint will provide connectivity at
the Network/IP level only. Connectivity is defined as: The ability of
the Sprint NOC to ICMP Ping across the physical media of the exchange
point service provider to the other party's exchange point resident
router's interface.
Physical layer (FDDI, LAN, ATM, etc.) connectivity to the exchange
point is the independent responsibility of each party and the exchange
point service provider.
G. EACH PARTY'S SERVICE FEES. Each party will independently
establish the charges to its customers for the services provided under
this Agreement.
H. FORCE MAJEURE.
(1) Neither party shall be responsible for delay in performance of
support services hereunder due to any occurrence commonly known as
force majeure, including without limitation, acts of God, any
governmental body (de jure or de facto) or public enemy, riots,
embargoes, strikes or other concerted acts of workmen (whether of the
parties or others), casualties or accidents, deliveries or
transportation and shortage of cars, trucks, fuel, power, labor or
materials, or any other causes, circumstances or contingencies within
or without the United States of America, whether of a similar or
dissimilar nature to the foregoing, beyond the parties control, which
prevent or hinder the performance by the parties of any of its
obligations hereunder.
(2) The parties shall give each other notice in the event of any one
or more of the foregoing occurrences. Upon such notice, the parties
may cancel or delay performance hereunder for so long as such
performance is delayed by such occurrence or occurrences and in such
event the parties shall have no liability to each other.
H. RELATIONSHIP OF THE PARTIES. This Agreement does not establish
a partnership or joint venture between Sprint and WorldNet Access.
11. TERM AND TERMINATION. The duration of this Agreement is for one (1)
year and may be extended as the parties agree. A party may terminate
its responsibilities under this Agreement by giving the other party
sixty (60) prior written notice, or other notice period by mutual
agreement of the parties.
12. ASSIGNMENT. Either party may transfer or assign its rights or
obligations under this Agreement or transfer by way of merger,
consolidation, sale of all or substantially all of its assets without
the prior written consent of the other party, and
13. SEVERABILITY. If any provision of this Agreement is held by a court of
competent jurisdiction contrary to law, the remaining provisions of
this Agreement will remain in full force and effect.
14. NON-EXCLUSIVITY. Nothing in this Agreement shall be construed to
prohibit or restrain the entry by either party into any separate
contract or agreement with any other Participant or third party on any
terms. Other than those contained explicitly in this Agreement, no
representations are made by or among the parties. No agency status is
created among the parties.
WorldNet Access - LEN IX Agreement (3 of 4) January 27, 1997
<PAGE> 4
15. NO THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement
shall be deemed to confer any rights in any party not a signatory to
this Agreement.
16. ENTIRE AGREEMENT. This Agreement represents the complete Agreement and
understanding of the parties with respect to the subject matter herein,
and supersedes any other agreement or understanding, written or oral.
This Agreement may be modified only in writing signed by both parties.
17. DISPUTES. Any dispute arising out of or relating to this Agreement
that is not resolved within 30 days after notice of the dispute is
given shall be finally settled by arbitration conducted expeditiously
in accordance with the rules of the American Arbitration Association.
The arbitration shall be governed by the United States Arbitration Act,
9 U.S.C. Section 1, et seq., and judgment upon the award rendered by
the arbitrator(s) may be entered by any court with jurisdiction. The
location of the arbitration shall be the Kansas City, Missouri
metropolitan area. The arbitrators are not empowered to award damages
in excess of compensatory damages, and each party waives any damages in
excess of compensatory damage.
18. CONNECTIVITY TO EXCHANGE POINTS. The parties reserve the right to add,
move or change the interconnection points at which they are present by
giving the other party sixty (60) days prior written notice of such
change, or other notice period by mutual agreement of the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized respective representatives as of the last date set forth
below:
ACCEPTED AND AGREED TO:
SPRINT COMMUNICATIONS COMPANY L.P. WORLDNET ACCESS
/s/ PAUL GRAY /s/ CHRIS DEMARCHE
- ---------------------------------- -------------------------------------
Authorized Signature Authorized Signature
Paul Gray, Regional Director Chris DeMarche
- ---------------------------------- -------------------------------------
Name and Title (Please type or print) Name and Title (Please type or print)
2/3/97 1/29/97
- ---------------------------------- -------------------------------------
Date Date
WorldNet Access - LEN IX Agreement (4 of 4) January 27, 1997
<PAGE> 1
EXHIBIT 10.20
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY FILED WITH
THE COMMISSION.
COVER AGREEMENT ORIGINAL
FOR
SPRINT DATA COMMUNICATIONS PRODUCTS AND SERVICES
This Cover Agreement ("Agreement") is entered into by and between SPRINT
COMMUNICATIONS COMPANY L.P. ("Sprint") with offices at 13221 Woodland Park Rd.
Herndon, VA 22071, and WORLDNET, INC. ("Customer") with offices at 9250 E.
Costilla. Avenue, Suite 400, Englewood, CO 80112 on the date signed by both
parties below.
WHEREAS, Sprint possesses proprietary skill, knowledge and experience
concerning the design, installation, operation and maintenance of certain
telecommunications systems, specifically Sprint's Domestic Asynchronous Transfer
Mode (ATM) and Clearline products and services (hereinafter the "Products and
Services"); and
WHEREAS, Customer wishes to order the Products and Services via
Sprint's Order for Data Communication Services form or other Sprint order form;
and
WHEREAS, the parties hereto desire to enter into an agreement which
addresses the prices and certain corresponding terms which shall apply to such
Products and Services ordered by Customer.
NOW THEREFORE, the parties hereby agree to the following:
1. PURPOSE AND INTENT
The purpose of this Agreement is to establish special prices, minimum
purchase commitments and other special terms relative to the Products and
Services ordered by Customer. Customer shall order the Products and
Services by executing Sprint's standard Order for Data Communication
Services form or other Sprint order form ("Orders"). The parties agree that
all Orders placed for Products and Services shall be eligible to receive
the special prices and shall be subject to the special terms set forth
herein. It is understood and agreed that this Agreement shall not supersede
the terms and conditions of each Order, but rather shall supplement such
Orders to the extent set forth in this Agreement. Except as specified
herein, all of Sprint's standard terms and conditions or Sprint's Tariff
where applicable shall apply to the Products and Services provided by
Sprint pursuant to Orders.
2. TERM
The Term of this Agreement shall begin on the first day of the calendar
month following the date this Agreement is signed by both parties below
("Effective Date"), and shall end fifty-four (54) months thereafter
(including an initial "Ramp-Up Period" of six (6) months), unless extended
by mutual written agreement of the parties.
3. ATM PRODUCTS AND SERVICES
Asynchronous Transfer Modem (ATM) is a high-speed, connection oriented
switching and multiplexing technology which transmits communications
traffic in streams which can be sent independently without a common clock.
The ATM Products and Services ordered by Customer are offered on a limited
basis and are currently not accessible throughout the
- --------------------------------------------------------------------------------
SPRINT PROPRIETARY INFORMATION
- --------------------------------------------------------------------------------
Cover Agreement - WorldNet 1 September 30, 1996
<PAGE> 2
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
United States. Customer understands that the ATM Products and Services are
provided to Customer on a limited basis as set forth in this Agreement, and
that Sprint's provision of the ATM Products and Services is subject to the
availability of such Products and Services at each site. Sprint will make
every commercially reasonable effort to meet Customer's ATM Service
requirements. The following are the primary price components of the ATM
Products and Services.
A. Local Access Facilities - This is the physical telco or leased line
connecting the Customer premise to the Sprint ATM Network. Local
Access Facilities compatible with Sprint's ATM Service include T1, T3,
OC3c and NxT1. Either Sprint or the Customer may provide the Local
Access Facilities. Charges for Local Access facilities are comprised
of local access charges, Access Coordination Fees (ACF) and the
Central Office Connection (COC) fees. There is a one-time installation
charge and a monthly recurring charge.
B. Port Connection - This is the physical port access to the Sprint ATM
Network. There is a one-time installation charge and a fixed monthly
recurring charge for each port connection.
C. Permanent Virtual Connection (PVC) - This is the pre-established
logical connection between two Customer specific end-points for the
transfer of information. For Sprint's ATM Products and Services, a PVC
establishes a one-way connection between the two end-points and are
therefore priced on a per site basis.
There are two classes of PVCs; (1) Constant Bit Rate (CBR) PVCs, and
(2) Variable Bit Rate (VBR) PVCs. Constant Bit Rate PVCs are intended
for steady traffic which is sensitive to delay variation, and Variable
Bit Rate PVCs are intended for "bursty" data traffic which is
generally insensitive to small delay variation. For both classes of
PVCs, there is a one time PVC installation charge and a monthly
recurring charge per end-point. The recurring charge for both classes
of PVCs are offered on either a "flat rate" monthly recurring basis or
a flat rate plus actual usage charge basis. For each PVC, Customer
shall select an Information Rate which defines the maximum rate at
which user traffic will be allowed to transverse the ATM network. The
Information Rates are available in increments of 64 Kbps and 1 Mbps.
Customer may order multiple Information Rates per port, subject to the
allowable bandwidth of the port. The assigned Information Rate may be
different for each of the two PVCs between two end-points.
D. Customer Premise Equipment (CPE) - CPE which is required to support
Sprint's ATM may be either purchased or rented from Sprint or provided
by the Customer, subject to certification by Sprint.
4. SPECIAL DOMESTIC ATM PRICES
Sprint shall provide the following special prices and terms to all Orders
for Domestic ATM products and Services. "Domestic" is defined as the 48
contiguous United States.
A. Port Connection Charges and Discounts
1. The charges for Port Connection are as follows:
<TABLE>
<CAPTION>
Port Installation Charge Monthly Charge
---- ------------------- --------------
<S> <C> <C>
T-1 Port: $ (*) each $ (*) each per Month
DS3 Port: $ (*) each $ (*) each per Month
</TABLE>
- --------------------------------------------------------------------------------
SPRINT PROPRIETARY INFORMATION
- --------------------------------------------------------------------------------
Cover Agreement - WorldNet 2 September 30, 1996
<PAGE> 3
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
2. Port Connection Discounts
Sprint shall provide a discount of (*)% off the Port Connection
installation charges specified above provided that the ATM
Service at such sites is provided for a minimum of twelve (12)
months. If the Service is terminated prior to the end of the
minimum period, then Customer shall pay Sprint the pro-rata,
dollar amount of any installation discount provided by Sprint
based on the number of months from the effective date of such
termination to the expiration date of the minimum period.
Sprint shall apply a (*) percent (*%) discount to the T-1
and DS-3 Monthly Port Connection charges specified above.
B. Flat Rate, VBR PVC Charges and Discounts
1. The charges for use of one-way, Flat Rate, VBR PVCs are as
follows:
<TABLE>
<CAPTION>
Information Rate Installation Charge Monthly Charge
---------------- ------------------- --------------
<S> <C> <C>
64 Kbps $ (*) each $ (*) per 64 Kbps
1 Mbps $ (*) each $ (*) per 1 Mbps
</TABLE>
2. Flat Rate, VBR PVC Price Discounts
Sprint shall provide a discount of (*)% off the PVC installation
charges specified above provided that the ATM Service at such
sites is provided for a minimum of twelve (12) months. If the
Service is terminated prior to the end of the minimum period,
then Customer shall pay Sprint the pro-rata, dollar amount of any
installation discount provided by Sprint based on the number of
months from the effective date of such termination to the
expiration date of the minimum period.
Sprint shall apply a Volume Discount to the monthly VBR PVC
charges based on the following corresponding gross PVC charges
per Port incurred in a month:
<TABLE>
<CAPTION>
Gross Monthly Volume
PVC Charges per Port Discount
-------------------- --------
<S> <C>
$ 800 - $ 1,999 (*)%
$ 2,000 - $ 3,999 (*)%
$ 4,000 - $ 6,399 (*)%
$ 6,400 - $ 9,999 (*)%
$10,000 - $14,399 (*)%
Over $14,400 (*)%
</TABLE>
Sprint shall apply an additional discount of * percent (*%) to
the monthly VBR PVC charges after applying the Volume Discount
above.
3. VBR PVC Cap - The total VBR PVC charge per port per month shall
not exceed the following amounts based on the Port Speed:
<TABLE>
<CAPTION>
Port Total Monthly Charge
---- --------------------
<S> <C>
T-1 $ (*) per Port
DS3 $ (*) per Port
</TABLE>
C. CBR PVC Charges
The charges for use of one-way, CBR PVCs are as follows
- --------------------------------------------------------------------------------
SPRINT PROPRIETARY INFORMATION
- --------------------------------------------------------------------------------
Cover Agreement - WorldNet 3 September 30, 1996
<PAGE> 4
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
<TABLE>
<CAPTION>
Information Rate Flat Rate Price Usage-Based Price
---------------- --------------- -----------------
<S> <C> <C>
64 Kbps $ (*) per 64 Kbps $ (*) per 64 Kbps plus usage
1 Mbps $ (*) per 1 Mbps $ (*) per 1 Mbps plus usage
</TABLE>
For the Usage-Based Price, the usage component of the CBR PVC price is
$(*) per I Megacell of delivered CBR traffic per month based on the
egress counts.
D. Special ATM Terms
1. The VBR information rate of 1 Mbps assumes measurement of the ATM
Adaptation layer (AAL) 3 or 4. If AAL 5 is used, then the VBR
information rate of 1 Mbps equates to 1.09 Mbps of bandwidth.
2. Sprint may, upon thirty (30) days advance written notice to
Customer, increase the charges for ATM Products and Services if
Customer's "Utilization" of the ATM Network exceeds (*)
percent (*%) for two (2) consecutive months. (*) percent (*%)
Utilization for a DS-3 Port per month is equal to 33,000
megacells.
3. No other discounts apply. Except as specified herein, all other
prices and related terms and conditions for the ATM Products and
Services as specified in the Order are standard.
4. As new ATM features and releases become available, Sprint will,
upon request of Customer, provide prices for such new features
and releases.
5. If the prices for the ATM Products and Services which Sprint
offers to the general public are or become less than the prices
set forth in this Agreement, then Customer may purchase the ATM
Products and Services at such lower prices.
5. CLEARLINE PRODUCTS AND SERVICES
Sprint's Clearline Products and Services are a non-switched, non-usage
sensitive, point-to-point or point-to-multipoint service which is dedicated
exclusively to one customer. Sprint offers Clearline on an inter-LATA basis
between completed points of presence (POP) on its fiber network. Clearline
provides for two-way simultaneous transmission of digital signals at speeds
up to 44.736 Mbps. Customer understands that the Clearline 45 and OC-3
Private Line Products and Services are subject to the availability of such
Products and Services at each site. Sprint will make every commercially
reasonable effort to meet Customer's Clearline 45 and OC-3 Private Line
Service requirements. Sprint's Clearline Products and Services are governed
by applicable Tariff on file with regulatory agencies.
A. DS-3 (Clearline 45) and OC-3 (Private Line) Special Prices
1. Interstate DS3 Inter-Exchange (IXC) Charges - Customer is
eligible for Sprint's Clearline 45 Volume Pricing Plan (VPP) and
will receive the discounts applicable to the $(*) volume
level during the Term of this Agreement regardless of the actual
volume unless Customer's actual volume reaches a higher discount
level than $(*) in which case Customer shall receive the
discounts applicable to such higher level as defined in Sprint's
Tariff. Customer shall receive a (*) percent (*%) discount on the
monthly recurring charges for Interstate DS3 IXC in addition to
other applicable discounts. Customer must average 650 miles per
DS-3 circuit (POP-to-POP) to remain eligible for the discounts
provided herein.
- --------------------------------------------------------------------------------
SPRINT PROPRIETARY INFORMATION
- --------------------------------------------------------------------------------
Cover Agreement - WorldNet 4 September 30, 1996
<PAGE> 5
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
2. Interstate OC-3 Inter-exchange (IXC) Charges - Customer may
upgrade DS-3 circuits to OC-3 circuits without penalty (except
for the pro-rata payment of any waived installation charges),
provided that: (a) the upgraded circuit has the same or greater
bandwidth than the replaced circuit, and (b) all such circuits
are an average length of 650 miles per circuit (POP-to-POP). The
monthly recurring charge for each OC-3 circuit is $(*) plus $(*)
per each mile of the circuit (POP-to-POP). If the charges for
OC-3 circuits become subject to Tariff, then Customer may request
Sprint to re-negotiate the charges for the OC-3 circuits. If the
parties do not agree on a new charge for the OC-3 circuits, then
Customer may, upon thirty (30) days written notice to Sprint,
terminate any existing OC-3 circuits provided by Sprint with no
liability except for the pro-rata amount of any waived
installation charges as specified in Section 6(B) below. Any such
termination shall not affect Customer's obligation to meet the
Minimum Service Commitment set forth in Section 7 below.
B. Special Clearline Terms
1. The special prices specified above are based on Customer
maintaining an average OC-3 / DS-3 circuit length of at least 650
miles (POP-to-POP). If at the end of any month Customer's total
OC-3 / DS-3 IXC miles divided by the total' number of OC3 / DS-3
circuits is less than 650 miles, then Sprint may, upon thirty
(30) days advance written notice to Customer, increase the
charges for such Products and Services.
2. Except as specified herein, no other discounts apply. All other
prices and related terms and conditions for the Clearline and
Private Line (OC-"N") Products and Services as specified in the
Order are per Tariff.
6. LOCAL ACCESS FACILITIES
A. All charges for Local Access Facilities provided by Sprint to access
the ATM and Clearline Products and Services (including ACF and COC)
shall be quoted by Sprint on an individual Order basis.
B. Sprint shall waive (*)% of the installation charges for
Sprint-provided Local Access Facilities (including non-recurring ACF
and COC charges) for DS-3 and OC-3 circuits installed during the Term
of this Agreement for access to the ATM and Clearline (including OC-3)
Products and Services provided hereunder. All OC-3 circuits must
remain installed for a minimum period of twenty-four (24) months and
all DS-3 circuits must remain installed for a minimum period of twelve
(12) months. If such circuits are disconnected prior to the end of the
minimum period, then Customer shall pay Sprint the pro-rata, dollar
amount of the installation charges based on the number of months from
the effective date of such termination to the expiration date of the
minimum period.
7. MINIMUM SERVICE COMMITMENT
A. In consideration of the special prices and terms for the Products and
Services as specified herein, Customer shall be subject to the
following dollar volume commitment ("Minimum Service Commitment") of
"Contributory Services" during each corresponding "Service Period" of
the Term of this Agreement:
- --------------------------------------------------------------------------------
SPRINT PROPRIETARY INFORMATION
- --------------------------------------------------------------------------------
Cover Agreement - WorldNet 5 September 30, 1996
<PAGE> 6
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
<TABLE>
<CAPTION>
Minimum
Service Period Service Commitment
-------------- ------------------
<S> <C>
Months I through 6 $(***)
Months 7 through 18 $(***)
Months 19 through 30 $(***)
Months 31 through 42 $(***)
Months 43 through 54 $(***)
</TABLE>
Month I shall begin on the Effective Date of this Agreement. The
"Contributory Services" shall be Sprint's ATM and Clearline (including
OC-3" Service) Products and Services specified in this Agreement, and
Sprint's Frame Relay and Clarity services which may be Ordered by
Customer. All monthly recurring charges incurred by Customer for the
Contributory Services (net of all discounts) shall be used in
calculating Customer's usage towards the Minimum Service Commitment.
At the end of each Service Period above, Customer shall pay Sprint any
shortfall in the Minimum Service Commitment for that Service Period.
B. If this Agreement is terminated for any reason other than due to a
material breach by Sprint and the total invoiced amount for
Contributory Services (net of all discounts) as of the effective date
of termination is less than $(*) then Customers shall pay Sprint the
lesser of: (a) the remaining balance of the Minimum Service Commitment
for all Service Periods, or (b) the applicable Termination charge set
forth in ATTACHMENT A based on the month in which such termination is
effective.
C. If the monthly invoiced amount for Contributory Services (net of all
discounts) is $(*) or more for three (3) consecutive months, then,
upon request of Customer, Sprint will agree to re-negotiate in good
faith with Customer the charges for the Products and Services
specified in this Agreement. If the parties are unable to agree on
such new charges, then Customer may purchase the Products and Services
from another service provider, provided that Customer shall remain
liable to Sprint for the Minimum Service Commitment set forth in this
Agreement, or if this Agreement is terminated, then Customer shall be
liable for the applicable amount specified in Section 7(B) above.
D. If at any time during the Term, the total invoiced amount for
Contributory Services (net of all discounts) is equal to or greater
than $(*) then either: (a) Customer may terminate this Agreement
without further liability by providing Sprint with thirty (30) days
advance written notice, or (b) upon request of Customer, Sprint will
agree to re-negotiate in good faith with Customer the charges for the
Products and Services specified in this Agreement. If Customer does
not terminate this Agreement as set forth in this provision, then
Customer shall remain obligated to meet the Minimum Service
Commitments for each of the Service Periods regardless of the total
invoiced amount for Contributory Services.
E. If Customer upgrades any DS-3 or OC-3 circuits to a Sprint service
with higher bandwidth capacity, then the monthly recurring charges
incurred by Customer for such upgraded circuits will contribute
toward the Minimum Service Commitment.
8. OTHER SPECIAL TERMS
A. Service Performance
1. Customer agrees to provide prompt written notice to Sprint of any
material failure by Sprint to provide the Products and
Services under this Agreement and in accordance with applicable
tariffs. If Sprint fails to cure such material failure within
thirty (30) days from receipt of such notice, Customer may
terminate this Agreement on written
- --------------------------------------------------------------------------------
SPRINT PROPRIETARY INFORMATION
- --------------------------------------------------------------------------------
Cover Agreement - WorldNet 6 September 30, 1996
<PAGE> 7
notice to Sprint. A material failure by Sprint shall not include
a failure caused by the local exchange carrier, any equipment not
owned or maintained by Sprint, or any other cause beyond the
control of Sprint.
2. ATTACHMENT B to this Cover Agreement sets forth the terms and
conditions for credit allowances for service interruption.
B. Advertising and Publicity - Sprint and Customer will permit each
other to identify and use the name of the other party in suitable
advertising, press releases and presentations upon prior written
consent of such party, which consent shall not be unreasonably
withheld or delayed.
C. Proprietary Information - Customer agrees that the information in this
document or any information related to prices, terms and conditions in
any other document provided by Sprint are confidential and proprietary
information of Sprint and governed by the Agreement for Use and
Non-disclosure of Confidential Information executed by Sprint and
Customer.
D. Customer's Subsidiaries and Affiliates - ATTACHMENT C to this
Agreement is a list of the subsidiaries and affiliates of WorldNet,
Inc. ("Designated Affiliates") eligible to obtain the Products and
Services pursuant to the terms and conditions and prices set forth in
this Agreement. Such Designated Affiliates may obtain the Products and
Services directly from Sprint pursuant to Orders placed by such
Designated Affiliates, and in such case shall pay Sprint directly for
such Products and Services, provided however, that: (a) WORLDNET, Inc.
shall guarantee all such payments to be made by such Designated
Affiliates, (b) WorldNet, Inc. shall be responsible to ensure that
such Designated Affiliates comply with the terms and conditions of the
Orders and this Agreement, and (c) WorldNet, Inc. shall be solely
responsible for payment of any shortfall of the Minimum Service
Commitment set forth in this Agreement.
E. Change in Customer's Name - If Customer changes its legal name (not
including any name change that is the result of a merger,
consolidation or other such combination that may require an assignment
of this Agreement), then Customer will provide Sprint with written
notice of such change, and both parties shall remain bound by the
terms and conditions of this Agreement notwithstanding such change in
name.
F. Mergers and Acquisitions
1. If Customer is acquired by or merges with another entity, then
the rights and obligations of the parties under this Agreement
shall remain in full force and effect notwithstanding such
acquisition or merger.
2. If Customer acquires an entity that is under a contract with
Sprint for any of the Contributory Services under this Agreement
as defined in Section 7 above, then Sprint may, on a case-by-case
basis and subject to certain conditions, allow such entity to
terminate its contract without penalty so that it may purchase
such Products and Services pursuant to this Agreement. If such
entity has a purchase commitment to Sprint under the other
contract with Sprint, then such entity may purchase any of the
Contributory Services from Sprint under this Agreement, provided
that such entity remains obligated to purchase the minimum
commitment under the other contract with Sprint and has not
violated any terms or conditions of such other contract with
Sprint. All such purchases of the Contributory Services under
this Agreement by such entity shall contribute to Customer's
Minimum Service Commitment under this Agreement.
- --------------------------------------------------------------------------------
SPRINT PROPRIETARY INFORMATION
- --------------------------------------------------------------------------------
Cover Agreement - WorldNet 7 September 30, 1996
<PAGE> 8
9. ENTIRE AGREEMENT
A. This Cover Agreement represents the entire agreement of the parties
with respect to the special prices and other terms related to the
Products and Services, and supersedes all other previous agreements,
understandings, statements, communications or representations, whether
oral or written. This Cover Agreement may not be modified, changed or
amended without the prior written agreement of both parties.
B. This Cover Agreement and the Orders will represent the entire
agreement of the parties with respect to Sprint's provision of the
Products and Services to Customer. In the event of any conflict
between the Orders and the terms of this Cover Agreement, the terms of
this Cover Agreement shall govern.
IN WITNESS WHEREOF, the parties hereto, each by a duly authorized officer, have
caused this Cover Agreement to be executed as of the date signed by both parties
below.
WORLDNET, INC. SPRINT COMMUNICATIONS COMPANY L.P.
By: By:
/s/ DANNY E. STROUD /s/ PAUL GRAY
- ----------------------------------- -----------------------------------
Signature Signature
Danny E. Stroud Paul Gray
- ----------------------------------- -----------------------------------
Name Typed or Printed Name Typed or Printed
VP, Network Operations Regional Director
- ----------------------------------- -----------------------------------
Title Title
Sept. 30, 1996 9/30/96
- ----------------------------------- -----------------------------------
Date Date
- --------------------------------------------------------------------------------
SPRINT PROPRIETARY INFORMATION
- --------------------------------------------------------------------------------
Cover Agreement - WorldNet 8 September 30, 1996
<PAGE> 9
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
ATTACHMENT A
Termination Charge Schedule
<TABLE>
<CAPTION>
Month of Termination Month of Termination
Termination Charge Termination Charge
----------- ----------- ----------- -----------
<S> <C> <C> <C>
54 $ (***) 27 $ (***)
53 $ (***) 26 $ (***)
52 $ (***) 25 $ (***)
51 $ (***) 24 $ (***)
50 $ (***) 23 $ (***)
49 $ (***) 22 $ (***)
48 $ (***) 21 $ (***)
47 $ (***) 20 $ (***)
46 $ (***) 19 $ (***)
45 $ (***) 18 $ (***)
44 $ (***) 17 $ (***)
43 $ (***) 16 $ (***)
42 $ (***) 15 $ (***)
41 $ (***) 14 $ (***)
40 $ (***) 13 $ (***)
39 $ (***) 12 $ (***)
38 $ (***) 11 $ (***)
37 $ (***) 10 $ (***)
36 $ (***) 9 $ (***)
35 $ (***) 8 $ (***)
34 $ (***) 7 $ (***)
33 $ (***) 6 $ (***)
32 $ (***) 5 $ (***)
31 $ (***) 4 $ (***)
30 $ (***) 3 $ (***)
29 $ (***) 2 $ (***)
28 $ (***) 1 $ (***)
</TABLE>
- --------------------------------------------------------------------------------
SPRINT PROPRIETARY INFORMATION
- --------------------------------------------------------------------------------
Cover Agreement - WorldNet A-1 September 30, 1996
<PAGE> 10
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
ATTACHMENT B
ALLOWANCES FOR SERVICE INTERRUPTIONS
1 Credit allowances for interruption of Sprint's ATM or Clearline
Products and Services shall be made, upon Customer's request, as set
forth below.
2. Sprint shall provide Customer a credit allowance for an interruption
of thirty (30) minutes or more at the rate of (*) of the applicable
monthly charge for each thirty (30) minutes or major fraction thereof
that the interruption continues. An interruption period begins when
the Customer releases the affected circuit to Sprint for fault
isolation and testing and ends when the circuit is returned to the
Customer. No credit will be given for an interruption of Service of
less than thirty (30) minutes. Each interruption is considered
separately for the purpose of establishing the credit allowance.
Interruptions shall be accumulated to the nearest half hour period.
The credit for a monthly billing period shall not exceed the monthly
rate for the affected Service.
3. Customer shall not receive a credit if an interruption is: (a) caused
by the negligence or willful misconduct of Customer or others
authorized by Customer to use the Services, provided by Sprint; (b)
due to the failure of power, facilities, equipment, systems or
connections not provided by Sprint; (c) caused by the failure of
access to the Sprint network; (d) a result of scheduled maintenance;
or (e) due to any causes beyond Sprint's control.
- --------------------------------------------------------------------------------
SPRINT PROPRIETARY INFORMATION
- --------------------------------------------------------------------------------
Cover Agreement - WorldNet B-1 September 30,1996
<PAGE> 11
ATTACHMENT C
LIST OF CUSTOMER'S AFFILIATES AND SUBSIDIARIES
The following are the subsidiaries and affiliates of WorldNet, Inc. ("Designated
Affiliates") eligible to obtain the Products and Services pursuant to the terms
and conditions and prices set forth in this Agreement. This list may be changed
from time to time upon written agreement of the parties.
RainNet
On Ramp Technologies
National Knowledge Networks
West Coast Online
- --------------------------------------------------------------------------------
SPRINT PROPRIETARY INFORMATION
- --------------------------------------------------------------------------------
Cover Agreement - WorldNet C-1 September 30, 1996
<PAGE> 1
EXHIBIT 10.21
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
AMENDMENT ONE
TO
COVER AGREEMENT
BETWEEN
SPRINT COMMUNICATIONS COMPANY L.P. ("SPRINT")
AND
WORLDNET, INC. ("CUSTOMER")
This Amendment One ("Amendment") to the Cover Agreement is entered into by and
between Sprint and Customer, effective as of the first day of the next billing
month following execution of this Amendment by both parties.
WHEREAS, Sprint and Customer entered into a Cover Agreement on September
30, 1996 ("Cover Agreement") for Sprint's provision of ATM and Clearline
products and services (hereinafter referred to as the "Products and Services"),
and
WHEREAS, Customer wishes to order Sprint's Clarity (Voice) products and
services pursuant to the Sprint Clarity Term Plan Agreement; and
WHEREAS, the parties wish to amend the Cover Agreement to add the special
prices for the Sprint Clarity Products and Services, and to modify certain
provisions of the Cover Agreement; and
WHEREAS, Sprint is a telecommunications common carrier providing interstate
and international services to customers: (i) pursuant to tariffs on file with
the Federal Communications Commission (F.C.C.) or in-country international
telecommunications bodies, and, in the case of intrastate services, pursuant to
tariffs on file with the various state regulatory commissions (collectively
referred to as "Tariffs"), as applicable, and as amended from time to time by
Sprint, and (h) on a non-tariff basis.
NOW THEREFORE, for and in consideration of the mutual agreement and
understandings contained herein, the parties agree as follows.
1. LOCAL ACCESS FACILITIES
Sprint agrees to waive installation charges (including non-recurring ACF
and COC charges) for both Sprint provided and Customer provided Local
Access Facilities to access the ATM and Clearline Products and Services.
Accordingly, Section 6(B) of the Agreement is hereby amended by changing
the first sentence to read as follows (changed text is underlined):
"Sprint shall waive (*)% of the Sprint installation charges for Sprint or
Customer provided Local Access Facilities...".
Amendment One to Cover Agreement - WorldNet 1 October 31, 1996
- --------------------------------------------------------------------------------
SPRINT PROPRIETARY INFORMATION
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
2. SPECIAL PRICES FOR SPRINT CLARITY
Sprint Clarity Products and Services are provided pursuant to applicable
tariffs on file with regulatory agencies. Customer shall order Sprint
Clarity Products and Services by executing a Sprint Clarity Term Plan
Agreement {"Order")
A. Usage Charges
Beginning on the effective date of this Amendment, Customer shall be
charged the applicable fixed rates from the table below for its
interstate Sprint Clarity Outbound Service usage and interstate Sprint
Clarity Toll Free Service usage, subject to all of the conditions and
limitations set forth in the Cover Agreement and Sprint F.C.C. Tariff
No. 12.
<TABLE>
<CAPTION>
Per Minute Rate (Dedicated) Per Minute Rate (Switched)
--------------------------- --------------------------
<S> <C>
$(*) $(*)
</TABLE>
B. Installation Charges
Sprint shall waive 100% of the installation charges (including
non-recurring COC and ACF charges) for Sprint provided T-1 access
lines used for Sprint domestic voice services provided that such
access lines are provided for twelve (12) continuous months. If such
access lines are terminated prior to twelve (12) continuous months,
then Customer shall be obligated to pay Sprint a pro-rata amount of
the waived installation charges based on the number of months
remaining in the minimum required period.
C. Other Terms
1. During each billing month following the effective date of this
Amendment and continuing for the Term of the Cover Agreement, a
minimum of (*) percent (*%) of Customer's Sprint Clarity
Outbound Service and Sprint Clarity Toll Free Service usage
minutes must be interstate. If Customer fails to satisfy this
condition during any two consecutive billing month, then Sprint
may revise the Sprint Clarity usage charges set forth in this
Amendment and the Cover Agreement.
2. The fourth sentence of Subsection 7.A of the Cover Agreement is
hereby replaced with the following sentence:
"The following charges incurred by Customer for the Contributory
Services (net of all discounts) shall be used in calculating
Customer's usage toward the Minimum Service Commitment: (a) all
monthly recurring charges for the ATM Products and Services; (b)
the monthly circuit charges for the interexchange portion for the
Clearline Products and Services; and (c) Sprint Clarity Service
usage charges."
3. Subsection 8.A.2 and Attachment B of the Cover Agreement shall
not apply to Sprint Clarity Products and Services.
3. ENTIRE AGREEMENT
A. This Amendment One represents the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior
statements, communications or agreements, whether oral or written,
between the parties.
Amendment One to Cover Agreement - WorldNet 2 October 31, 1996
- --------------------------------------------------------------------------------
SPRINT PROPRIETARY INFORMATION
- --------------------------------------------------------------------------------
<PAGE> 3
B. This Amendment One, the Cover Agreement, the Orders and all applicable
Tariffs shall represent the entire agreement between the parties with
respect to Sprint's provision of the Products and Services. In the
event of any conflict between any of the aforementioned documents, the
following shall be the order of precedence: (1) the applicable
Tariffs, (2) this Amendment One, (3) the Cover Agreement, and (4) the
Orders.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment One to the
Agreement to be executed by their duly authorized representatives.
WORLDNET, INC. SPRINT COMMUNICATIONS COMPANY, L.P.
By: By:
/s/ DAN E. STROUD /s/ TIM HAMMONDS
- -------------------------------- --------------------------------
Signature Signature
DAN E. Stroud Tim Hammonds
- -------------------------------- --------------------------------
Name Typed or Printed Name Typed or Printed
V.P. Network Operations Branch Manager
- -------------------------------- --------------------------------
Title Title
11/6/96 11/7/96
- -------------------------------- --------------------------------
Date Date
Amendment One to Cover Agreement - WorldNet 3 October 31, 1996
- --------------------------------------------------------------------------------
SPRINT PROPRIETARY INFORMATION
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.22
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
AMENDMENT TWO
TO
COVER AGREEMENT
BETWEEN
SPRINT COMMUNICATIONS COMPANY L.P. ("SPRINT")
AND
VERIO, INC. (FORMERLY WORLDNET, INC.) ("CUSTOMER")
This Amendment Two ("Amendment") to the Cover Agreement is entered into by and
between Sprint and Customer, effective as of the first day of the first
complete billing month following the date this Amendment is signed by both
parties ("Amendment Two Commencement Date").
WHEREAS, Sprint and Customer entered into a certain Cover Agreement on
September 30, 1996 ("Cover Agreement") and Amendment One to that Cover
Agreement on November 7, 1996 ("Amendment One"), and
WHEREAS, the parties wish to amend the Cover Agreement to: (a) modify
certain special prices and terms for Sprint's Domestic ATM, Clearline and
Sprint Clarity Services, (b) add the terms and prices for a Customer Network
Monitoring (CNM) capability for ATM Services, and (c) add special prices and
terms for Domestic Sprint Frame Relay Services.
NOW THEREFORE, for and in consideration of the mutual agreement and
understandings contained herein, the parties agree as follows.
1. CHANGES TO LIST OF PRODUCTS AND SERVICES
A. The following products and services are added to the list of
"Products and Services": "Sprint Clarity and Domestic Sprint
Frame Relay."
2. CHANGES TO ATM PRICING AND TERMS - OC3 PORTS
A. The table in Subsection 4.A.1 of the Cover Agreement is hereby
amended by adding OC-3 Port pricing as follows:
Port Installation Charge Monthly Charge
---- ------------------- --------------
OC-3 Port $(*) each $ (*) each per month
B. Subsection 4.A.2 of the Cover Agreement is hereby amended by
adding the following:
"Sprint shall apply a (*) percent (*%) discount to the OC-3
Monthly Port Connection charge specified above. Notwithstanding
in the first paragraph of this Subsection, installation
charges for OC-3 Ports are not subject to the (*)% discount."
Amendment Two to Cover Agreement - Verio 1 of 8 02/19/98
SPRINT PROPRIETARY INFORMATION
<PAGE> 2
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
C. Subsection 4.D of the Cover Agreement is hereby amended by
adding a new Subsection 4.D.6 as follows:
"6. Orders for DS-3 Ports and OC-3 Ports will be accepted in
Sprint's sole discretion."
3. CUSTOMER NETWORK MONITORING - ATM SERVICES
A new Subsection 4.E is hereby added to the Cover Agreement as
follows:
"E. Customer Network Monitoring - Sprint shall provide Customer with a
Customer Network Monitoring (CNM) capability for its ATM sites during
the remaining Term of the Cover Agreement, which CNM capability shall
consist of: (a) a 64 Kbps out-of-band connection from Customer's
premise to the Sprint Broadband Operations Center (BBOC), (b) access
to the Proxy Agent workstation located at the Sprint (BBOC), (c)
standard installation and testing of the CNM, and (d) standard
monitoring and reporting per the Proxy Agent. Customer shall be
responsible for making appropriate router configuration changes for
this capability. The non-recurring CNM charge is $(*) per CNM.
Sprint shall waive the monthly recurring CNM charge of $(*) per
CNM. Customer shall pay Sprint all charges for local access lines per
Sprint Tariff 8."
4. CHANGES TO CLEARLINE PRICING AND TERMS
A. Subsection 5.A of the Cover Agreement is hereby amended as
follows:
1. Subsection 5.A is changed by adding the words "DS-1
(Clearline 1.5)" to the beginning of the heading as
follows:
"DS-1 (Clearline 1.5). DS-3 (Clearline 45) and OC-3
(Private Line) Special Prices"
2. Subsection 5.A.1 is hereby deleted in its entirety
and a new Subsection 5.A.1 is added in lieu thereof
which shall read as follows:
"1. Interstate DS-3 Inter-Exchange (IXC) Charges
During each billing month of the Term following the
Amendment Two Commencement Date, Customer will
receive a (*)% discount, in lieu of all other
discounts, on the monthly recurring charges for the
interexchange portion of its point-to-point
interstate (not including the domestic extension of
international private lines) Clearline 45 private
line circuits installed during the Term."
3. A new Subsection 5.A.3 is hereby added which shall
read as follows:
"3. DS-1 Inter-exchange (IXC) Charges During each
billing month of the Term following the Amendment Two
Commencement Date, Customer will be charged the
applicable rates from the tables below (based on
Customer's Monthly Volume of Service ("MVS") and
individual Order terms) for the monthly recurring
charges on the interexchange portion of each
point-to-point interstate (not including the domestic
extension of international private lines) Clearline
1.5 private line circuits installed during the Term.
Amendment Two to Cover Agreement - Verio 2 of 8 02/19/98
SPRINT PROPRIETARY INFORMATION
<PAGE> 3
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
Less than Three (3) Year Order Term Rates
Monthly Recurring Charges
<TABLE>
<CAPTION>
MVS Fixed Rate per Circuit Rate per IXC Circuit Mile
-------------------- ---------------------- -------------------------
<S> <C> <C>
$ 0 - $ 49,999 (***) (***)
$ 50,000 - $ 74,999 (***) (***)
$ 75,000 - $ 99,999 (***) (***)
$100,000 - $199,999 (***) (***)
$200,000 - $499,999 (***) (***)
$500,000+ (***) (***)
</TABLE>
Three Year Order Term Rates
Monthly Recurring Charges
<TABLE>
<CAPTION>
MVS Fixed Rate per Circuit Rate per IXC Circuit Mile
-------------------- ---------------------- -------------------------
<S> <C> <C>
$ 0 - $ 49,999 (***) (***)
$ 50,000 - $ 74,999 (***) (***)
$ 75,000 - $ 99,999 (***) (***)
$100,000 - $199,999 (***) (***)
$200,000 - $499,999 (***) (***)
$500,000+ (***) (***)
</TABLE>
For purposes of this paragraph, MVS Contributory Services are:
Customer's total monthly circuit charges for the interexchange
portion of Customer's domestic Clearline 1.5 private line
circuits, calculated after all available discounts have been
applied.
During the first twelve (12) billing months following the
Amendment Two Commencement Date. Customer will receive the
rates in the tables above which correspond to the $(*) MVS
level or such higher level as Customer may achieve during any
such billing month. Beginning in the 13th billing month
following the Amendment Two Commencement Date and continuing
through the last billing month of the Term, Customer will
receive rates based on the actual MVS level each month."
B. Subsection 5.B of the Cover Agreement entitled "Special
Clearline Terms" is hereby amended as follows:
1. Subsection 5.B.1 is deleted in its entirety and a
new Subsection 5.B.1 is added in lieu thereof which
shall read as follows:
"1. The special prices above for Sprint's Clearline
and Private Line Services are contingent on Customer
maintaining the following minimum average circuit
lengths (POP-to-POP) during each billing month of the
Term:
:
(***): (***)
:
(***)
Amendment Two to Cover Agreement - Verio 3 of 8 02/19/98
SPRINT PROPRIETARY INFORMATION
<PAGE> 4
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
2. A new Subsection 5.B.3 and Subsection 5.B.4 is added which
shall read as follows:
"3. During each billing month of the Term, at least (*)
percent ((*)%) of Customer's Clearline 1.5 traffic must be
interstate traffic."
"4. Orders for DS-3 and OC-3 circuits will be accepted in
Sprint's sole discretion."
5. CHANGES TO CLARITY PRICING AND TERMS
A. Subsection 2.A of Amendment One, entitled "Usage Charges" is
hereby deleted its entirety and a new Subsection 2.A is added
in lieu thereof which shall read as follows:
"A. Usage Charges
Beginning on the Amendment Two Commencement Date, Customer
will be charged the applicable fixed Net Effective
Usage rates from the tables below for its Sprint Clarity
Products and Services:
1. Customer will be charged the applicable fixed Net
Effective Usage rates from the table below, based on
Customer's Monthly Volume of Services (MVS), for its
interstate Sprint Clarity Outbound Service Usage Charges
and interstate Sprint Clarity Toll Free Service Usage
Charges:
<TABLE>
<CAPTION>
Rate Per Minute
MVS Dedicated Switched
-------------------- --------- --------
<S> <C> <C>
$ 0 - $ 99,999 (***) (***)
$100,000 - $149,999 (***) (***)
$150,000 - $199,999 (***) (***)
$200.000 - $299,999 (***) (***)
$300,000+ (***) (***)
</TABLE>
For purposes of this paragraph, MVS Contributory Services are:
(a) Customer's total monthly Usage Charges for Sprint Clarity
Outbound and Sprint Clarity Toll Free Services, calculated
after all available discounts have been applied, (b)
Customer's total monthly circuit charges for the interexchange
portion of Customer's domestic Clearline 1.5 and Clearline 45
private line circuits, calculated after all available
discounts have been applied, and (c) Customer's total monthly
Usage Charges for Sprint ATM and Sprint Frame Relay,
calculated after all available discounts have been applied.
2. Customer will be charged the applicable fixed Net Effective
Usage rates from the table below for its intrastate Sprint
Clarity Outbound Service Usage Charges in California:
<TABLE>
<CAPTION>
Rate per minute
Dedicated Switched
<S> <C> <C> <C> <C>
Jurisdiction Peak Off-Peak Peak Off-Peak
------------ ------ -------- ----- --------
InterLATA (California) $ (***) $ (***) $(***) $ (***)
IntraLATA (California) $ (***) $ (***) $(***) $ (***)
</TABLE>
3. Customer will be charged the applicable fixed Net Effective
Usage rates from the table below for its intrastate Sprint
Clarity Toll Free Service Usage in California:
Amendment Two to Cover Agreement - Verio 4 of 8 02/19/98
SPRINT PROPRIETARY INFORMATION
<PAGE> 5
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
<TABLE>
<CAPTION>
Rate Per Minute
Dedicated Switched
<S> <C> <C> <C> <C>
Jurisdiction Peak Off-Peak Peak Off-Peak
------------ ---- -------- ---- --------
InterLATA (California) $ (*) $ (*) $ (*) $ (*)
IntraLATA (California) $ (*) $ (*) $ (*) $ (*)
</TABLE>
B. Subsection 2.B of Amendment One, entitled "Installation
Charges" is hereby deleted in its entirety. Subsection 2.B of
Amendment One, which provided for waived installation charges
for T-1 access lines used to access Sprint's voice services,
is addressed in Subsection 7.B of this Amendment Two below.
6. DOMESTIC SPRINT FRAME RELAY SERVICES
The following is hereby added to the Cover Agreement.
A. Charges for Frame Relay Products and Services
Sprint's Frame Relay Products and Services are governed by
applicable Tariffs on file with regulatory agencies. As set
forth in the applicable Tariffs, the following are the primary
components of the pricing for Sprint's Frame Relay Products
and Services. The term "Domestic" shall mean the 48 contiguous
United States and the District of Columbia.
1. Local Access Facilities - These are the charges for
the physical telco leased line connecting the
Customer premise to the Sprint Frame Relay Network.
Access line charges and terms, Access Coordination
Fees (ACF) and Central Office Connection (COC) fees
shall be pursuant to Sprint Tariff 8.
2. Access Channel or Port - These are the charges for
the port access to the Sprint Frame Relay Network.
There is a one-time installation charge and a monthly
recurring charge based on the maximum allowed burst
size (bandwidth) required for each access channel
(port).
3. Permanent Virtual Connection (PVC) - These are the
charges for use of the Sprint network to interconnect
Customer's specific end-points. For Domestic Frame
Relay Services, PVC charges are based on the class of
service selected by the Customer; either Frame Relay
for LAN or Frame Relay for SNA. Both classes of
Service can be provisioned with a variety of
Committed Information Rates (CIRs). There is a one
time installation charge and a monthly recurring
charge per PVC.
4. Customer Premise Equipment - Certain Customer Premise
Equipment ("CPE") is required in order to utilize
Sprint's Frame Relay Products and Services. Customer
may purchase or rent such CPE from Sprint pursuant to
the Sprint CPE Order form. There is a one time
installation charge for CPE installed by Sprint.
B. Domestic Sprint Frame Relay Special Prices and Terms
1. For Domestic Sprint Frame Relay Services, Sprint
shall waive (*) of the installation charges for
Access Channels (Ports) and Frame Relay for LAN PVCs
installed during the Term, contingent on Customer
using such Access Channels (Ports) and PVCs for a
minimum of twenty-four (24) continuous months
("Minimum Use Period"). For any Access Channels
(Ports) and PVCs which are terminated prior to the
end of the Minimum Use Period set forth
Amendment Two to Cover Agreement - Verio 5 of 8 02/19/98
SPRINT PROPRIETARY INFORMATION
<PAGE> 6
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY FILED WITH
THE COMMISSION.
herein, Customer shall be obligated to pay Sprint a
pro-rata amount of the waived installation charges
based upon the number of months remaining in the
Minimum Use Period.
2. For Domestic Sprint Frame Relay Services, Customer
will receive the applicable discount from the table
below, in lieu of all other discounts, on the monthly
recurring charge for each Domestic Sprint Frame Relay
for LAN Service, 56/64 Kbps Access Channel in service
during the Term, based on the individual Access
Channel Order term and the total number of Customer's
Access Channels (Ports) installed at the time of the
Order:
Order Term in Years
Access Channels
Installed One Two Three Four
--------------- --- --- ----- ----
0-24 (*)% (*)% (*)% (*)%
25-49 (*)% (*)% (*)% (*)%
50-74 (*)% (*)% (*)% (*)%
75-99 (*)% (*)% (*)% (*)%
100+ (*)% (*)% (*)% (*)%
3. For Domestic Sprint Frame Relay Services, Customer
will receive the applicable discount from the table
below, in lieu of all other discounts, on the monthly
recurring charge for each Domestic Sprint Frame Relay
for LAN Service 112/128 Kbps through 1344/1536 Kbps
Access Channel in service during the Term, based on
the individual Access Channel Order term and the total
number of Customer's Access Channels (Ports) installed
at the time of the Order:
Order Term in Years
Access Channels
Installed One Two Three Four
--------------- --- --- ----- ----
0-24 (*)% (*)% (*)% (*)%
25-49 (*)% (*)% (*)% (*)%
50-74 (*)% (*)% (*)% (*)%
75-99 (*)% (*)% (*)% (*)%
100+ (*)% (*)% (*)% (*)%
4. For Domestic Sprint Frame Relay Services, Customer
will receive the applicable discount from the table
below, in lieu of all other discounts, on the monthly
recurring charge for each Domestic Sprint Frame Relay
for LAN Service (zero-CIR) permanent virtual circuit
(PVC) in service during the Term, based on the
individual PVC Order term and the total number of
Customer's Access Channels (Ports) installed at the
time of the Order:
Order Term in Years
Access Channels
Installed One Two Three Four
--------------- --- --- ----- ----
0-24 (*)% (*)% (*)% (*)%
25-49 (*)% (*)% (*)% (*)%
50-74 (*)% (*)% (*)% (*)%
75-99 (*)% (*)% (*)% (*)%
100+ (*)% (*)% (*)% (*)%
Amendment Two to Cover Agreement - Verio 6 of 8 02/19/98
SPRINT PROPRIETARY INFORMATION
<PAGE> 7
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
7. LOCAL ACCESS FACILITIES
A. Subsection 6.A of the Cover Agreement is amended by changing
the word "Clearline" in the second line of Subsection 6.A to
read "Clearline 45 and Private Line (OC-N)" as follows:
"All charges for Local Access Facilities provided by Sprint to
access the ATM and Clearline 45 and Private Line (OC-N)
Products and Services (including ACF and COC) shall be quoted
by Sprint on an individual Order basis."
B. Subsection 6.B of the Cover Agreement (as previously amended)
is hereby deleted in its entirety and a new Subsection 6.B is
added in lieu thereof which shall read as follows:
"B. Sprint will waive (*)% of the installation charges
(including non-recurring ACF and COC charges) for the
following Sprint provided or Customer provided local
access lines installed during the Term, contingent on
Customer using such access lines for a minimum of
twenty-four (24) continuous months ("Minimum Use
Period").
1. domestic DS-1, DS-3 and OC-3 access lines
used to access Sprint's Domestic ATM and
Clearline (including OC-3) Products and
Services;
2. domestic T-1 and DAL access lines used to
access Sprint's Domestic Frame Relay
Services;
3. domestic T-1 access lines used to access
Sprint's voice services.
If Customer disconnects any access line in which
Sprint waived the installation charges prior to the
end of the Minimum Use Period set forth herein, then
Customer shall be obligated to pay Sprint the pro-rata
dollar amount of the waived installation charges based
on the number of months from the effective date of
such termination to the expiration date of the Minimum
Use Period."
C. A new Subsection 6.C is hereby added as follows:
"C. DS-1 ACF and COC Monthly Recurring Charges. Sprint
will waive: (a) (*)% of the monthly recurring ACF
charges, and (b) (*)% of the monthly recurring COC
charges on Sprint-provided domestic DS-1 (Clearline
1.5) private line circuits with individual circuit
terms of three (3) years or longer installed or in
service during the Term."
8. OTHER SPECIAL TERMS
Section 8 of the Cover Agreement entitled "Other Special Terms" is
hereby amended by adding the following new Subsection 8.G:
"G. Sprint must be Customer's Preferred Telecommunications Services
Provider for all its voice telecommunications services."
9. CUSTOMER'S AFFILIATES AND SUBSIDIARIES
Attachment C to the Cover Agreement is hereby modified by deleting the
list of Customer's Affiliates and Subsidiaries and adding the list of
Customer's Affiliates and Subsidiaries attached to this Amendment in
lieu thereof.
Amendment Two to Cover Agreement - Verio 7 of 8 02/19/98
SPRINT PROPRIETARY INFORMATION
<PAGE> 8
10. ENTIRE AGREEMENT
A. This Amendment Two represents the entire agreement between the
parties with respect to the subject matter hereof and
supersedes all prior statements, communications or agreements,
whether oral or written, between the parties.
B. This Amendment Two, Amendment One, the Cover Agreement, the
Orders and all applicable Tariffs shall represent the entire
agreement between the parties with respect to Sprint's
provision of the Products and Services. In the event of any
conflict between any of the aforementioned documents, the
following shall be the order of precedence: (1) the applicable
Tariffs, (2) this Amendment Two, (3) Amendment One, (4) the
Cover Agreement, and (5) the Orders.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment Two to the
Agreement to be executed by their duly authorized representatives.
VERIO, INC. SPRINT COMMUNICATIONS COMPANY, L.P.
By: /s/ CHRIS DEMARCHE By: /s/ DAVE BERRY
------------------------------------- --------------------------------
Signature Signature
Chris DeMarche Dave Berry
------------------------------------- --------------------------------
Name Typed or Printed Name Typed or Printed
Chief Technical Officer Vice President
------------------------------------- --------------------------------
Title Title
February 25, 1998 March 2, 1998
------------------------------------- --------------------------------
Date Date
Amendment Two to Cover Agreement - Verio 8 of 8 02/19/98
SPRINT PROPRIETARY INFORMATION
<PAGE> 9
ATTACHMENT C
LIST OF CUSTOMER'S AFFILIATES AND SUBSIDIARIES
Attached is a list of the affiliates and subsidiaries of Verio, Inc. who are
eligible to obtain the Products and Services pursuant to the terms and
conditions and prices set forth in this Agreement. This list may change from
time to time upon written agreement of the parties.
<TABLE>
<CAPTION>
LISTING OF AFFILIATES:
- ----------------------
<S> <C> <C>
ACCESSONE INTERNET INTERSTATE RAINET
11321 NE 120th 4925 Saint Elmo Avenue The Hazeltine Building
Suite B Bethesda, MD 20814 133 SE 2nd Avenue
Kirkland, WA 98034 (301) 652-4468 Suite 230
(206) 814-9100 Portland, OR 97204
NATIONAL KNOWLEDGE (503) 227-1945
AIMNET NETWORK
2350 Mission College 400 North St. Paul Street RUSTNET
Blvd. Suite 500 33129 Schoolcraft Road
Suite 600 Dallas, TX 75201 Livonia, MI 48150
Santa Clara, CA 95054 (214) 880-0700 (313) 762-6000
(408) 567-3800
NORTHWEST NET, INC. SERVICE TECH
CCNET, INC. 15400 S.E. 30th Place 182 Monroe Avenue
1777 Botelho Drive Suite 202 Rochester, New York
Suite 130 Bellevue, WA 98007 14607
Walnut Creek, CA 94596 (206) 649-7400 (716) 263-3360
(1) 988-0680
ONRAMP TECHNOLOGIES SIGNET PARTNERS, INC.
COMPUTE INTENSIVE 1950 Stemmons Freeway 1515 South Capital of
8001 Irvine Center Drive The InfoMart Texas Highway
Suite 1130 Suite 2026 Suite 400
Irvine, CA 92718 Dallas, TX 75207 Austin, TX 78745
(1) 450-8400 (214) 672-7267 (512) 306-0700
COMPUTECH STRUCTURED NETWORK
422 West Riverside Drive PACIFIC RIM NETWORK, SYSTEMS
Suite 328 INC. Imperial Business Park
Spokane, WA 99201 725 N State Street 15635 SE 114th Ave
(509) 624-6798 Bellingham, WA 98225 Suite 201
(360) 650-0442 Clackamus, OR 97015
GLOBAL ENTERPRISE (503) 656-3530
SERVICES, INC. (GES) PIONEER GLOBAL Fax: 402-436-3036
4390 US Route 1 North, 811 Boylston Street
3rd Floor Boston, MA 02116
Princeton, NJ 08510 (617) 375-0200
(609) 514-3800
</TABLE>
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SURF NETWORK, INC. DYNANET ATMNET
303 Horsham Road COMMUNICATIONS, INC. 5440 Morehouse Dr, Suite
Suite 8B 215-773-0700 3700
Horsham, PA 19044 Fax: 215-672-7705 San Diego, CA 92121
(215) 682-0100
GLOBAL INTERNET VERIO COLORADO
WEST COAST ONLINE 755 Page Mill Road, Suite 7400 E. Orchard, Suite
5800 Redwood Drive A-101 3000
2nd Floor Palo Alto, CA 94304 Englewood, CO 80111
Rohnert Park, CA 94928 Telephone: 800-682-5550 708-2201
(707) 586-3060
</TABLE>
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SPRINT PROPRIETARY INFORMATION
<PAGE> 1
EXHIBIT 10.23
================================================================================
VERIO INC., as Issuer
and
FIRST TRUST NATIONAL ASSOCIATION, as Trustee
---------------------
INDENTURE
Dated as of March 25, 1998
--------------------
$175,000,000
10-3/8% Senior Notes Due 2005, Series A
10-3/8% Senior Notes Due 2005, Series B
================================================================================
<PAGE> 2
Reconciliation and tie between Trust Indenture Act of 1939, as amended, and
Indenture, dated as of March 25, 1998
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Trust Indenture Indenture
Act Section Section
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Section 310 (a)(1)........................................................... 6.05, 6.09
(a)(2)........................................................... 6.05, 6.09
(a)(3)........................................................... 6.05
(a)(4)........................................................... 6.05
(b).............................................................. 6.05, 6.08, 6.10
Section 311 (a).............................................................. 6.07
(b).............................................................. 6.07
(c).............................................................. Not Applicable
Section 312 (a).............................................................. 3.05, 7.01
(b).............................................................. 7.02
(c).............................................................. 7.02
Section 313 (a).............................................................. 7.03
(b).............................................................. 7.03
(c).............................................................. 7.03
(d).............................................................. 7.03
Section 314 (a).............................................................. 7.04, 10.09
(b).............................................................. Not Applicable
(c)(1)........................................................... 1.04, 4.04, 12.01(c)
(c)(2)........................................................... 1.04, 4.04, 12.01(c)
(c)(3)...........................................................
(d).............................................................. Not Applicable
(e).............................................................. 1.04
Section 315 (a).............................................................. 6.01(a)
(b).............................................................. 6.02
(c).............................................................. 6.01(b)
(d).............................................................. 6.01(c)
(e).............................................................. 5.14
Section 316 (a) (last sentence) ............................................. 3.14
(a)(1)(A)........................................................ 5.12
(a)(1)(B)........................................................ 5.13
(a)(2)........................................................... Not Applicable
(b).............................................................. 5.08
Section 317 (a)(1)........................................................... 5.03
(a)(2)........................................................... 5.04
(b).............................................................. 10.03
Section 318 (a).............................................................. 1.08
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TABLE OF CONTENTS
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PARTIES.....................................................................................1
RECITALS....................................................................................1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions..................................................................1
Section 1.02. Other Definitions...........................................................30
Section 1.03. Rules of Construction.......................................................31
Section 1.04. Form of Documents Delivered to Trustee......................................31
Section 1.05. Acts of Holders.............................................................32
Section 1.06. Notices, etc., to the Trustee and the Company...............................33
Section 1.07. Notice to Holders; Waiver...................................................33
Section 1.08. Conflict with Trust Indenture Act...........................................34
Section 1.09. Effect of Headings and Table of Contents....................................34
Section 1.10. Successors and Assigns......................................................35
Section 1.11. Separability Clause.........................................................35
Section 1.12. Benefits of Indenture.......................................................35
Section 1.13. GOVERNING LAW...............................................................35
Section 1.14. No Recourse Against Others..................................................35
Section 1.15. Independence of Covenants...................................................35
Section 1.16. Exhibits....................................................................36
Section 1.17. Counterparts................................................................36
Section 1.18. Duplicate Originals.........................................................36
ARTICLE TWO
NOTE FORMS
Section 2.01. Form and Dating.............................................................36
ARTICLE THREE
THE NOTES
Section 3.01. Title and Terms.............................................................37
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Section 3.02. Registrar and Paying Agent..................................................37
Section 3.03. Execution and Authentication................................................38
Section 3.04. Temporary Notes.............................................................40
Section 3.05. Transfer and Exchange.......................................................41
Section 3.06. Mutilated, Destroyed, Lost and Stolen Notes.................................42
Section 3.07. Payment of Interest; Interest Rights Preserved..............................43
Section 3.08. Persons Deemed Owners.......................................................44
Section 3.09. Cancellation................................................................44
Section 3.10. Computation of Interest.....................................................45
Section 3.11. Legal Holidays..............................................................45
Section 3.12. CUSIP and CINS Numbers......................................................45
Section 3.13. Paying Agent To Hold Money in Trust.........................................46
Section 3.14. Treasury Notes..............................................................46
Section 3.15. Deposits of Monies..........................................................46
Section 3.16. Book-Entry Provisions for Global Notes......................................47
Section 3.17. Special Transfer Provisions.................................................48
ARTICLE FOUR
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. Company's Option To Effect Defeasance or Covenant Defeasance................52
Section 4.02. Defeasance and Discharge....................................................53
Section 4.03. Covenant Defeasance.........................................................53
Section 4.04. Conditions to Defeasance or Covenant Defeasance.............................54
Section 4.05. Deposited Money and U.S. Government Obligations To Be Held in
Trust; Other Miscellaneous Provisions...................................56
Section 4.06. Reinstatement...............................................................57
ARTICLE FIVE
REMEDIES
Section 5.01. Events of Default...........................................................58
Section 5.02. Acceleration of Maturity; Rescission and Annulment..........................60
Section 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee.............60
Section 5.04. Trustee May File Proofs of Claims...........................................61
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Section 5.05. Trustee May Enforce Claims Without Possession of Notes......................62
Section 5.06. Application of Money Collected..............................................63
Section 5.07. Limitation on Suits.........................................................63
Section 5.08. Unconditional Right of Holders To Re- ceive Principal, Premium
and Interest............................................................64
Section 5.09. Restoration of Rights and Remedies..........................................64
Section 5.10. Rights and Remedies Cumulative..............................................65
Section 5.11. Delay or Omission Not Waiver................................................65
Section 5.12. Control by Majority.........................................................65
Section 5.13. Waiver of Past Defaults.....................................................65
Section 5.14. Undertaking for Costs.......................................................66
Section 5.15. Waiver of Stay, Extension or Usury Laws.....................................66
Section 5.16. Unconditional Right of Holders To Receive Payment...........................67
ARTICLE SIX
THE TRUSTEE
Section 6.01. Certain Duties and Responsibilities.........................................67
Section 6.02. Notice of Defaults..........................................................68
Section 6.03. Certain Rights of Trustee...................................................68
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of Notes or
Application of Proceeds Thereof.........................................70
Section 6.05. Trustee and Agents May Hold Notes; Collections; Etc.........................70
Section 6.06. Money Held in Trust.........................................................71
Section 6.07. Compensation and Indemnification of Trustee and Its Prior Claim.............71
Section 6.08. Conflicting Interests.......................................................72
Section 6.09. Corporate Trustee Required; Eligibility.....................................72
Section 6.10. Resignation and Removal; Appointment of Successor Trustee...................72
Section 6.11. Acceptance of Appointment by Successor......................................74
Section 6.12. Merger, Conversion, Amalgamation, Consolidation or Succession
to Business.............................................................75
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ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. Preservation of Information; Company To Furnish Trustee Names
and Addresses of Holders................................................76
Section 7.02. Communications of Holders...................................................76
Section 7.03. Reports by Trustee..........................................................77
Section 7.04. Reports by Company..........................................................77
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Section 8.01. Company May Consolidate, etc., Only on Certain Terms........................78
Section 8.02. Successor Substituted.......................................................79
ARTICLE NINE
SUPPLEMENTAL INDENTURES AND WAIVERS
Section 9.01. Supplemental Indentures, Agreements and Waivers Without Consent
of Holders..............................................................80
Section 9.02. Supplemental Indentures, Agreements and Waivers with Consent of
Holders.................................................................81
Section 9.03. Execution of Supplemental Indentures, Agreements and Waivers................82
Section 9.04. Effect of Supplemental Indentures...........................................82
Section 9.05. Conformity with Trust Indenture Act.........................................83
Section 9.06. Reference in Notes to Supplemental Indentures...............................83
Section 9.07. Record Date.................................................................83
Section 9.08. Revocation and Effect of Consents...........................................83
ARTICLE TEN
COVENANTS
Section 10.01. Payment of Principal, Premium and Interest..................................84
Section 10.02. Maintenance of Office or Agency.............................................84
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Section 10.03. Money for Note Payments To Be Held in Trust.................................85
Section 10.04. Corporate Existence.........................................................86
Section 10.05. Payment of Taxes and Other Claims...........................................87
Section 10.06. Maintenance of Properties...................................................87
Section 10.07. Insurance...................................................................87
Section 10.08. Books and Records...........................................................88
Section 10.09. Provision of Financial Statements...........................................88
Section 10.10. Change of Control...........................................................88
Section 10.11. Limitation on Additional Indebtedness.......................................91
Section 10.12. Statement by Officers as to Default.........................................91
Section 10.13. Limitation on Restricted Payments...........................................92
Section 10.14. Limitation on Transactions with Affiliates..................................96
Section 10.15. Disposition of Proceeds of Asset Sales......................................98
Section 10.16. Limitation on Liens Securing Certain Indebtedness..........................102
Section 10.17. Limitation on Business.....................................................102
Section 10.18. Limitation on Certain Guarantees and Indebtedness of Restricted
Subsidiaries...........................................................102
Section 10.19. Limitation on Issuances and Sales of Preferred Stock by
Restricted Sub-sidiaries...............................................103
Section 10.20. Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries................................................103
Section 10.21. Limitation on Designations of Unrestricted Subsidiaries....................104
Section 10.22. Compliance Certificates and Opinions.......................................106
Section 10.23. Reports....................................................................106
Section 10.24. Limitation on Status as Investment Company.................................108
ARTICLE ELEVEN
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture....................................108
Section 11.02. Application of Trust Money.................................................109
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ARTICLE TWELVE
REDEMPTION
Section 12.01. Notices to the Trustee.....................................................109
Section 12.02. Selection of Notes To Be Redeemed..........................................110
Section 12.03. Notice of Redemption.......................................................110
Section 12.04. Effect of Notice of Redemption.............................................111
Section 12.05. Deposit of Redemption Price................................................111
Section 12.06. Notes Redeemed or Purchased in Part........................................112
</TABLE>
Exhibit A-1 - Form of Series A Note
Exhibit A-2 - Form of Series B Note
Exhibit B - Form of Legend for Book-Entry Securities
Exhibit C - Form of Certificate To Be Delivered in Connection with
Transfers to Non-QIB Accredited Investors
Exhibit D - Form of Certificate To Be Delivered in Connection with
Transfers Pursuant to Regulation S
-vi-
<PAGE> 9
INDENTURE, dated as of March 25, 1998, between VERIO INC., a
corporation incorporated under the laws of the State of Delaware (the
"Company"), as issuer, and FIRST TRUST NATIONAL ASSOCIATION, as trustee (the
"Trustee").
RECITALS
The Company has duly authorized the creation of an issue of (i) 10-3/8%
Senior Notes Due 2005, Series A, and (ii) 10-3/8% Senior Notes Due 2005, Series
B, to be issued in exchange for the 10-3/8% Senior Notes Due 2005, Series A,
pursuant to the Registration Rights Agreement (the "Notes"; such term to include
the Initial Notes, the Private Exchange Notes, if any, and the Unrestricted
Notes, if any, treated as a single class of securities under this Indenture), of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary have been done to make the Notes, when executed by
the Company, and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of each of the Company and the Trustee in accordance with the terms
hereof.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders (as hereinafter defined) thereof, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders of the Notes, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions.
"1997 Notes" means the Company's 13-1/2% Senior Notes due 2004.
"Acquired Indebtedness" means Indebtedness of a person existing at the
time such person becomes a Restricted Subsidiary
<PAGE> 10
-2-
or assumed in connection with an Asset Acquisition by such person and not
incurred in connection with, or in anticipation of, such person becoming a
Restricted Subsidiary or such Asset Acquisition; provided that Indebtedness of
such person which is redeemed, defeased, retired or otherwise repaid at the time
of or immediately upon consummation of the transactions by which such person
becomes a Restricted Subsidiary or such Asset Acquisition shall not constitute
Acquired Indebtedness.
"Affiliate" of any specified person means any other person which,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with such specified person. For the purposes of this
definition, "control" when used with respect to any person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Annualized ISP Revenues" means, with respect to any ISP at any date of
determination, the consolidated net revenues of such ISP and its Subsidiaries
for the most recent quarter for which financial information concerning such ISP
is available (and determined on a basis consistent with the Company's accounting
principles) multiplied by four.
"Asset Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Restricted Subsidiary in any other person, or any acquisition or purchase of
Capital Stock of any other person by the Company or any Restricted Subsidiary,
in either case pursuant to which such person shall (a) become a Restricted
Subsidiary or (b) shall be merged with or into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any person which constitute substantially all of an operating
unit or line of business of such person or which is otherwise outside of the
ordinary course of business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer or
lease (that has the effect of a disposition and is not for security purposes) or
other disposition (that is not for security purposes) to any person other than
the Company or a Restricted Subsidiary, in one transaction or a series of
related transactions, of (i) any Capital Stock of any Restricted Subsidiary
(other than customary stock option programs),
<PAGE> 11
-3-
(ii) any assets of the Company or any Restricted Subsidiary which constitute
substantially all of an operating unit or line of business of the Company and
the Restricted Subsidiaries or (iii) any other property or asset of the Company
or any Restricted Subsidiary outside of the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" shall not include (i) any
disposition of properties and assets of the Company that is governed under
Article Eight, (ii) sales of property or equipment that have become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or any Restricted Subsidiary, as the case may be, and
(iii) for purposes of Section 10.15 hereof, any sale, conveyance, transfer,
lease or other disposition of any property or asset, whether in one transaction
or a series of related transactions occurring within one year, either (x)
involving assets with a Fair Market Value not in excess of $500,000 or (y) which
constitutes the incurrence of a Capitalized Lease Obligation.
"Average Life to Stated Maturity" means, with respect to any
Indebtedness, as at any date of determination, the quotient obtained by dividing
(i) the sum of the products of (a) the number of years from such date to the
date or dates of each successive scheduled principal payment (including, without
limitation, any sinking fund requirements) of such Indebtedness multiplied by
(b) the amount of each such principal payment by (ii) the sum of all such
principal payments; provided that, in the case of any Capitalized Lease
Obligation, all calculations hereunder shall give effect to any applicable
options to renew in favor of the Company or any Restricted Subsidiary.
"Bankruptcy Law" means Title 11, United States Code or any similar
federal or state law relating to bankruptcy, insolvency, receivership,
winding-up, liquidation, reorganization or relief of debtors or the law of any
other jurisdiction relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganization or relief of debtors or any amendment to, succession
to or change in any such law.
"Bankruptcy Order" means any court order made in a proceeding pursuant
to or within the meaning of any Bankruptcy Law, containing an adjudication of
bankruptcy or insolvency, or providing for liquidation, receivership,
winding-up, dissolution, "concordate" or reorganization, or appointing a
Custodian of a debtor or of all or any substantial part of a debtor's property,
or providing for the staying, arrangement, adjustment or composition of
indebtedness or other relief of a debtor.
<PAGE> 12
-4-
"Board" means the Board of Directors of the Company.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board and to be in full force and effect on the date of such certification,
and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York,
New York or St. Paul, Minnesota are authorized or obligated by law, regulation
or executive order to close.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting and/or non-voting) of, such person's capital stock, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights (other than any evidence of Indebtedness), warrants or options
exchangeable for or convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation to pay rent or
other amounts under a lease of (or other agreement conveying the right to use)
any property (whether real, personal or mixed, immovable or movable) that is
required to be classified and accounted for as a capitalized lease obligation
under GAAP, and for the purpose of this Indenture, the amount of such obligation
at any date shall be the capitalized amount thereof at such date, determined in
accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness (with, for
purposes of Section 10.15 hereof only, a maturity of 365 days or less) issued or
directly and fully guaranteed or insured by the United States or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof or such Indebtedness constitutes a general
obligation of such country); (ii) deposits, certificates of deposit or
acceptances (with, for purposes of Section 10.15 hereof only, a maturity of 365
days or less) of any financial institution that is a member of the Federal
Reserve System, in each case having combined capital and surplus and undivided
profits (or any similar capital concept) of not less than $500.0 million and
whose senior unsecured debt is rated at least "A-1" by S&P or "P-1" by Moody's;
(iii) commercial paper with a maturity of 365 days or less issued by a
corporation (other than an Affiliate of the Company)
<PAGE> 13
-5-
organized under the laws of the United States or any State thereof and rated at
least "A-1" by S&P or "P-1" by Moody's; (iv) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States
Government maturing within 365 days from the date of acquisition; (v) other debt
obligations maturing in 365 days or less issued by a corporation (other than an
Affiliate of the Company)organized under the laws of the United States or any
state thereof and rated at least "A-" by S&P or "A3" by Moody's; and (vi) money
market funds which invest substantially all of their assets in securities of the
type described in the preceding clauses (i) through (v).
"Change of Control" means the occurrence of any of the following
events: (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), excluding WorldCom, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
excercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the Company; or (b)
the Company consolidates with, or merges with or into, another person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company 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 an amount which could be paid by the Company as
a Restricted Payment under this Indenture and (ii) immediately after such
transaction no "person" or "group" (as such terms are used in Section 13(d) and
14(d) of the Exchange Act), excluding WorldCom, is the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities that such
person has the right to acquire, whether such right is excercisable immediately
or only after the passage of time), directly or indirectly, of more than 50% of
the total Voting Stock of the surviving or transferee corporation or its parent
corporation, as applicable; or
<PAGE> 14
-6-
(c) during any consecutive two-year period, individuals who at the beginning of
such period constituted the Board (together with any new directors whose
election by the Board or whose nomination for election by the stockholders of
the Company was approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason (other than by action of WorldCom) to constitute a majority of the Board
then in office. The good faith determination by the Board, based upon advice of
outside counsel, of the beneficial ownership of securities of the Company within
the meaning of Rules 13d-3 and 13d-5 under the Exchange Act shall be conclusive,
absent contrary controlling judicial precedent or contrary written
interpretation published by the SEC.
"Common Stock" means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or non-voting) of such person's common stock whether
outstanding at the Issue Date, and includes, without limitation, all series and
classes of such common stock.
"Company" means the person named as the "Company" in the first
paragraph of this Indenture, until a successor person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by any one of its Chairman of the Board, its
Vice-Chairman, its Chief Executive Officer, its President or a Vice President,
and by its Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, and delivered to the Trustee.
"Consolidated Annualized Pro Forma Operating Cash Flow" means, at any
date of determination, Consolidated Operating Cash Flow for the latest fiscal
quarter for which consolidated financial statements of the Company are available
multiplied by four. For purposes of calculating "Consolidated Operating Cash
Flow" for any fiscal quarter for purposes of this definition, (i) any Subsidiary
of the Company that is a Restricted Subsidiary on the date of the transaction
(the "Transaction Date") giving rise to the need to calculate "Consolidated
Annualized Pro Forma Operating Cash Flow" shall be deemed to have been a
Restricted Subsidiary at all times during such fiscal quarter and (ii) any
Subsidiary of the Company that is
<PAGE> 15
-7-
not a Restricted Subsidiary on the Transaction Date shall be deemed not to have
been a Restricted Subsidiary at any time during such fiscal quarter. In addition
to and without limitation of the foregoing, for purposes of this definition,
"Consolidated Operating Cash Flow" shall be calculated after giving effect on a
pro forma basis for the applicable fiscal quarter to, without duplication, any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of the Restricted Subsidiaries (including any person who becomes
a Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness) occurring during
the period commencing on the first day of such fiscal quarter to and including
the Transaction Date, as if such Asset Sale or Asset Acquisition occurred on the
first day of such fiscal quarter.
"Consolidated Income Tax Expense" means, with respect to any period,
the provision for United States corporation, local, foreign and other income
taxes of the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period,
without duplication, the sum of (i) the interest expense of the Company and the
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Obligations (including any
amortization of discounts), (c) the interest portion of any deferred payment
obligation, (d) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and similar
transactions and (e) all accrued interest, (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and the Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP and (iii) the amount
of dividends in respect of Disqualified Stock paid by the Company and the
Restricted Subsidiaries during such period; provided that Consolidated Interest
Expense shall exclude the amortization of fees related to the issuance of the
Notes and fees related to any Indebtedness under a Permitted Credit Facility.
"Consolidated Net Income" means, with respect to any period, the
consolidated net income of the Company and the Restricted Subsidiaries for such
period, adjusted, to the extent
<PAGE> 16
-8-
included in calculating such consolidated net income, by excluding, without
duplication, (i) all extraordinary, unusual or nonrecurring gains or losses of
such person (net of fees and expenses relating to the transaction giving rise
thereto) for such period, (ii) income of the Company and the Restricted
Subsidiaries derived from or in respect of all Investments in persons other than
Restricted Subsidiaries, except to the extent of any dividends or distributions
actually received by the Company or any Restricted Subsidiary, (iii) the portion
of net income (or loss) of such person allocable to minority interests in
Restricted Subsidiaries for such period, (iv) net income (or loss) of any other
person combined with such person on a "pooling of interests" basis attributable
to any period prior to the date of combination, (v) any gain or loss, net of
taxes, realized by such person upon the termination of any employee pension
benefit plan during such period, (vi) gains or losses in respect of any Asset
Sales (net of fees and expenses relating to the transaction giving rise thereto)
during such period and (vii) except in the case of any restriction or
encumbrance permitted under clause (viii) of Section 10.20 hereof, the net
income of any Restricted Subsidiary for such period to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
of that income is not at the time permitted, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulations applicable to that
Restricted Subsidiary or its stockholders.
"Consolidated Net Worth" means, with respect to any person, the
consolidated stockholders' or partners' equity of such person reflected on the
most recent financial statements of such person, determined in accordance with
GAAP, less any amounts attributable to redeemable capital stock (as determined
under applicable accounting standards by the SEC) of such person.
"Consolidated Operating Cash Flow" means, with respect to any period,
the Consolidated Net Income of the Company and the Restricted Subsidiaries for
such period increased, to the extent deducted in arriving at Consolidated Net
Income for such period, by the sum of (i) the Consolidated Income Tax Expense of
the Company and the Restricted Subsidiaries accrued according to GAAP for such
period (other than taxes attributable to extraordinary gains or losses and gains
and losses from Asset Sales); (ii) Consolidated Interest Expense for such
period; (iii) depreciation of the Company and the Restricted Subsidiaries for
such period; (iv) amortization of the Company and the Restricted Subsidiaries
for such period, including, without
<PAGE> 17
-9-
limitation, amortization of capitalized debt issuance costs for such period, all
determined on a consolidated basis in accordance with GAAP; and (v) other
non-cash charges decreasing Consolidated Net Income.
"consolidation" means, with respect to the Company, the consolidation
of the accounts of the Restricted Subsidiaries with those of the Company, all in
accordance with GAAP; provided that "consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary with the accounts
of the Company. The term "consolidated" has a correlative meaning to the
foregoing.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 180 East 5th Street, St. Paul, Minnesota 55101, Attention: Corporate Trust
Department, except for purposes of Sections 3.02 and 10.02 hereof. For purposes
of such sections, such office is located at 100 Wall Street, 20th Floor, New
York, New York 10005.
"Custodian" means any receiver, interim receiver, receiver and manager,
receiver-manager, trustee, assignee, liquidator, sequestrator or similar
official under any Bankruptcy Law or any other law respecting secured creditors
and the enforcement of their security or any other person with like powers
whether appointed judicially or out of court and whether pursuant to an interim
or final appointment.
"Debt Securities" means any debt securities issued by the Company in a
public offering or a private placement.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Depository" means The Depository Trust Company, its nominees and
successors.
"Designation" has the meaning set forth under Section 10.21 hereof.
"Disinterested Director" means, with respect to any transaction or
series of related transactions, a member of the Board other than a director who
(i) has any material direct or indirect financial interest in or with respect to
such transaction or series of related transactions or (ii) is an employee or
officer of the Company or an Affiliate that is itself a
<PAGE> 18
-10-
party to such transaction or series of transactions or an Affiliate of a party
to such transaction or series of related transactions.
"Disqualified Stock" means, with respect to any person, any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or becomes mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or becomes exchangeable for Indebtedness at the option
of the holder thereof, or becomes redeemable at the option of the holder
thereof, in whole or in part, on or prior to the final maturity date of the
Notes; provided such Capital Stock shall only constitute Disqualified Stock to
the extent it so matures or becomes so redeemable or exchangeable on or prior to
the final maturity date of the Notes; provided, further, that any Capital Stock
that would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such person to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the final maturity date of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in Section 10.15 and Section 10.10
hereof described above and such Capital Stock specifically provides that such
person will not repurchase or redeem any such stock pursuant to such provision
prior to the Company's repurchase of such Notes as are required to be
repurchased pursuant to Section 10.15 and Section 10.10 hereof.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of the Euroclear System.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Exchange Notes" means the 10-3/8% Senior Notes Due 2005, Series B, to
be issued in exchange for the Initial Notes pursuant to the Registration Rights
Agreement.
"Exchange Offer" shall have the meaning specified in the Registration
Rights Agreement.
"Existing ISP" means any ISP in which the Company or a Subsidiary of
the Company has an Investment on the Issue Date.
<PAGE> 19
-11-
"Fair Market Value" means, with respect to any asset or property, the
price that could be negotiated in an arm's-length free market transaction, for
cash, between a willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction. Unless otherwise specified
in this Indenture, Fair Market Value shall be determined by the Board acting in
good faith and shall be evidenced by a Board Resolution.
"GAAP" means, at any date of determination, generally accepted
accounting principles in effect in the United States and which are applicable as
of the date of determination and which are consistently applied for all
applicable periods.
"Global Notes" means one or more Regulation S Global Notes and 144A
Global Notes.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Guarantee" has the meaning provided in Section 10.18.
"Guarantor" has the meaning provided in Section 10.18.
"Holder" or "Noteholder" means a person in whose name a Note is
registered in the Note Register.
"incur" means, with respect to any Indebtedness or other obligation of
any person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation including by acquisition of Subsidiaries or the recording, as
required pursuant to GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such person (and "incurrence," "incurred,"
"incurrable" and "incurring" shall have meanings correlative to the foregoing);
provided that a change in GAAP that results in an obligation of such person that
exists at such time becoming Indebtedness
<PAGE> 20
-12-
shall not be deemed an incurrence of such Indebtedness and that neither the
accrual of interest nor the accretion of original issue discount shall be deemed
an incurrence of Indebtedness. Indebtedness otherwise incurred by a person
before it becomes a Subsidiary of the Company (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to have been incurred at the time at
which such person becomes a Subsidiary of the Company.
"Indebtedness" means, with respect to any person, without duplication,
(i) any liability, contingent or otherwise, of such person (A) for borrowed
money (whether or not the recourse of the lender is to the whole of the assets
of such person or only to a portion thereof) or (B) evidenced by a note,
debenture or similar instrument or letter of credit (including a purchase money
obligation) or (C) for the payment of money relating to a Capitalized Lease
Obligation or other obligation relating to the deferred purchase price of
property (except to the extent representing funds deposited in escrow to secure
the deferred purchase price of an acquisition of, or an Investment in, an ISP)
or (D) in respect of an Interest Rate Obligation or currency agreement; or (ii)
any liability of others of the kind described in the preceding clause (i) which
the person has guaranteed or which is otherwise its legal liability; or (iii)
any obligation secured by a Lien (other than (x) Permitted Liens of the types
described in clauses (b), (d) or (e) of the definition of Permitted Liens;
provided that the obligations secured would not constitute Indebtedness under
clauses (i) or (ii) or (iii) of this definition, and (y) Liens on Capital Stock
or Indebtedness of any Unrestricted Subsidiary) to which the property or assets
of such person are subject, whether or not the obligations secured thereby shall
have been assumed by or shall otherwise be such person's legal liability (the
amount of such obligation being deemed to be the lesser of the value of such
property or asset or the amount of the obligation so secured); (iv) all
Disqualified Stock valued at the greater of its voluntary or involuntary maximum
fixed repurchase price plus accrued and unpaid dividends; and (v) any and all
deferrals, renewals, extensions and refundings of, or amendments, modifications
or supplements to, any liability of the kind described in any of the preceding
clauses (i), (ii), (iii) or (iv). In no event shall "Indebtedness" include trade
payables and accrued liabilities that are current liabilities incurred in the
ordinary course of business, excluding the current maturity of any obligation
which would otherwise constitute Indebtedness. For purposes of Section 10.11 and
Section 10.13 hereof and the definition of "Events of Default," in determining
the principal amount of any Indebtedness to be incurred
<PAGE> 21
-13-
by the Company or a Restricted Subsidiary or which is outstanding at any date,
(x) the principal amount of any Indebtedness issued with original issue discount
shall be the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such date as
determined in conformity with GAAP and (y) the principal amount of any
Indebtedness shall be reduced by any amount of cash or Cash Equivalent
collateral securing on a perfected basis, and dedicated for disbursement
exclusively to the payment of principal of and interest on, such Indebtedness.
"Indenture" means this instrument as originally executed (including all
exhibits and schedules hereto) and as it may from time to time be supplemented
or amended by one or more indentures supplemental hereto entered into pursuant
to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and any
other obligor under this Indenture or under the Notes, to pay principal of,
premium, if any, and interest on the Notes when due and payable, whether at
maturity, by acceleration, call for redemption or repurchase or otherwise, and
all other amounts due or to become due under or in connection with this
Indenture or the Notes and the performance of all other obligations to the
Trustee (including, but not limited to, payment of all amounts due the Trustee
under Section 6.07 hereof) and the Holders of the Notes under this Indenture and
the Notes, according to the terms thereof.
"Independent Financial Advisor" means a United States investment
banking firm of national or regional standing in the United States (i) which
does not, and whose directors, officers and employees or Affiliates do not have,
a direct or indirect financial interest in the Company and (ii) which, in the
judgment of the Board, is otherwise independent and qualified to perform the
task for which it is to be engaged.
"Initial Notes" means the 10-3/8% Senior Notes Due 2005, Series A, of
the Company.
"Initial Purchasers" means Salomon Brothers Inc, Lazard Freres & Co.
LLC, Chase Securities Inc. and BancBoston Securities Inc.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
<PAGE> 22
-14-
"interest", when used with respect to any Note, means the amount of all
interest accruing on such Note, including all additional interest payable on the
Notes pursuant to the Registration Rights Agreement and all interest accruing
subsequent to the occurrence of any events specified in Sections 5.01(viii),
(ix) and (x) hereof or which would have accrued but for any such event, whether
or not such claims are allowable under applicable law.
"Interest Payment Date" means, when used with respect to any Note, the
Stated Maturity of an installment of interest on such Note, as set forth in such
Note.
"Interest Rate Obligations" means the obligations of any person
pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount and shall include without limitation, interest rate
swaps, caps, floors, collars, forward interest rate agreements and similar
agreements.
"Internet Service Business" means any business operating an internet
connectivity or internet enhancement service as it exists from time to time,
including, without limitation, dial up or dedicated internet service, web
hosting or collocation services, security solutions, the provision and
development of software in connection therewith, configuration services,
electronic commerce, intranet solutions, data backup and restoral, business
content and collaboration, communications tools or network equipment products or
services (including, without limitation, any business conducted by the Company
or any Restricted Subsidiary on the Issue Date), and any business reasonably
related to the foregoing. A good faith determination by a majority of the Board
as to whether a business meets the requirements of this definition shall be
conclusive, absent manifest error.
"Investment" means, with respect to any person, any advance, loan,
account receivable (other than an account receivable arising in the ordinary
course of business), or other extension of credit (including, without
limitation, by means of any guarantee) or any capital contribution to (by means
of transfers of property to others, payments for property or services for the
account or use of others, or otherwise), or any purchase or ownership of any
stocks, bonds, notes, debentures or other securities of, any other person.
Notwithstanding the foregoing, in no event shall any issuance of Capital Stock
<PAGE> 23
-15-
(other than Disqualified Stock) of the Company in exchange for Capital Stock,
property or assets of another person constitute an Investment by the Company in
such other person.
"ISP" means any person (a) engaged principally in an Internet Service
Business, (b) of which the Company or Wholly Owned Restricted Subsidiaries own
either (x) Qualifying Preferred Stock representing in aggregate from 20% to 50%
of such person's outstanding Capital Stock (on an economic basis) or (y) Common
Stock or Qualifying Preferred Stock representing in aggregate in excess of 50%
of such person's voting Capital Stock, (c) as to which the Company or a Wholly
Owned Restricted Subsidiary has an option, either immediately exercisable or
exercisable commencing after one year (subject to extension under limited
circumstances consistent with past practice) of the Investment made by the
Company or a Wholly Owned Restricted Subsidiary, to acquire all of such person's
outstanding Capital Stock, (d) as to which the Company or a Wholly Owned
Restricted Subsidiary is the beneficiary of a right of first refusal or other
transfer restrictions generally limiting transfers of such person's Capital
Stock by third parties, (e) as to which the Company or a Wholly Owned Restricted
Subsidiary has the right to appoint and has appointed at least one member of
such person's board of directors, in the case where such person would not be a
Subsidiary of the Company, or a majority of such person's board of directors, in
the case where such person would be a Subsidiary of the Company and (f) which
has no outstanding Capital Stock or Indebtedness other than (i) Common Stock or
options to acquire Common Stock, (ii) Qualifying Preferred Stock held by the
Company or a Wholly Owned Restricted Subsidiary, (iii) rights granted to other
stockholders to acquire Capital Stock of such person from the Company or its
affiliates in certain circumstances, (iv) preferred stock ranking junior in a
liquidation to any Qualifying Preferred Stock referred to in clause (ii), and
(v) Indebtedness of such person or preferred stock of such person ranking prior
in a liquidation or deemed liquidation to the Qualifying Preferred Stock
referred to in clause (ii) having an aggregate outstanding principal balance and
liquidation preference, respectively, that (x) in the case of a person that is a
Restricted Subsidiary, is permitted to be incurred under Section 10.11 hereof
and (y) in the case of a person that is not a Restricted Subsidiary, does not at
any time exceed 50% of Annualized ISP Revenues.
"Issue Date" means the original date of issuance of the Notes.
<PAGE> 24
-16-
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind. A person shall be deemed to own subject to a Lien any property which such
person has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement.
"Market Capitalization" of any person means, as of any day of
determination, the average Closing Price of such person's Common Stock over the
20 consecutive trading days immediately preceding such day. "Closing Price" on
any trading day with respect to the per share price of any shares of Common
Stock means the last reported sale price regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the New York Stock Exchange or,
if such shares of Common Stock are not listed or admitted to trading on such
exchange, on the principal national securities exchange on which such shares are
listed or admitted to trading or, if not listed or admitted to trading on any
national securities exchange, on the National Association of Securities Dealers
Automated Quotations National Market System or, if such shares are not listed or
admitted to trading on any national securities exchange or quoted on such
automated quotation system but the issuer is a Foreign Company (as defined in
Rule 3b-4(b) under the Exchange Act) and the principal securities exchange on
which such shares are listed or admitted to trading is a Designated Offshore
Securities Market (as defined in Rule 902(a) under the Securities Act), the
average of the reported closing bid and asked prices regular way on such
principal exchange, or, if such shares are not listed or admitted to trading on
any national securities exchange or quoted on such automated quotation system
and the issuer and principal securities exchange do not meet such requirements,
the average of the closing bid and asked prices in the over-the-counter marked
as furnished by any New York Stock Exchange member firm that is selected from
time to time by the Company for that purpose and is reasonably acceptable to the
Trustee.
"Material Restricted Subsidiary" means any Restricted Subsidiary of the
Company, which, at any date of determination, is a "Significant Subsidiary" (as
that term is defined in Regulation S-X issued under the Securities Act), but
shall, in any event, include (x) any Guarantor or (y) any Restricted Subsidiary
of the Company which, at any date of determination, is an
<PAGE> 25
-17-
obligor under any Indebtedness in an aggregate principal amount equal to or
exceeding $7.5 million.
"Maturity Date" means, with respect to any Note, the date specified in
such Note as the fixed date on which the principal of such Note is due and
payable.
"Moody's" means Moody's Investors Service.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash (including assumed liabilities and other items
deemed to be cash under the proviso to the first sentence of Section 10.15
hereof) or Cash Equivalents including payments in respect of deferred payment
obligations when received in the form of cash or Cash Equivalents (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Restricted Subsidiary) net of (i) brokerage commissions and other fees
and expenses (including fees and expenses of legal counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a
result of such Asset Sale, (iii) amounts required to be paid to any person
(other than the Company or any Restricted Subsidiary) owning a beneficial
interest in or having a Permitted Lien on the assets subject to the Asset Sale
and (iv) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve required in accordance with GAAP
against any liabilities associated with such Asset Sale and retained by the
Company or any Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an Officers' Certificate delivered to the Trustee.
"New ISP" means any ISP in which the Company or a Subsidiary of the
Company makes its first Investment after the Issue Date.
"Non-U.S. Person" has the meaning assigned to such term in Regulation
S.
"Notes" shall have the meaning specified in the recitals of this
Indenture.
"Offering Memorandum" means the Offering Memorandum dated March 19,
1998 pursuant to which the Notes were offered, and any supplement thereto.
<PAGE> 26
-18-
"Officer" means, with respect to the Company, the Chairman of the
Board, a Vice Chairman, the President, a Vice President, the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, a Vice Chairman, the President or a Vice President, and by the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer, of
the Company and delivered to the Trustee.
"144A Global Note" means a permanent global note in registered form
representing the aggregate principal amount of Notes sold in reliance on Rule
144A under the Securities Act.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company or the Trustee, and who shall be reasonably acceptable
to the Trustee.
"Other Senior Debt Pro Rata Share" means the amount of the applicable
Excess Proceeds obtained by multiplying the amount of such Excess Proceeds by a
fraction, (i) the numerator of which is the aggregate accreted value and/or
principal amount, as the case may be, of all Indebtedness (other than (x) the
Notes and (y) Subordinated Indebtedness) of the Company outstanding at the time
of the applicable Asset Sale with respect to which the Company is required to
use Excess Proceeds to repay or make an offer to purchase or repay and (ii) the
denominator of which is the sum of (a) the aggregate principal amount of all
Notes Outstanding at the time of the applicable Asset Sale and (b) the aggregate
principal amount or the aggregate accreted value, as the case may be, of all
other Indebtedness (other than Subordinated Indebtedness) of the Company
outstanding at the time of the applicable Asset Sale Offer with respect to which
the Company is required to use the applicable Excess Proceeds to offer to repay
or make an offer to purchase or repay.
"Outstanding" means, as of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture, except:
(i) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes, or portions thereof, for whose payment or redemption money
in the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other
<PAGE> 27
-19-
than the Company or any Affiliate thereof) in trust or set aside and
segregated in trust by the Company or any Affiliate thereof (if the Company
or such Affiliate shall act as Paying Agent) for the Holders of such Notes;
provided, however, that if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;
(iii) Notes with respect to which the Company has effected defeasance
or covenant defeasance as provided in Article Four, to the extent provided
in Sections 4.02 and 4.03 hereof; and
(iv) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture, other than any such
Notes in respect of which there shall have been presented to the Trustee
proof satisfactory to it that such Notes are held by a bona fide purchaser in
whose hands the Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes that a Responsible Officer of the Trustee knows to be so
owned shall be so disregarded. The Company shall notify the Trustee, in writing,
when it repurchases or otherwise acquires Notes, of the aggregate principal
amount of such Notes so repurchased or otherwise acquired. Notes so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Notes and that the pledgee is not the Company or any other
obligor upon the Notes or any Affiliate of the Company or such other obligor. If
the Paying Agent holds, in its capacity as such, on any Maturity Date or on any
optional redemption date money sufficient to pay all accrued interest and
principal with respect to such Notes payable on that date and is not prohibited
from paying such money to the Holders thereof pursuant to the terms of this
Indenture, then on and after that date such Notes cease to be Outstanding and
interest on them ceases to accrue. Notes may also cease to
<PAGE> 28
-20-
be Outstanding to the extent expressly provided in Article Four.
"Permitted Affiliate Agreement" means each of the Series A Purchase
Agreement, the Series B Purchase Agreement, the Series C Purchase Agreement and
the Stockholders Agreement, each as in effect on the Issue Date.
"Permitted Credit Facility" means any senior commercial term loan
and/or revolving credit facility (including any letter of credit subfacility)
entered into principally with commercial banks and/or other financial
institutions typically party to commercial loan agreements.
"Permitted Equipment Financing" means any credit facility or other
financing arrangement (including in the form of Capitalized Lease Obligations
and guarantees of Indebtedness of ISPs) entered into with any vendor or supplier
(or any financial institution acting on behalf of or for the purpose of directly
financing purchases from such vendor or supplier) to the extent the Indebtedness
thereunder is incurred for the purpose of financing the cost (including the cost
of design, development, site acquisition, construction, integration, manufacture
or acquisition) of real or personal property (tangible or intangible) used, or
to be used, in an Internet Service Business.
"Permitted Indebtedness" means the following Indebtedness (each of
which shall be given independent effect):
(a) Indebtedness under the Notes and this Indenture;
(b) Indebtedness of the Company and/or any Restricted Subsidiary
outstanding on the Issue Date, including, without limitation, the 1997 Notes;
(c) (i) Indebtedness of any Restricted Subsidiary owed to and held by the
Company or a Restricted Subsidiary and (ii) Indebtedness of the Company, not
secured by any Lien, owed to and held by any Restricted Subsidiary; provided
that an incurrence of Indebtedness shall be deemed to have occurred upon (x) any
sale or other disposition (excluding assignments as security to financial
institutions) of any Indebtedness of the Company or a Restricted Subsidiary
referred to in this clause (c) to a person (other than the Company or a
Restricted Subsidiary) or (y) any sale or other disposition of Capital Stock of
a Restricted Subsidiary, or Designation of a Restricted Subsidiary, which holds
Indebtedness of the Company or another Restricted Subsidiary
<PAGE> 29
-21-
such that such Restricted Subsidiary, in any such case, ceases to be a
Restricted Subsidiary;
(d) Interest Rate Obligations of the Company and/or any Restricted
Subsidiary relating to Indebtedness of the Company and/or such Restricted
Subsidiary, as the case may be (which Indebtedness (x) bears interest at
fluctuating interest rates and (y) is otherwise permitted to be incurred under
Section 10.11 hereof), but only to the extent that the notional principal amount
of such Interest Rate Obligations does not exceed the principal amount of the
Indebtedness (and/or Indebtedness subject to commitments) to which such Interest
Rate Obligations relate;
(e) Indebtedness of the Company and/or any Restricted Subsidiary in respect
of performance bonds of the Company or any Restricted Subsidiary or surety bonds
provided by the Company or any Restricted Subsidiary incurred in the ordinary
course of business;
(f) Indebtedness of the Company and/or any Restricted Subsidiary to the
extent it represents a replacement, renewal, refinancing or extension (a
"Refinancing") of outstanding Indebtedness of the Company and/or of any
Restricted Subsidiary incurred or outstanding pursuant to clause (a), (b), (g),
(h) or (i) of this definition or the proviso of Section 10.11 hereof; provided
that (1) Indebtedness of the Company may not be Refinanced to such extent under
this clause (f) with Indebtedness of any Restricted Subsidiary and (2) any such
Refinancing shall only be permitted under this clause (f) to the extent that (x)
it does not result in a lower Average Life to Stated Maturity of such
Indebtedness as compared with the Indebtedness being Refinanced and (y) it does
not exceed the sum of the principal amount (or, if such Indebtedness provides
for a lesser amount to be due and payable upon a declaration of acceleration
thereof, an amount no greater than such lesser amount) of the Indebtedness being
Refinanced plus the amount of accrued interest thereon and the amount of any
reasonably determined prepayment premium necessary to accomplish such
Refinancing and such reasonable fees and expenses incurred in connection
therewith;
(g) Indebtedness of the Company such that, after giving effect to the
incurrence thereof, the total aggregate principal amount of Indebtedness
incurred under this clause (g) and any Refinancings thereof otherwise incurred
in compliance with this Indenture would not exceed 200% of Total Incremental
Equity;
<PAGE> 30
-22-
(h) Indebtedness of the Company and/or any Restricted Subsidiary incurred
under any Permitted Credit Facility and/or Indebtedness of the Company
represented by Debt Securities of the Company, and any Refinancings of the
foregoing otherwise incurred in compliance with this Indenture, in an aggregate
principal amount not to exceed $140.0 million at any time outstanding;
(i) Indebtedness of the Company and/or any Restricted Subsidiary incurred
under any Permitted Equipment Financing in an aggregate principal amount not to
exceed the Fair Market Value of the assets acquired with the proceeds thereof;
(j) Indebtedness of the Company and/or any Restricted Subsidiary incurred
as a result of any Rollup of any ISP, and any Refinancings thereof otherwise
incurred in compliance with this Indenture, provided the aggregate principal
amount of all such Indebtedness does not exceed $30.0 million at any time
outstanding;
(k) Indebtedness of the Company representing the deferred purchase price
(whether or not subject to a contingency) of an acquisition of, or an Investment
in, a New ISP in an aggregate principal amount not to exceed $30.0 million at
any time outstanding; and
(l) in addition to the items referred to in clauses (a) through (j) above,
Indebtedness of the Company and/or the Restricted Subsidiaries having an
aggregate principal amount not to exceed $40.0 million at any time outstanding.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) Interest
Rate Obligations incurred in compliance with Section 10.11 hereof; and (d) the
extension by the Company and the Restricted Subsidiaries of (i) trade credit to
Subsidiaries of the Company and the ISPs, represented by accounts receivable,
extended on usual and customary terms in the ordinary course of business or (ii)
guarantees of commitments for the purchase of goods or services by any ISP
incurred in the ordinary course of business so long as such guarantees to the
extent constituting Indebtedness are permitted to be incurred under Section
10.11 hereof.
"Permitted Liens" means (a) Liens on property of a person existing at
the time such person is merged into or consolidated with the Company or any
Restricted Subsidiary or
<PAGE> 31
-23-
becomes a Restricted Subsidiary; provided that such Liens were in existence
prior to the contemplation of such merger, consolidation or acquisition and do
not secure any property or assets of the Company or any Restricted Subsidiary
other than the property or assets subject to the Liens prior to such merger or
consolidation or acquisition; (b) Liens imposed by law, such as carriers',
warehousemen's and mechanics' Liens and other similar Liens arising in the
ordinary course of business that secure payment of obligations not more than 60
days past due or that are being contested in good faith and by appropriate
proceedings; (c) Liens existing on the Issue Date; (d) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted; provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (e) easements, rights of way, restrictions and other similar
easements, licenses, restrictions on the use of properties, or minor
imperfections of title that, in the aggregate, are not material in amount and do
not in any case materially detract from the properties subject thereto or
interfere with the ordinary conduct of the business of the Company or the
Restricted Subsidiaries; (f) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business; (g) Liens securing any
Permitted Credit Facility or Permitted Equipment Financing; (h) Liens to secure
Indebtedness incurred in compliance with clause (k) of the definition of
"Permitted Indebtedness" to the extent relating to the asset subject of the
particular Asset Acquisition or Investment; (i) Liens to secure any Refinancing
of any Indebtedness secured by Liens referred to in the foregoing clauses (a) or
(c), but only to the extent that such Liens do not extend to any other property
or assets and the principal amount of the Indebtedness secured by such Liens is
not increased; (j) Liens to secure the Notes; and (k) Liens on real property
incurred in connection with the financing of the purchase of such real property
(or incurred within 60 days of purchase) by the Company or any Restricted
Subsidiary.
"person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note;
<PAGE> 32
-24-
and, for the purposes of this definition, any Note authenticated and delivered
under Section 3.06 hereof in exchange for a mutilated Note or in lieu of a lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any person, any and all
shares, interests, participations or other equivalents (however designated) of
such person's preferred or preference stock whether now outstanding, or issued
after the Issue Date, and including, without limitation, all classes and series
of preferred or preference stock of such person.
"Private Exchange Notes" shall have the meaning specified in the
Registration Rights Agreement.
"Private Placement Legend" shall mean the first paragraph of the legend
initially set forth in the Notes in the form set forth on Exhibit A-1.
"Public Capital Stock" means any class of Capital Stock which is traded
on the New York Stock Exchange, the American Stock Exchange or the Nasdaq
National Market.
"Public Equity Offering" means an underwritten public offering of
Common Stock (other than Disqualified Stock) made pursuant to a registration
statement filed with the Commission under the Securities Act.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Qualifying Preferred Stock" means preferred stock of an ISP (i) having
a liquidation and dividend preference at least equal to the amount of the
Investment made by the Company or a Restricted Subsidiary in such ISP, (ii)
that, in the case of ISPs not constituting Restricted Subsidiaries, is
redeemable at the option of the holder on a basis consistent with past practice,
and (iii) that is convertible into shares of Common Stock of such ISP at the
option of the holder.
"Redemption Date" means, with respect to any Note to be redeemed, the
date fixed by the Company for such redemption pursuant to this Indenture and the
Notes.
"Redemption Price" means, with respect to any Note to be redeemed, the
price fixed for such redemption pursuant to the terms of this Indenture and the
Notes.
<PAGE> 33
-25-
"Refinancing" has the meaning set forth in clause (f) of the definition
of "Permitted Indebtedness."
"Registrable Securities" shall have the meaning specified in the
Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of March 25, 1998 by and among the Company and the Initial Purchasers,
as the same may be amended, supplemented or otherwise modified from time to time
in accordance with the terms thereof.
"Regular Record Date" means the Regular Record Date specified in the
Notes.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Note" means a permanent global note in registered
form representing the aggregate principal amount of Notes sold in reliance on
Regulation S under the Securities Act.
"Responsible Officer" means, with respect to the Trustee, the chairman
or vice chairman of the board of directors, the chairman or vice chairman of the
executive committee of the board of directors, the president, any vice
president, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer or assistant
trust officer, the controller and any assistant controller or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer of the Trustee to whom any
corporate trust matter is referred because of his or her knowledge of and
familiarity with the particular subject.
"Restricted Note" means a Note that constitutes a "restricted security"
within the meaning of Rule 144(a)(3) under the Securities Act; provided,
however, that the Trustee shall be entitled to request and conclusively rely on
an Opinion of Counsel with respect to whether any Note constitutes a Restricted
Note.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Capital Stock of the
Company or any payment made to
<PAGE> 34
-26-
the direct or indirect holders (in their capacities as such) of Capital Stock of
the Company (other than dividends or distributions payable solely in Capital
Stock (other than Disqualified Stock) of the Company or in options, warrants or
other rights to purchase Capital Stock (other than Disqualified Stock) of the
Company; (ii) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company (other than such Capital Stock owned
by the Company or a Wholly Owned Restricted Subsidiary); (iii) the purchase,
redemption, defeasance or other acquisition or retirement for value prior to any
scheduled repayment, sinking fund or maturity of any Subordinated Indebtedness
(other than any Subordinated Indebtedness held by a Wholly Owned Restricted
Subsidiary); (iv) the making of any payment (whether of dividends or in respect
of liquidation preference) in respect of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock or the Series D Preferred
Stock; or (v) the making by the Company or any Restricted Subsidiary of any
Investment (other than a Permitted Investment) in any person (other than an
Investment by a Restricted Subsidiary in the Company or an Investment by the
Company or a Restricted Subsidiary in (a) a Wholly Owned Restricted Subsidiary
engaged principally in an Internet Service Business; (b) a New ISP that is a
Restricted Subsidiary; (c) a person (other than an existing ISP) engaged
principally in an Internet Service Business that becomes a Wholly Owned
Restricted Subsidiary as a result of such Investment; (d) a New ISP that becomes
a Restricted Subsidiary as a result of such Investment; or (e) a Restricted
Subsidiary (other than an Existing ISP) or a person (other than an Existing ISP)
that becomes a Restricted Subsidiary as a result of such Investment, provided
that, in either case, such Restricted Subsidiary would, but for failing to meet
the requirements of clauses (c) and (d) of the definition of "ISP," be a New
ISP).
"Restricted Subsidiary" means any Subsidiary of the Company that has
not been designated by the Board, by a Board Resolution delivered to the
Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with
Section 10.21 hereof. Any such designation may be revoked by a Board Resolution
delivered to the Trustee, subject to the provisions of such covenant.
"Restricted Subsidiary Indebtedness" means Indebtedness of any
Restricted Subsidiary (i) which is not subordinated to any other Indebtedness of
such Restricted Subsidiary and (ii) in respect of which the Company is not also
obligated (by means of a guarantee or otherwise) other than, in the case of
<PAGE> 35
-27-
this clause (ii), Indebtedness under any Permitted Credit Facilities.
"Revocation" has the meaning set forth under Section 10.21 hereof.
"Rollup" means (i) an Investment in an Existing ISP or transaction or
series of related transactions as a result of which such Existing ISP becomes a
Wholly Owned Restricted Subsidiary or (ii) an Investment in a New ISP or
transaction or series of related transactions as a result of which such New ISP
becomes a Restricted Subsidiary or (iii) a merger or consolidation of any ISP
with the Company.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Corporation.
"SEC" means the Securities and Exchange Commission, as from time to
time constituted, or if at any time after the execution of this Indenture such
Commission is not existing and performing the applicable duties now assigned to
it, then the body or bodies performing such duties at such time.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
"Series A Preferred Stock" has the meaning provided in the Offering
Memorandum.
"Series A Purchase Agreement" has the meaning provided in the Offering
Memorandum.
"Series B Preferred Stock" has the meaning provided in the Offering
Memorandum.
"Series B Purchase Agreement" has the meaning provided in the Offering
Memorandum.
"Series C Preferred Stock" has the meaning provided in the Offering
Memorandum.
"Series C Purchase Agreement" has the meaning provided in the Offering
Memorandum.
"Series D Preferred Stock" has the meaning provided in the Offering
Memorandum.
<PAGE> 36
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"Special Record Date" means, with respect to the payment of any
Defaulted Interest, a date fixed by the Trustee pursuant to Section 3.07 hereof.
"Stated Maturity" means, with respect to any Note or any installment of
interest thereon, the dates specified in such Note as the fixed date on which
the principal of such Note or such installment of interest is due and payable
and, when used with respect to any other Indebtedness, means the date specified
in the instrument governing such Indebtedness as the fixed date on which the
principal of such Indebtedness, or any installment of interest, is due and
payable.
"Stockholders Agreement" has the meaning provided in the Offering
Memorandum.
"Strategic Equity Investor" means any person engaged principally in one
or more communications businesses with a Market Capitalization or Consolidated
Net Worth of at least $1.0 billion.
"Subordinated Indebtedness" means any Indebtedness of the Company or
any Guarantor which is expressly subordinated in right of payment to any other
Indebtedness of the Company or such Guarantor.
"Subsidiary" means, with respect to any person, (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors shall at the time be owned,
directly or indirectly, by such person, or (ii) any other person of which at
least a majority of voting interest is at the time, directly or indirectly,
owned by such person.
"Total Consolidated Indebtedness" means, at any date of determination,
an amount equal to the aggregate amount of all Indebtedness of the Company and
the Restricted Subsidiaries outstanding as of the date of determination.
"Total Incremental Equity" means, at any time of determination, the sum
of, without duplication, (i) the aggregate cash proceeds received prior to June
24, 2000 by the Company from capital contributions in respect of existing
Capital Stock (other than Disqualified Capital Stock) or the issuance or sale of
Capital Stock (other than Disqualified Stock but including Capital Stock issued
upon the conversion of convertible Indebtedness or from the exercise of options,
warrants or rights to purchase Capital Stock (other than Disqualified Stock))
subsequent
<PAGE> 37
-29-
to the Issue Date, other than to a Subsidiary of the Company, plus (ii) the Fair
Market Value (determined at the time of issuance) of any Capital Stock (other
than Disqualified Stock) of the Company issued prior to June 24, 2000 as
consideration for the acquisition of Capital Stock of an ISP (other than the
acquisition of Capital Stock of an Existing ISP), plus (iii) the Fair Market
Value (determined at the time of issuance) of any Capital Stock (other than
Disqualified Stock) of the Company issued prior to June 24, 2000 as
consideration for the acquisition of Capital Stock of an Existing ISP in a
transaction as a result of which the Existing ISP becomes a Wholly Owned
Restricted Subsidiary, plus (iv) the aggregate cash proceeds received by the
Company or any Restricted Subsidiary from the sale, disposition or repayment (in
whole or in part) of any Investment that is made after the Issue Date and that
constitutes a Restricted Payment that has been deducted from Total Incremental
Equity pursuant to clause (v) below in an amount equal to the lesser of (a) the
return of capital with respect to the applicable portion of such Investment and
(b) the cost of the applicable portion of such Investment, in either case, less
the cost of the disposition of such Investment, minus (v) the aggregate amount
of all Restricted Payments declared or made on and after the Issue Date (other
than (1) a Restricted Payment constituting an Investment in an ISP (other than
the acquisition of Capital Stock of an Existing ISP in a transaction as a result
of which the Existing ISP becomes a Wholly Owned Restricted Subsidiary) and (2)
a Restricted Payment made pursuant to clauses (iii), (viii) or (ix) (solely, in
the case of clause (ix), to the extent the Investment is made in a Restricted
Subsidiary) of the third paragraph of Section 10.13 hereof).
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as amended.
"Trustee" means the person named as the "Trustee" in the first
paragraph of this Indenture, until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Notes" means one or more Notes that do not and are not
required to bear the Private Placement Legend in the form set forth in Exhibit
A, including, without limitation, the Exchange Notes.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to and in compliance with
<PAGE> 38
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Section 10.21 hereof. Any such designation may be revoked by a Board Resolution
delivered to the Trustee, subject to the provisions of such covenant.
"Voting Stock" means, with respect to any person, the Capital Stock of
any class or kind ordinarily having the power to vote for the election of
directors or other members of the governing body of such person.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which 99% or more of the outstanding Capital Stock is owned by the Company or
another Wholly Owned Restricted Subsidiary; provided NorthWestNet shall be
deemed a Wholly Owned Restricted Subsidiary notwithstanding its existing stock
option plan and any stock options issued thereunder. For the purposes of this
definition, any directors' qualifying shares or investments by foreign nationals
mandated by applicable law shall be disregarded in determining the ownership of
a Restricted Subsidiary.
"WorldCom" means WorldCom, Inc. (and its successors by merger or
consolidation) and its controlled Affiliates.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Act" 1.05
"Affiliate Transaction" 10.14
"Agent Member" 3.16
"Asset Sale Offer" 10.15
"Asset Sale Offer Purchase Date" 10.15
"assumed liabilities" 10.15
"Change of Control Date" 10.10
"Change of Control Offer" 10.10
"Change of Control Payment Date" 10.10
"covenant defeasance" 4.03
"Defaulted Interest" 3.07
"defeasance" 4.02
"Defeased Notes" 4.01
"Designation" 10.21
"Designation Amount" 10.21
"Event of Default" 5.01
"Excess Proceeds" 10.15
"Guarantee" 10.18
"Guarantor" 10.18
"incur" 10.11
</TABLE>
<PAGE> 39
-31-
<TABLE>
<S> <C>
"insolvent person" 4.04
"Note Register" 3.05
"Offer Excess Proceeds" 10.15
"Paying Agent" or "Agent" 3.02
"Physical Notes" 3.03
"Registrar" 3.02
"Replacement Assets" 10.15
"Restricted Period" 3.17
"Revocation" 10.21
"surviving entity" 8.01
</TABLE>
Section 1.03. Rules of Construction.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP;
(d) the words "herein" "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(e) all references to "$" or "dollars" refer to the lawful currency of
the United States of America; and
(f) the words "include", "included" and "including" as used herein are
deemed in each case to be followed by the phrase "without limitation".
Section 1.04. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
person, or that
<PAGE> 40
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they be so certified or covered by only one document, but one such person may
certify or give an opinion with respect to some matters and one or more other
persons as to other matters, and any such person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion may be based, insofar as it relates
to factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Company stating that the information with respect to
such factual matters is in the possession of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Where any person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated, with
proper identification of each matter covered therein, and form one instrument.
Section 1.05. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution (as provided below in
subsection (b) of this Section 1.05) of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01 hereof) conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section.
<PAGE> 41
-33-
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any reasonable manner which the Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Note shall bind every future Holder
of the same Note or the Holder of every Note issued upon the transfer thereof or
in exchange therefor or in lieu thereof to the same extent as the original
Holder, in respect of anything done, suffered or omitted to be done by the
Trustee, any Paying Agent or the Company in reliance thereon, whether or not
notation of such action is made upon such Note.
Section 1.06. Notices, etc., to the Trustee and the Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed, in writing, to or
with the Trustee at the Corporate Trust Office, Attention: Corporate Trust
Department or at any other address previously furnished in writing to the
Holders and the Company by the Trustee; or
(b) the Company by the Trustee or by any Holder shall be sufficient for
every purpose (except as otherwise expressly provided herein) hereunder if in
writing and mailed, first-class postage prepaid, to the Company addressed to it
at Verio Inc., 8005 South Chester Street, Suite 200, Englewood, Colorado 80112,
Attention: Chief Executive Officer, or at any other address previously furnished
in writing to the Trustee by the Company.
Section 1.07. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise expressly provided herein)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at the address of such Holder as it appears in the Note
<PAGE> 42
-34-
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Any notice when mailed
to a Holder in the aforesaid manner shall be conclusively deemed to have been
received by such Holder whether or not actually received by such Holder. Where
this Indenture provides for notice in any manner, such notice may be waived in
writing by the person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause, it shall be impracticable to mail notice of any event
as required by any provision of this Indenture, then any method of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Section 1.08. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such provision or requirement of the Trust Indenture Act shall
control.
If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or excluded,
as the case may be.
Section 1.09. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
<PAGE> 43
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Section 1.10. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 1.11. Separability Clause.
In case any provision in this Indenture or in the Notes issued pursuant
hereto shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 1.12. Benefits of Indenture.
Nothing in this Indenture or in the Notes issued pursuant hereto,
express or implied, shall give to any person (other than the parties hereto and
their successors hereunder, any Paying Agent and the Holders) any benefit or any
legal or equitable right, remedy or claim under this Indenture.
Section 1.13. GOVERNING LAW.
THIS INDENTURE, THE NOTES AND ANY GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 1.14. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the Notes
or this Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation.
Section 1.15. Independence of Covenants.
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default if such action is taken or condition exists.
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Section 1.16. Exhibits.
All exhibits attached hereto are by this reference made a part hereof
with the same effect as if herein set forth in full.
Section 1.17. Counterparts.
This Indenture may be executed in any number of counterparts and by
telecopier, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
Section 1.18. Duplicate Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
ARTICLE TWO
NOTE FORMS
Section 2.01. Form and Dating.
The Notes and the Trustee's certificate of authentication with respect
thereto shall be in substantially the forms set forth, or referenced, in Exhibit
A-1 and Exhibit A-2, respectively, annexed hereto, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with any applicable law or with the rules of the Depository,
any clearing agency or any securities exchange or as may, consistently herewith,
be determined by the officers executing such Notes, as evidenced by their
execution thereof.
The definitive Notes shall be printed, typewritten, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Notes may be listed, all as determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
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Each Note shall be dated the date of its issuance and shall show the
date of its authentication. The terms and provisions contained in the Notes
shall constitute, and are expressly made, a part of this Indenture.
ARTICLE THREE
THE NOTES
Section 3.01. Title and Terms.
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $175,000,000 in aggregate principal
amount of Notes, except for Notes authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Notes pursuant to
Section 3.03, 3.04, 3.05, 3.06, 9.06, 10.10 or 10.15 hereof.
The final Stated Maturity of the Notes shall be April 1, 2005, and the
Notes shall bear interest at the rate of 10-3/8% per annum from the Issue Date
or from the most recent Interest Payment Date to which interest has been paid,
as the case may be, payable semi-annually thereafter on April 1 and October 1,
in each year, commencing on October 1, 1998, to the Holders of record at the
close of business on the March 15 and September 15, respectively, immediately
preceding such Interest Payment Dates, until the principal thereof is paid or
duly provided for. Interest on any overdue principal, interest (to the extent
lawful) or premium, if any, shall be payable on demand.
At the election of the Company, the entire Indebtedness on the Notes or
certain of the Company's obligations and covenants and certain Events of Default
thereunder may be defeased as provided in Article Four.
Section 3.02. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be located
in the Borough of Manhattan in The City of New York, State of New York) where
Notes may be presented for registration of transfer or for exchange (the
"Registrar"), an office or agency (which shall be located in the Borough of
Manhattan in The City of New York, State of New York) where Notes may be
presented for payment (the "Paying Agent" or "Agent") and an office or agency
where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be
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served. The Registrar shall keep a register of the Notes and of their transfer
and exchange. The Company may have one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" or "Agent" includes any
additional paying agent. The Company may act as its own Paying Agent, except for
the purposes of payments on account of principal on the Notes pursuant to
Sections 10.10 and 10.15 hereof.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which shall incorporate the provisions of
the Trust Indenture Act. The agreement shall implement the provisions of this
Indenture that relate to such Agent. The Company shall notify the Trustee of the
name and address of any such Agent. If the Company fails to maintain a Registrar
or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 6.07 hereof.
The Company initially appoints the Trustee as the Registrar and Paying
Agent and agent for service of notices and demands in connection with the Notes.
Section 3.03. Execution and Authentication.
The Initial Notes and the Trustee's certificate of authentication shall
be substantially in the form of Exhibit A-1 hereto. The Exchange Notes and the
Trustee's certificate of authentication relating thereto shall be substantially
in the form of Exhibit A-2 hereto. The Notes may have notations, legends or
endorsements required by law, stock exchange rule or usage. The Company shall
approve the form of the Notes and any notation, legend or endorsement thereon.
Each Note shall be dated the date of issuance and shall show the date of its
authentication.
The terms and provisions contained in the Notes annexed hereto as
Exhibits A-1 and A-2 shall constitute, and are hereby expressly made, a part of
this Indenture and, to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A and Notes offered and
sold in reliance on Regulation S shall be issued initially in the form of one or
more Global Notes, substantially in the form set forth in Exhibit A-1, deposited
with the Trustee, as custodian for the Depository, duly executed by
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the Company and authenticated by the Trustee as hereinafter provided and shall
bear the legend set forth in Exhibit B. The aggregate principal amount of the
Global Notes may from time to time be increased or decreased by adjustments
made on the records of the Trustee, as custodian for the Depository, as
hereinafter provided.
Notes (i) offered and sold to institutional "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and (ii)
issued in exchange for interests in a Global Note pursuant to Section 3.17
hereof may be issued in the form of permanent certificated Notes in registered
form in substantially the form set forth in Exhibit A-1 (the "Physical Notes").
All Notes offered and sold in reliance on Regulation S shall remain in
the form of a Global Note until the consummation of the Exchange Offer pursuant
to the Registration Rights Agreement; provided, however, that all of the time
periods specified in the Registration Rights Agreement to be complied with by
the Company have been so complied with.
Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer shall sign, and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Notes for the Company by manual or facsimile
signature.
If an Officer or Assistant Secretary whose signature is on a Note was
an Officer or Assistant Secretary at the time of such execution but no longer
holds that office or position at the time the Trustee authenticates the Note,
the Note shall nevertheless be valid.
The Trustee shall authenticate (i) Initial Notes for original issue in
an aggregate principal amount not to exceed $175,000,000, (ii) Private Exchange
Notes from time to time only in exchange for a like principal amount of Initial
Notes and (iii) Unrestricted Notes from time to time only in exchange for (A) a
like principal amount of Initial Notes or (B) a like principal amount of
Private Exchange Notes, in each case upon a written order of the Company in the
form of an Officers' Certificate of the Company. Each such written order shall
specify the amount of Notes to be authenticated and the date on which the Notes
are to be authenticated, whether the Notes are to be Initial Notes, Private
Exchange Notes or Unrestricted Notes and whether (subject to this Section 3.03)
the Notes are to be
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issued as Physical Notes or Global Notes and such other information as the
Trustee may reasonably request. The aggregate principal amount of Notes
Outstanding at any time may not exceed $175,000,000, except as provided in
Section 3.06 hereof.
Notwithstanding the foregoing, all Notes issued under this Indenture
shall vote and consent together on all matters (as to which any of such Notes
may vote or consent) as one class and no series of Notes will have the right to
vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Notes. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
The Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof.
Section 3.04. Temporary Notes.
Until definitive Notes are prepared and ready for delivery, the
Company may execute and upon a Company Order the Trustee shall authenticate and
deliver temporary Notes. Temporary Notes shall be substantially in the form of
definitive Notes, in any authorized denominations, but may have variations that
the Company reasonably considers appropriate for temporary Notes as
conclusively evidenced by the Company's execution of such temporary Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay but in no event later than the date
that the Exchange Offer is consummated. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 10.02 hereof, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Notes, the Company shall execute and the Trustee shall authenticate and deliver
in exchange therefor a like principal amount of definitive Notes of like tenor
and of authorized denominations. Until so exchanged
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the temporary Notes shall in all respects be entitled to the same benefits
under this Indenture as definitive Notes.
Section 3.05. Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 10.02 hereof being sometimes
referred to herein as the "Note Register") in which, subject to such reasonable
regulations as the Registrar may prescribe, the Company shall provide for the
registration of Notes and of transfers and exchanges of Notes. The Trustee is
hereby initially appointed Registrar for the purpose of registering Notes and
transfers of Notes as herein provided.
When Notes are presented to the Registrar or a co-Registrar with a
request from the Holder of such Notes to register the transfer or exchange for
an equal principal amount of Notes of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested;
provided, however, that every Note presented or surrendered for registration of
transfer or exchange shall be duly endorsed or be accompanied by a written
instrument of transfer or exchange in form satisfactory to the Company and the
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing. Whenever any Notes are so presented for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Notes which
the Holder making the exchange is entitled to receive. No service charge shall
be made to the Noteholder for any registration of transfer or exchange. The
Company may require from the Noteholder payment of a sum sufficient to cover
any transfer taxes or other governmental charge that may be imposed in relation
to a transfer or exchange, but this provision shall not apply to any exchange
pursuant to Section 10.10, 10.15 or 9.06 hereof (in which events the Company
will be responsible for the payment of all such taxes which arise solely as a
result of the transfer or exchange and do not depend on the tax status of the
Holder). The Trustee shall not be required to exchange or register the
transfer of any Note for a period of 15 days immediately preceding the first
mailing of notice of redemption of Notes to be redeemed or of any Note
selected, called or being called for redemption except, in the case of any Note
where public notice has been given that such Note is to be redeemed in part,
the portion thereof not to be redeemed.
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All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same
Indebtedness, and entitled to the same benefits under this Indenture, as the
Notes surrendered upon such registration of transfer or exchange.
Any Holder of a beneficial interest in a Global Note shall, by
acceptance of such Global Note, agree that transfers of beneficial interests in
such Global Notes may be effected only through a book-entry system maintained
by the Holder of such Global Note (or its agent), and that ownership of a
beneficial interest in the Note shall be required to be reflected in a book-
entry system.
Section 3.06. Mutilated, Destroyed, Lost and Stolen Notes.
If a mutilated Note is surrendered to the Trustee or if the Holder of
a Note of any series claims that the Note has been lost, destroyed or
wrongfully taken, the Company shall execute and upon a Company Order, the
Trustee shall authenticate and deliver a replacement Note of like tenor and
principal amount, bearing a number not contemporaneously outstanding if the
Holder of such Note furnishes to the Company and to the Trustee evidence
reasonably acceptable to them of the ownership and the destruction, loss or
theft of such Note and an indemnity bond shall be posted by such Holder,
sufficient in the judgment of the Company or the Trustee, as the case may be,
to protect the Company, the Trustee or any Agent from any loss that any of them
may suffer if such Note is replaced. The Company may charge such Holder for
the Company's expenses in replacing such Note (including (i) expenses of the
Trustee charged to the Company and (ii) any tax or other governmental charge
that may be imposed) and the Trustee may charge the Company for the Trustee's
expenses in replacing such Note.
Every replacement Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled
to all benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
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Section 3.07. Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the person in whose
name that Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date and interest on such
defaulted interest at the then applicable interest rate borne by the Notes, to
the extent lawful (such defaulted interest and interest thereon herein
collectively called "Defaulted Interest") shall forthwith cease to be payable
to the Holder on the Regular Record Date; and such Defaulted Interest may be
paid by the Company, at its election in each case, as provided in subsection
(a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest
to the persons in whose names the Notes (or their respective Predecessor Notes)
are registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Note and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the persons
entitled to such Defaulted Interest as provided in this subsection (a).
Thereupon the Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than 15 days and not less than 10
days prior to the date of the proposed payment and not less than 10 days after
the receipt by the Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Company in writing of such Special Record Date. In
the name and at the expense of the Company, the Trustee shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first-class postage prepaid, to each Holder at its
address as it appears in the Note Register, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been so mailed, such Defaulted
Interest shall be paid to the persons in
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whose names the Notes (or their respective Predecessor Notes) are registered on
such Special Record Date and shall no longer be payable pursuant to the
following subsection (b).
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, if, after written notice given by the Company to the
Trustee of the proposed payment pursuant to this subsection (b), such payment
shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
Section 3.08. Persons Deemed Owners.
Prior to and at the time of due presentment for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the person in whose name any Note is registered in the Note Register
as the owner of such Note for the purpose of receiving payment of principal of,
premium, if any, and (subject to Section 3.07 hereof) interest on such Note and
for all other purposes whatsoever, whether or not such Note shall be overdue,
and neither the Company, the Trustee nor any agent of the Company or the
Trustee shall be affected by notice to the contrary.
Section 3.09. Cancellation.
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall be delivered to the Trustee and, if not already
canceled, shall be promptly canceled by it. The Company may at any time
deliver to the Trustee for cancellation any Notes previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Notes so delivered shall be promptly canceled by the
Trustee. The Registrar and the Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer or exchange, redemption
or payment. The Trustee and no one else shall cancel all Notes surrendered for
registration of transfer, exchange, payment, replacement or cancellation. No
Notes shall be authenticated in lieu of or in exchange for any Notes canceled
as provided in this Section 3.09 hereof, except as expressly permitted by this
Indenture.
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All canceled Notes held by the Trustee shall be destroyed and certification of
their destruction delivered to the Company unless by a Company Order the
Company shall direct that the canceled Notes be returned to it. The Trustee
shall provide the Company a list of all Notes that have been canceled from time
to time as requested by the Company.
Section 3.10. Computation of Interest.
Interest on the Notes shall be computed on the basis of a 360-day year
of twelve 30-day months and, in the case of a partial month, the actual number
of days elapsed.
Section 3.11. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, date
established for the payment of Defaulted Interest or Stated Maturity of any
Note shall not be a Business Day, then (notwithstanding any other provision of
this Indenture or of the Notes) payment of principal, premium, if any, or
interest need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date, Redemption Date, date established for the payment of Defaulted Interest
or at the Stated Maturity, as the case may be. In such event, no interest
shall accrue with respect to such payment for the period from and after such
Interest Payment Date, Redemption Date, date established for the payment of
Defaulted Interest or Stated Maturity, as the case may be, to the next
succeeding Business Day and, with respect to any Interest Payment Date,
interest for the period from and after such Interest Payment Date shall accrue
with respect to the next succeeding Interest Payment Date.
Section 3.12. CUSIP and CINS Numbers.
The Company in issuing the Notes may use "CUSIP" and "CINS" numbers
(if then generally in use), and if so, the Trustee shall use the CUSIP or CINS
numbers, as the case may be, in notices of redemption or exchange as a
convenience to Holders; provided, however, that any such notice may state that
no representation is made as to the correctness or accuracy of the CUSIP or
CINS number, as the case may be, printed in the notice or on the Notes, and
that reliance may be placed only on the other identification numbers printed on
the Notes. The Company shall promptly notify the Trustee in writing of any
change in the CUSIP or CINS number of any type of Notes.
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Section 3.13. Paying Agent To Hold Money in Trust.
Each Paying Agent shall hold in trust for the benefit of the
Noteholders or the Trustee all money held by the Paying Agent for the payment
of principal of, premium, if any, or interest on the Notes, and shall notify
the Trustee of any default by the Company in making any such payment. Money
held in trust by the Paying Agent need not be segregated except as required by
law and in no event shall the Paying Agent be liable for any interest on any
money received by it hereunder. The Company at any time may require the Paying
Agent to pay all money held by it to the Trustee and account for any funds
disbursed and the Trustee may at any time during the continuance of any Event
of Default, upon a Company Order to the Paying Agent, require such Paying Agent
to pay forthwith all money so held by it to the Trustee and to account for any
funds disbursed. Upon making such payment, the Paying Agent shall have no
further liability for the money delivered to the Trustee.
Section 3.14. Treasury Notes.
In determining whether the Holders of the required aggregate principal
amount of Notes have concurred in any direction, waiver, consent or notice,
Notes owned by the Company or an Affiliate of the Company shall be considered
as though they are not Outstanding, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Notes which the Trustee actually knows are so owned shall be
so considered. The Company shall notify the Trustee, in writing, when it or
any of its Affiliates repurchases or otherwise acquires Notes, of the aggregate
principal amount of such Notes so repurchased or otherwise acquired.
Section 3.15. Deposits of Monies.
Prior to 12:00 p.m. noon New York City time on each Interest Payment
Date, maturity date, Change of Control Payment Date and Asset Sale Offer
Purchase Date, the Company shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
on such Interest Payment Date, maturity date, Change of Control Payment Date
and Asset Sale Offer Purchase Date, as the case may be, in a timely manner
which permits the Paying Agent to remit payment to the Holders on such Interest
Payment Date, maturity date, Change of Control Payment Date and Asset Sale
Offer Purchase Date, as the case may be.
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Section 3.16. Book-Entry Provisions for Global Notes.
(a) The Global Notes initially shall (i) be registered in the name of
the Depository or the nominee of such Depository, (ii) be delivered to the
Trustee as custodian for such Depository and (iii) bear legends as set forth in
Exhibit B.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Note, and the Depository may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of the Global Note
for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Note.
(b) Transfers of Global Notes shall be limited to transfers in whole,
but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Notes may be
transferred or exchanged for Physical Notes in accordance with the rules and
procedures of the Depository and the provisions of Sections 3.03 and 3.17
hereof. In addition, Physical Notes shall be transferred to all beneficial
owners in exchange for their beneficial interests in Global Notes if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Note, or that it will cease to be a "Clearing Agency"
under the Exchange Act, and in either case a successor Depository is not
appointed by the Company within 90 days of such notice or (ii) an Event of
Default has occurred and is continuing and the Registrar has received a written
request from the Depository to issue Physical Notes.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be
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transferred, and the Company shall execute, and the Trustee shall authenticate
and deliver, one or more Physical Notes of like tenor and principal amount of
authorized denominations.
(d) In connection with the transfer of Global Notes as an entirety to
beneficial owners pursuant to paragraph (b), the Global Notes shall be deemed
to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall authenticate and deliver, to each beneficial
owner identified by the Depository in exchange for its beneficial interest in
the Global Notes, an equal aggregate principal amount at maturity of Physical
Notes of like tenor of authorized denominations.
(e) Any Physical Note constituting a Restricted Note delivered in
exchange for an interest in a Global Note pursuant to subparagraph (b), (c) or
(d) of this Section 3.16 shall, except as otherwise provided by Section 3.17
hereof, bear the Private Placement Legend.
(f) The Holder of any Global Note may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
Section 3.17. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors. The
following additional provisions shall apply with respect to the registration of
any proposed transfer of an Initial Note to any Institutional Accredited
Investor which is not a QIB:
(i) the Registrar shall register the transfer of any Initial Note,
whether or not such Note bears the Private Placement Legend, if (x) the
requested transfer is after the second anniversary of the Issue Date;
provided, however, that neither the Company nor any Affiliate of the
Company has held any beneficial interest in such Note, or portion thereof,
at any time on or prior to the second anniversary of the Issue Date and
such transfer can otherwise be lawfully made under the Securities Act
without registering such Initial Notes thereunder or (y) the proposed
transferee has delivered to the Registrar a certificate substantially in
the form of Exhibit C hereto and any legal opinions and certifications
required thereby;
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(ii) if the proposed transferor is an Agent Member seeking to
transfer an interest in a Global Note, upon receipt by the Registrar of (x)
written instructions given in accordance with the Depository's and the
Registrar's procedures and (y) the appropriate certificate, if any,
required by clause (y) of paragraph (i) above, together with any required
legal opinions and certifications, the Registrar shall register the
transfer and reflect on its books and records the date and a decrease in
the principal amount of the Global Note from which such interests are to be
transferred in an amount equal to the principal amount of the Notes to be
transferred and the Company shall execute and upon a Company Order, the
Trustee shall authenticate Physical Notes in a principal amount equal to
the principal amount of the Global Note to be transferred.
(b) Transfers to Non-U.S. Persons. The following additional
provisions shall apply with respect to the registration of any proposed
transfer of an Initial Note to any Non-U.S. Person:
(i) the Registrar shall register the transfer of any Initial Note,
whether or not such Note bears the Private Placement Legend, if (x) the
requested transfer is after the second anniversary of the Issue Date;
provided, however, that neither the Company nor any Affiliate of the
Company has held any beneficial interest in such Note, or portion thereof,
at any time on or prior to the second anniversary of the Issue Date and
such transfer can otherwise be lawfully made under the Securities Act
without registering such Initial Notes thereunder or (y) the proposed
transferor has delivered to the Registrar a certificate substantially in
the form of Exhibit D hereto;
(ii) if the proposed transferee is an Agent Member and the Notes to
be transferred consist of Physical Notes which after transfer are to be
evidenced by an interest in the Regulation S Global Note upon receipt by
the Registrar of (x) written instructions given in accordance with the
Depository's and the Registrar's procedures and (y) the appropriate
certificate, if any, required by clause (y) of paragraph (i) above,
together with any required legal opinions and certifications, the Registrar
shall register the transfer and reflect on its books and records the date
and an increase in the principal amount of the Regulation S Global Note in
an amount equal to the principal amount of Physical Notes to be
transferred, and the Trustee shall cancel the Physical Notes so
transferred;
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(iii) if the proposed transferor is an Agent Member seeking to
transfer an interest in a Global Note, upon receipt by the Registrar of (x)
written instructions given in accordance with the Depository's and the
Registrar's procedures and (y) the appropriate certificate, if any,
required by clause (y) of paragraph (i) above, together with any required
legal opinions and certifications, the Registrar shall register the
transfer and reflect on its books and records the date and (A) a decrease
in the principal amount of the Global Note from which such interests are to
be transferred in an amount equal to the principal amount of the Notes to
be transferred and (B) an increase in the principal amount of the
Regulation S Global Note in an amount equal to the principal amount of the
Global Note to be transferred; and
(iv) until the 41st day after the Issue Date (the "Restricted
Period"), an owner of a beneficial interest in the Regulation S Global Note
may not transfer such interest to a transferee that is a U.S. person or for
the account or benefit of a U.S. person within the meaning of Rule 902(o)
of the Securities Act. During the Restricted Period, all beneficial
interests in the Regulation S Global Note shall be transferred only through
Cedel or Euroclear, either directly if the transferor and transferee are
participants in such systems, or indirectly through organizations that are
participants.
(c) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of an Initial Note to a
QIB (excluding Non-U.S. Persons):
(i) the Registrar shall register the transfer of any Initial Note,
whether or not such Note bears the Private Placement Legend, if (x) the
requested transfer is after the second anniversary of the Issue Date;
provided, however, that neither the Company nor any Affiliate of the
Company has held any beneficial interest in such Note, or portion thereof,
at any time on or prior to the second anniversary of the Issue Date and
such transfer can otherwise be lawfully made under the Securities Act
without registering such Initial Note thereunder or (y) such transfer is
being made by a proposed transferor who has checked the box provided for on
the form of Note stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed
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the certification provided for on the form of Note stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Note for its own account or an account with respect to which
it exercises sole investment discretion and that it and any such account is
a QIB within the meaning of Rule 144A, and is aware that the sale to it is
being made in reliance on Rule 144A and acknowledges that it has received
such information regarding the Company as it has requested pursuant to Rule
144A or has determined not to request such information and that it is aware
that the transferor is relying upon its foregoing representations in order
to claim the exemption from registration provided by Rule 144A;
(ii) if the proposed transferee is an Agent Member and the Notes to
be transferred consist of Physical Notes which after transfer are to be
evidenced by an interest in the 144A Global Note, upon receipt by the
Registrar of written instructions given in accordance with the Depository's
and the Registrar's procedures, the Registrar shall register the transfer
and reflect on its book and records the date and an increase in the
principal amount of the 144A Global Note in an amount equal to the
principal amount of Physical Notes to be transferred, and the Trustee shall
cancel the Physical Note so transferred; and
(iii) if the proposed transferor is an Agent Member seeking to
transfer an interest in a Global Note, upon receipt by the Registrar of
written instructions given in accordance with the Depository's and the
Registrar's procedures, the Registrar shall register the transfer and
reflect on its books and records the date and (A) a decrease in the
principal amount of the Global Note from which interests are to be
transferred in an amount equal to the principal amount of the Notes to be
transferred and (B) an increase in the principal amount of the 144A Global
Note in an amount equal to the principal amount of the Global Note to be
transferred.
(d) Private Placement Legend. Upon the registration of transfer,
exchange or replacement of Notes not bearing the Private Placement Legend, the
Registrar shall deliver Notes that do not bear the Private Placement Legend.
Upon the registration of transfer, exchange or replacement of Notes bearing the
Private Placement Legend, the Registrar shall deliver only Notes that bear the
Private Placement Legend unless (i) the circumstances contemplated by paragraph
(a)(i)(x) of this Section 3.17 exist, (ii) there is delivered to the Registrar
an
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Opinion of Counsel reasonably satisfactory to the Company and the Trustee to
the effect that neither such legend nor the related restrictions on transfer
are required in order to maintain compliance with the provisions of the
Securities Act or (iii) such Note has been sold pursuant to an effective
registration statement under the Securities Act.
(e) Other Transfers. If a Holder proposes to transfer a Note
constituting a Restricted Note pursuant to any exemption from the registration
requirements of the Securities Act other than as provided for by Section
3.17(a), (b) and (c) hereof, the Registrar shall only register such transfer or
exchange if such transferor delivers an Opinion of Counsel satisfactory to the
Company and the Registrar that such transfer is in compliance with the
Securities Act and the terms of this Indenture; provided, however, that the
Company may, based upon the opinion of its counsel, instruct the Registrar by a
Company Order not to register such transfer in any case where the proposed
transferee is not a QIB, Non-U.S. person or Institutional Accredited Investor.
(f) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 3.16 hereof or this Section
3.17. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon
the giving of reasonable prior written notice to the Registrar.
ARTICLE FOUR
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. Company's Option To Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have either Section 4.02 or Section 4.03 hereof
be applied to all of the
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Outstanding Notes (the "Defeased Notes"), upon compliance with the conditions
set forth below in this Article Four.
Section 4.02. Defeasance and Discharge.
Upon the Company's exercise under Section 4.01 hereof of the option
applicable to this Section 4.02, the Company shall be deemed to have been
discharged from their obligations with respect to the Defeased Notes on the
date the conditions set forth below are satisfied (hereinafter, "defeasance").
For this purpose, such defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the Defeased
Notes, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 4.05 and the other Sections of this Indenture referred to
in (a) and (b) below, and to have satisfied all its other obligations under
such Notes and this Indenture insofar as such Notes are concerned (and the
Trustee, at the expense of the Company, and, upon Company Request, shall
execute proper instruments acknowledging the same), except for the following,
which shall survive until otherwise terminated or discharged hereunder: (a)
the rights of Holders of Defeased Notes to receive, solely from the trust fund
described in Section 4.04 hereof and as more fully set forth in such Section,
payments in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (b) the Company's obligations with respect to
such Defeased Notes under Sections 3.04, 3.05, 3.06, 10.02 and 10.03 hereof,
(c) the rights, powers, trusts, duties and immunities of the Trustee hereunder,
including, without limitation, the Trustee's rights under Section 6.07 hereof,
and (d) this Article Four. Subject to compliance with this Article Four, the
Company may exercise its option under this Section 4.02 notwithstanding the
prior exercise of its option under Section 4.03 hereof with respect to the
Notes.
Section 4.03. Covenant Defeasance.
Upon the Company's exercise under Section 4.01 hereof of the option
applicable to this Section 4.03, the Company shall be released from its
obligations under any covenant or provision contained in Sections 10.06 through
10.23 hereof and the provisions of Articles Eight shall not apply, with respect
to the Defeased Notes, on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"), and the Defeased Notes shall
thereafter be deemed not to be "Outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall
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continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to the Defeased
Notes, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such Section or
Article, whether directly or indirectly, by reason of any reference elsewhere
herein to any such Section or Article or by reason of any reference in any such
Section or Article to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 5.01(iii) or (iv) hereof, but, except as specified above, the
remainder of this Indenture and such Defeased Notes shall be unaffected
thereby.
Section 4.04. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
4.02 or Section 4.03 hereof to the Defeased Notes:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 6.09 hereof who shall agree to comply with the provisions of
this Article Four applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Notes, (a) cash in
an amount, or (b) U.S. Government Obligations which through the scheduled
payment of principal, premium, if any, and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment, money in an amount, or (c) a combination thereof,
in any such case, sufficient, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and which shall be
applied by the Trustee (or other qualifying trustee) to pay and discharge,
the principal of, premium, if any, and interest on the Defeased Notes at
the Stated Maturity of such principal or installment of principal, premium,
if any, or interest; provided, however, that the Trustee shall have been
irrevocably instructed to apply such cash or the proceeds of such U.S.
Government Obligations to said payments with respect to the Notes;
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(2) No Default shall have occurred and be continuing on the date of
such deposit or, insofar as Section 5.01(viii) hereof is concerned, at any
time during the period ending on the ninety-first day after the date of
such deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period);
(3) Neither the Company nor any Subsidiary of the Company is an
"insolvent person" within the meaning of any applicable Bankruptcy Law on
the date of such deposit or at any time during the period ending on the
ninety-first day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until the expiration of such
period);
(4) Such defeasance or covenant defeasance shall not cause the Trustee
for the Notes to have a conflicting interest in violation of Section 6.08
hereof and for purposes of the Trust Indenture Act with respect to any
securities of the Company;
(5) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound;
(6) In the case of an election under Section 4.02 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that (x)
the Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (y) since the date hereof, there has been a
change in the applicable Federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the Holders
of the Outstanding Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred;
(7) In the case of an election under Section 4.03 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Holders of the Outstanding Notes will not recognize income, gain
or loss for Federal income tax purposes as a result of such covenant
defeasance and will be subject to Federal income tax
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on the same amounts, in the same manner and at the same times as would have
been the case if such covenant defeasance had not occurred;
(8) The Company shall have delivered to the Trustee, an Opinion of
Counsel to the effect that, immediately following the ninety-first day
after the deposit, the trust funds established pursuant to this Article
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under
any applicable U.S. Federal or state law;
(9) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit made by the Company pursuant to its
election under Section 4.02 or 4.03 hereof was not made by the Company with
the intent of preferring the Holders over the other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
(10) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that (i) all conditions
precedent (other than conditions requiring the passage of time) provided
for relating to either the defeasance under Section 4.02 or the covenant
defeasance under Section 4.03 (as the case may be) have been complied with
as contemplated by this Section 4.04 and (ii) if any other Indebtedness of
the Company shall then be outstanding or committed, such defeasance or
covenant defeasance will not violate the provisions of the agreements or
instruments evidencing such Indebtedness.
Opinions required to be delivered under this Section may have such
qualifications as are customary for opinions of the type required and
reasonably acceptable to the Trustee.
Section 4.05. Deposited Money and U.S. Government Obligations To
Be Held in Trust; Other Miscellaneous Provisions.
Subject to the proviso of the last paragraph of Section 10.03, all
money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 4.05, the "Trustee") pursuant to Section 4.04 in
respect of the Defeased Notes shall be held in trust and applied by the
Trustee,
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in accordance with the provisions of such Notes and this Indenture, to the
payment, either directly or through any Paying Agent (other than the Company)
as the Trustee may determine, to the Holders of such Notes of all sums due and
to become due thereon in respect of principal, premium, if any, and interest,
but such money need not be segregated from other funds except to the extent
required by law.
The Company shall pay and indemnify the Trustee and hold it harmless
against any tax, fee or other charge imposed on or assessed against the U.S.
Government Obligations deposited pursuant to Section 4.04 or the principal,
premium, if any, and interest received in respect thereof other than any such
tax, fee or other charge which by law is for the account of the Holders of the
Defeased Notes.
Anything in this Article Four to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 4.04 which, in the opinion of an internationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance.
Section 4.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 4.02 or 4.03 hereof, as the
case may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application,
then the obligations of the Company under this Indenture and the Notes shall be
revived and reinstated as though no deposit had occurred pursuant to Section
4.02 or 4.03 hereof, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money and U.S. Government
Obligations in accordance with Section 4.02 or 4.03 hereof, as the case may be;
provided, however, that if the Company makes any payment of principal, premium,
if any, or interest on any Note following the reinstatement of its obligations,
the Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money and U.S. Government Obligations held by the
Trustee or Paying Agent.
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ARTICLE FIVE
REMEDIES
Section 5.01. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) default in the payment of interest on the Notes when it becomes
due and payable and continuance of such default for a period of 30-days or
more; or
(ii) default in the payment of the principal of, or premium, if
any, on the Notes when due; or
(iii) default in the performance, or breach, of any covenant
described under Section 10.10, Section 10.15 or Article Eight; or
(iv) default in the performance, or breach, of any term, covenant
or agreement in the Notes, this Indenture (other than defaults specified in
clause (i), (ii) or (iii) above) and continuance of such default or breach
for a period of 30 days or more after written notice to the Company by the
Trustee or to the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the Outstanding Notes (in each case, when
such notice is deemed received in accordance with this Indenture); or
(v) failure to perform any term, covenant, condition or provision
of one or more classes or issues of Indebtedness in an aggregate principal
amount of $7.5 million or more under which the Company or a Material
Restricted Subsidiary is obligated, and either (a) such Indebtedness is
already due and payable in full or (b) such failure results in the
acceleration of the maturity of such Indebtedness; or
(vi) any holder of at least $7.5 million in aggregate principal
amount of Indebtedness of the Company or any Material Restricted Subsidiary
shall commence judicial proceedings
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or take any other action to foreclose upon or dispose of assets of the
Company or any Material Restricted Subsidiary having an aggregate Fair
Market Value, individually or in the aggregate, of $7.5 million or more or
shall have exercised any right under applicable law or applicable security
documents to take ownership of any such assets in lieu of foreclosure;
provided that, in any such case, the Company or any Material Restricted
Subsidiary shall not have obtained, prior to any such foreclosure or
disposition of assets, a stay of all such actions that remains in effect;
or
(vii) one or more judgments, orders or decrees for the payment of
money of $7.5 million or more, either individually or in the aggregate,
shall be entered into against the Company or any Material Restricted
Subsidiary or any of their respective properties and shall not be
discharged and there shall have been a period of 60 days or more during
which a stay of enforcement of such judgment or order, by reason of pending
appeal or otherwise, shall not be in effect; or
(viii) the Company or any Material Restricted Subsidiary of the
Company pursuant to or under or within the meaning of any Bankruptcy Law;
or
(A) commences a voluntary case or proceeding;
(B) consents to the making of a Bankruptcy Order in an involuntary
case or proceeding or the commencement of any case against it;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property;
(D) makes a general assignment for the benefit of its creditors;
(E) files an answer or consent seeking reorganization or relief;
(F) shall admit in writing its inability to pay its debts
generally; or
(G) consents to the filing of a petition in bankruptcy; or
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(ix) a court of competent jurisdiction in any involuntary case or
proceeding enters a Bankruptcy Order against the Company or any Material
Restricted Subsidiary, and such Bankruptcy Order remains unstayed and in
effect for 60 consecutive days; or
(x) a Custodian shall be appointed out of court with respect to the
Company or any Material Restricted Subsidiary or with respect to all or any
substantial part of the assets or properties of the Company or any Material
Restricted Subsidiary.
Section 5.02. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
clause (viii), (ix) or (x) of Section 5.01 hereof with respect to the Company)
occurs and is continuing, then the Trustee or the holders of at least 25% in
principal amount of the Outstanding Notes may, by written notice, and the
Trustee upon the request of the holders of not less than 25% in principal
amount of the Outstanding Notes shall, declare the principal amount of, premium
(if any) on, and any accrued and unpaid interest on, all outstanding Notes to
be immediately due and payable and upon any such declaration such amounts shall
become immediately due and payable. If an Event of Default specified in clause
(viii), (ix) or (x) above with respect to the Company occurs and is continuing,
then the principal amount of, premium (if any) on, and any accrued and unpaid
interest on, all Outstanding Notes shall ipso facto become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any holder.
After a declaration of acceleration, the holders of a majority in
aggregate principal amount of Outstanding Notes may, by notice to the Trustee,
rescind such declaration of acceleration if all existing Events of Default,
other than nonpayment of the principal of, premium (if any) on, and any accrued
and unpaid interest on, the Notes that has become due solely as a result of
such acceleration, have been cured or waived and if the rescission of
acceleration would not conflict with any judgment or decree.
Section 5.03. Collection of Indebtedness and Suits for Enforcement
by Trustee. _
The Company covenants that if an Event of Default specified in Section
5.01(i) or 5.01(ii) shall have occurred
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and be continuing, the Company will, upon demand of the Trustee, pay to the
Trustee, for the benefit of the Holders of such Notes, the whole amount then
due and payable on such Notes for principal, premium, if any, and interest,
with interest upon the overdue principal, premium, if any, and, to the extent
that payment of such interest shall be legally enforceable, upon overdue
installments of interest, at the rate then borne by the Notes; and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may, but is
not obligated under this paragraph to, institute a judicial proceeding for the
collection of the sums so due and unpaid and may, but is not obligated under
this paragraph to, prosecute such proceeding to judgment or final decree, and
may, but is not obligated under this paragraph to, enforce the same against the
Company or any other obligor upon the Notes and collect the moneys adjudged or
decreed to be payable in the manner provided by law out of the property of the
Company or any other obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion, but is not obligated under this paragraph to, (i) proceed to
protect and enforce its rights and the rights of the Holders under this
Indenture by such appropriate private or judicial proceedings as the Trustee
shall deem most effectual to protect and enforce such rights, whether for the
specific enforcement of any covenant or agreement contained in this Indenture
or in aid of the exercise of any power granted herein or (ii) proceed to
protect and enforce any other proper remedy. No recovery of any such judgment
upon any property of the Company shall affect or impair any rights, powers or
remedies of the Trustee or the Holders.
Section 5.04. Trustee May File Proofs of Claims.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
or the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and
irrespective of whether the
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Trustee shall have made any demand on the Company for the payment of overdue
principal or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal,
premium, if any, and interest owing and unpaid in respect of the Notes and to
file such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, fees, expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any Custodian, in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay
the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 6.07 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 5.05. Trustee May Enforce Claims Without Possession of
Notes.
All rights of action and claims under this Indenture or the Notes may
be prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name and
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, fees, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Notes in respect of which such judgment
has been recovered.
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Section 5.06. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal, premium, if
any, or interest, upon presentation of the Notes and the notation thereon of
the payment if only partially paid and upon surrender thereof if fully paid:
First: to the Trustee for amounts due under Section 6.07;
Second: to Holders for interest accrued on the Notes, ratably,
without preference or priority of any kind, according to the amounts due
and payable on the Notes for interest;
Third: to Holders for principal and premium, if any, amounts owing
under the Notes, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for principal and
premium, if any; and
Fourth: the balance, if any, to the Company.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Noteholders pursuant to this
Section 5.06.
Section 5.07. Limitation on Suits.
No Holder of any Notes shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of the
Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and
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liabilities to be incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in aggregate principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture, any Note or any Guarantee to affect, disturb or prejudice the
rights of any other Holders, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
any Note or any Guarantee, except in the manner provided in this Indenture and
for the equal and ratable benefit of all the Holders.
Section 5.08. Unconditional Right of Holders To Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
cash payment of the principal of, premium, if any, and (subject to Section 3.07
hereof) interest on such Note on the respective Stated Maturities expressed in
such Note (or, in the case of redemption, on the respective Redemption Date)
and to institute suit for the enforcement of any such payment, and such rights
shall not be impaired without the consent of such Holder.
Section 5.09. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture or any Note and such proceeding has
been discontinued or abandoned for any reason, or has been determined adversely
to the Trustee or to such Holder, then and in every such case the Company, the
Trustee and the Holders shall, subject to any determination in such proceeding,
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall
continue as though no such proceeding had been instituted.
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Section 5.10. Rights and Remedies Cumulative.
Except as provided in Section 3.06, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article Five or
by law to the Trustee or to the Holders may be exercised from time to time, and
as often as may be deemed expedient, by the Trustee or by the Holders, as the
case may be.
Section 5.12. Control by Majority.
The Holders of a majority in aggregate principal amount of the
Outstanding Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided, however,
that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture or any Note or expose the Trustee to personal liability;
and
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Notes may on behalf of the Holders of all the Notes waive
any past Default hereunder and its consequences, except a Default
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(a) in the payment of the principal of, premium, if any, or interest
on any Note or
(b) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of each
Outstanding Note affected thereby.
Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
Section 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Note by
his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may
in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.14 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Notes, or to
any suit instituted by any Holder for the enforcement of the payment of the
principal of, premium, if any, or interest on any Note on or after the
respective Stated Maturities expressed in such Note (or, in the case of
redemption, on or after the respective Redemption Dates).
Section 5.15. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury or other law wherever enacted, now or at any time hereafter in force,
which would prohibit or forgive the Company from paying all or any portion of
the principal of, premium, if any, or interest on the Notes contemplated herein
or in the Notes or which may
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affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
Section 5.16. Unconditional Right of Holders To Receive Payment.
Notwithstanding any other provision in this Indenture and any other
provision of any Note, the right of any Holder of any Note to receive payment
of the principal of, premium, if any, and interest on such Note on or after the
respective Stated Maturities (or the respective Redemption Dates, in the case
of redemption) expressed in such Note, or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
ARTICLE SIX
THE TRUSTEE
Section 6.01. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture, and no implied covenants
or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions which by provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall be
under a duty to examine the same to determine whether or not they conform
to the requirements of this Indenture.
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(b) During the existence of an Event of Default, the Trustee is
required to exercise such rights and powers vested in it under this Indenture
and use the same degree of care and skill in its exercise thereof as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that no provision of this
Indenture shall require the Trustee to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section 6.01.
Section 6.02. Notice of Defaults.
Within 45 days after the occurrence of any Default, the Trustee shall
transmit by mail to all Holders, as their names and addresses appear in the
Note Register, notice of such Default hereunder known to the Trustee, unless
such Default shall have been cured or waived; provided, however, that, except
in the case of a Default in the payment of the principal of, premium, if any,
or interest on any Note, the Trustee shall be protected in withholding such
notice if and so long as a trust committee of Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interest of the Holders.
Section 6.03. Certain Rights of Trustee.
Subject to Section 6.01 hereof and the provisions of Section 315 of
the Trust Indenture Act:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
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to be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board may be sufficiently evidenced by a Board Resolution thereof;
(c) the Trustee may consult with counsel and any written advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon in accordance with such advice
or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by the Trustee in compliance
with such request or direction;
(e) the Trustee shall not be liable for any action taken or omitted
by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture other than any
liabilities arising out of its own negligence;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, approval,
appraisal, bond, debenture, note, coupon, security, other evidence of
indebtedness or other paper or document unless requested in writing so to do by
the Holders of not less than a majority in aggregate principal amount of the
Notes then Outstanding; provided, however, that, if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities likely to
be incurred by it in the making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security afforded to it
by the terms of this Indenture, the Trustee may require reasonable indemnity
against such expenses or liabilities as a condition to proceeding; the
reasonable expenses of every such investigation shall be paid by the Company
or, if paid by the Trustee or any predecessor Trustee, shall be repaid by the
Company upon demand; provided, further, the Trustee in its discretion may make
such further inquiry or
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investigation into such facts or matters as it may deem fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it shall
be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
(h) Except with respect to Section 10.01, the Trustee shall have no
duty to inquire as to the performance of the Company's covenants in Article
Ten. In addition, the Trustee shall not be deemed to have knowledge of any
Default or Event of Default except (i) any Event of Default occurring pursuant
to Sections 5.01(i), 5.01(ii) and 10.01 or (ii) any Default or Event of Default
of which the Trustee shall have received written notification or obtained
actual knowledge.
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of
Notes or Application of Proceeds Thereof.
The recitals contained herein and in the Notes, except the Trustee's
certificates of authentication, shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Notes and
perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility and Qualification on Form T-1, if any, to be supplied
to the Company are true and accurate subject to the qualifications set forth
therein. The Trustee shall not be accountable for the use or application by
the Company of Notes or the proceeds thereof.
Section 6.05. Trustee and Agents May Hold Notes; Collections; Etc.
The Trustee, any Paying Agent, Registrar or any other agent of the
Company, in its individual or any other capacity, may become the owner or
pledgee of Notes, with the same rights it would have if it were not the
Trustee, Paying Agent, Registrar
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or such other agent and, subject to Section 6.08 hereof and Sections 310 and
311 of the Trust Indenture Act, may otherwise deal with the Company and
receive, collect, hold and retain collections from the Company with the same
rights it would have if it were not the Trustee, Paying Agent, Registrar or
such other agent.
Section 6.06. Money Held in Trust.
All moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were
received, but need not be segregated from other funds except to the extent
required herein or by law. The Trustee shall not be under any liability for
interest on any moneys received by it hereunder.
Section 6.07. Compensation and Indemnification of Trustee and Its
Prior Claim.
The Company covenants and agrees: (a) to pay to the Trustee from time
to time, and the Trustee shall be entitled to, reasonable compensation for all
services rendered by it hereunder (which shall not be limited by any provision
of law in regard to the compensation of a trustee of an express trust); (b) to
reimburse the Trustee and each predecessor Trustee upon its request for all
reasonable expenses, fees, disbursements and advances incurred or made by or on
behalf of it in accordance with any of the provisions of this Indenture
(including the reasonable compensation, fees, and the expenses and
disbursements of its counsel and of all agents and other persons not regularly
in its employ), except any such expense, disbursement or advance as may arise
from its negligence or bad faith; and (c) to indemnify the Trustee and each
predecessor Trustee for, and to hold it harmless against, any loss, liability
or expense incurred without negligence or bad faith on its part, arising out of
or in connection with the acceptance or administration of this Indenture or in
respect of the trusts hereunder and its duties hereunder, including enforcement
of this Section 6.07. The obligations of the Company under this Section to
compensate and indemnify the Trustee and each predecessor Trustee and to pay or
reimburse the Trustee and each predecessor Trustee for expenses, fees,
disbursements and advances shall constitute an additional obligation hereunder
and shall survive the satisfaction and discharge of this Indenture. To secure
the obligations of the Company to the Trustee under this Section 6.07, the
Trustee shall have a prior Lien upon all property and funds held or collected
by the Trustee as such,
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except funds and property paid by the Company and held in trust for the benefit
of the Holders of particular Notes.
Section 6.08. Conflicting Interests.
The Trustee shall be subject to and comply with the provisions of
Section 310(b) of the Trust Indenture Act.
Section 6.09. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
eligible to act as Trustee under Trust Indenture Act Sections 310(a)(1) and (2)
and which shall have a combined capital and surplus of at least $25,000,000,
and have a Corporate Trust Office in the Borough of Manhattan in The City of
New York, State of New York. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of any
Federal, state, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If
at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
Section 6.10. Resignation and Removal; Appointment of Successor
Trustee.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee, or any trustee or trustees hereinafter appointed,
may at any time resign by giving written notice thereof to the Company at least
20 Business Days prior to the date of such proposed resignation. Upon
receiving such notice of resignation, the Company shall promptly appoint a
successor trustee by written instrument executed by authority of the Board, a
copy of which shall be delivered to the resigning Trustee and a copy to the
successor Trustee. If an instrument of acceptance by a successor Trustee shall
not have been delivered to the Trustee within 20 Business Days after the giving
of such notice of resignation, the resigning Trustee may, or (if an instrument
of acceptance by a successor Trustee shall not
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have been delivered to the Trustee within 30 Business Days after the giving of
such notice of resignation) any Holder who has been a bona fide Holder of a
Note for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee. Such court may thereupon, after such notice, if any, as it
may deem proper, appoint a successor Trustee.
(c) The Trustee may be removed at any time by an Act of the Holders
of a majority in principal amount of the Outstanding Notes, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of Section
310(b) of the Trust Indenture Act in accordance with Section 6.08 hereof
after written request therefor by the Company or by any Holder who has been
a bona fide Holder of a Note for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.09 hereof
and shall fail to resign after written request therefor by the Company or
by any Holder who has been a bona fide Holder of a Note for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent, or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose or
rehabilitation, conservation or liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 5.14, the Holder of any Note who has been a
bona fide Holder of a Note for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor Trustee.
Such court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee.
If, within
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one year after such resignation, removal or incapability, or the occurrence of
such vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding Notes delivered to the Company
and the retiring Trustee, the successor Trustee so appointed shall, forthwith
upon its acceptance of such appointment, become the successor Trustee and
supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders of the Notes
and accepted appointment in the manner hereinafter provided, the Holder of any
Note who has been a bona fide Holder for at least six months may, subject to
Section 5.14, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Notes as their names and addresses appear in the Note Register.
Each notice shall include the name of the successor Trustee and the address of
its Corporate Trust Office.
Section 6.11. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers,
trusts and duties of the retiring Trustee as if originally named as Trustee
hereunder; but, nevertheless, on the written request of the Company or the
successor Trustee, upon payment of amounts due it pursuant to Section 6.07,
such retiring Trustee shall duly assign, transfer and deliver to the successor
Trustee all moneys and property at the time held by it hereunder and shall
execute and deliver an instrument transferring to such successor Trustee all
the rights, powers, duties and obligations of the retiring Trustee. Upon
request of any such successor Trustee, the Company shall execute any and all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights and powers. Any Trustee ceasing to act
shall, nevertheless, retain a prior claim upon all property or funds held or
collected by such Trustee to secure any amounts then due it pursuant to the
provisions of Section 6.07.
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No successor Trustee with respect to the Notes shall accept
appointment as provided in this Section 6.11 unless at the time of such
acceptance such successor Trustee shall be eligible to act as Trustee under
this Article.
Upon acceptance of appointment by any successor Trustee as provided in
this Section 6.11, the successor shall give notice thereof to the Holders of
the Notes, by mailing such notice to such Holders at their addresses as they
shall appear on the Note Register. If the acceptance of appointment is
substantially contemporaneous with the resignation, then the notice called for
by the preceding sentence may be combined with the notice called for by Section
6.10. If the Company fails to give such notice within 10 days after acceptance
of appointment by the successor Trustee, the successor Trustee shall cause such
notice to be given at the expense of the Company.
Section 6.12. Merger, Conversion, Amalgamation, Consolidation or
Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated or amalgamated, or any corporation resulting
from any merger, conversion, amalgamation or consolidation to which the Trustee
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of the Trustee, shall be the successor of the
Trustee hereunder without the execution or filing of any paper or any further
act on the part of any of the parties hereto, provided such corporation shall
be eligible under this Article Six to serve as Trustee hereunder.
In case at the time such successor to the Trustee under this Section
6.12 shall succeed to the trusts created by this Indenture any of the Notes
shall have been authenticated but not delivered, any such successor to the
Trustee may adopt the certificate of authentication of any predecessor Trustee
and deliver such Notes so authenticated; and, in case at that time any of the
Notes shall not have been authenticated, any successor to the Trustee under
this Section 6.12 may authenticate such Notes either in the name of any
predecessor hereunder or in the name of the successor Trustee; and in all such
cases such certificate shall have the full force which it is anywhere in the
Notes or in this Indenture provided that the certificate of the Trustee shall
have been authenticated.
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ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. Preservation of Information; Company To Furnish
Trustee Names and Addresses of Holders.
(a) The Trustee shall preserve the names and addresses of the
Noteholders and otherwise comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish or cause the Registrar to furnish
to the Trustee before each Interest Payment Date, and at such other times as
the Trustee may request in writing, a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of the
Noteholders. Neither the Company nor the Trustee shall be under any
responsibility with regard to the accuracy of such list.
(b) The Company will furnish or cause to be furnished to the Trustee
(i) semi-annually, not more than 15 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date; and
(ii) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days prior
to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Registrar,
no such list need be furnished pursuant to this Subsection 7.01(b).
Section 7.02. Communications of Holders.
Holders may communicate with other Holders with respect to their
rights under this Indenture or under the Notes pursuant to Section 312(b) of
the Trust Indenture Act. The Company and the Trustee and any and all other
persons benefited by this Indenture shall have the protection afforded by
Section 312(c) of the Trust Indenture Act.
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Section 7.03. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the first May
15 following the date of this Indenture, the Trustee shall mail to all Holders,
as their names and addresses appear in the Note Register, a brief report dated
as of such May 15, in accordance with, and to the extent required under Section
313 of the Trust Indenture Act. At the time of its mailing to Holders, a copy
of each such report shall be filed by the Trustee with the Company, the SEC and
with each stock exchange on which the Notes are listed. The Company shall
notify the Trustee when the Notes are listed on any stock exchange.
Section 7.04. Reports by Company.
The Company shall:
(a) file with the SEC the copies of annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the SEC may from time to time by rules and regulations
prescribe) required to be filed with the SEC pursuant to Section 13 or Section
15 of the Exchange Act, whether or not the Company has a class of securities
registered under the Exchange Act;
(b) file with the Trustee within 15 days after it files or would be
required to file the information specified in subsection (a) of this Section
7.04 reports and documents with the SEC copies of such information;
(c) file with the Trustee and the SEC in accordance with rules and
regulations prescribed from time to time by the SEC, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from
time to time by such rules and regulations; and
(d) transmit by mail to all Holders, as their names and addresses
appear in the Note Register, within 30 days after the filing thereof with the
Trustee, such summaries of any information, documents and reports required to
be filed by the Company pursuant to subsections (a) and (c) of this Section as
may be required by rules and regulations prescribed from time to time by the
SEC.
Notwithstanding anything to the contrary herein, the Trustee shall
have no duty to review information provided pursuant
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to subsection (b) of this Section 7.04 for purposes of determining compliance
with any provisions of this Indenture.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Section 8.01. Company May Consolidate, etc., Only on Certain Terms.
The Company will not (i) consolidate or combine with or merge with or
into or, directly or indirectly, sell, assign, convey, lease, transfer or
otherwise dispose of all or substantially all of its properties and assets to
any person or persons in a single transaction or through a series of
transactions, or (ii) permit any of the Restricted Subsidiaries to enter into
any such transaction or series of transactions if it would result in the
disposition of all or substantially all of the properties or assets of the
Company and the Restricted Subsidiaries on a consolidated basis, unless, in the
case of either (i) or (ii), (a) the Company shall be the continuing person or,
if the Company is not the continuing person, the resulting, surviving or
transferee person (the "surviving entity") shall be a company organized and
existing under the laws of the United States or any State or territory thereof;
(b) the surviving entity shall expressly assume all of the obligations of the
Company under the Notes, and this Indenture, and shall, if required by law to
effectuate such assumption, execute a supplemental indenture to effect such
assumption, which supplemental indenture shall be delivered to the Trustee and
shall be in form and substance reasonably satisfactory to the Trustee; (c)
immediately after giving effect to such transaction or series of transactions
on a pro forma basis (including, without limitation, any Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), the Company or the surviving entity
(assuming such surviving entity's assumption of the Company's obligations under
the Notes and this Indenture), as the case may be, would be able to incur $1.00
of Indebtedness under the proviso of Section 10.11; provided that, in the case
of any transaction or series of transactions comprised solely of one or more
Rollups, this clause (c) shall be deemed satisfied if the Company or the
surviving entity and the Restricted Subsidiaries would have been able to incur
all of their outstanding Indebtedness as Permitted Indebtedness; (d)
immediately after giving effect to such transaction or series of transactions
on
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a pro forma basis (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such transaction
or series of transactions), no Default shall have occurred and be continuing;
and (e) the Company or the surviving entity, as the case may be, shall have
delivered to the Trustee an Officers' Certificate stating that such transaction
or series of transactions, and, if a supplemental indenture is required in
connection with such transaction or series of transactions to effectuate such
assumption, such supplemental indenture, complies with this covenant and that
all conditions precedent in this Indenture relating to the transaction or
series of transactions have been satisfied.
Section 8.02. Successor Substituted.
Upon any consolidation or merger or any sale, assignment, conveyance,
lease, transfer or other disposition of all or substantially all of the assets
of the Company in accordance with the foregoing in which the Company or the
Restricted Subsidiary, as the case may be, is not the continuing corporation,
the successor corporation formed by such a consolidation or into which the
Company or such Restricted Subsidiary is merged or to which such transfer is
made will succeed to, and be substituted for, and may exercise every right and
power of, the Company or such Restricted Subsidiary, as the case may be, under
this Indenture, and the Notes with the same effect as if such successor
corporation had been named as the Company or such Restricted Subsidiary
therein; and thereafter, except in the case of (i) any lease or (ii) any sale,
assignment, conveyance, transfer, lease or other disposition to a Restricted
Subsidiary of the Company, the Company shall be discharged from all obligations
and covenants under this Indenture and the Notes.
For all purposes of this Indenture and the Notes (including the
provision of this Article Eight and Sections 10.11, Section 10.13 and Section
10.16), Subsidiaries of any surviving entity will, upon such transaction or
series of related transactions, become Restricted Subsidiaries or Unrestricted
Subsidiaries as provided pursuant to Section 10.21 and all Indebtedness, and
all Liens on property or assets, of the Company and the Restricted Subsidiaries
in existence immediately prior to such transaction or series of related
transactions will be deemed to have been incurred upon such transaction or
series of related transactions.
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ARTICLE NINE
SUPPLEMENTAL INDENTURES AND WAIVERS
Section 9.01. Supplemental Indentures, Agreements and Waivers
Without Consent of Holders.
Without the consent of any Holders, the Company, and when authorized
by a Board Resolution of the Board, and the Trustee, at any time and from time
to time, may amend, waive, modify or supplement this Indenture or the Notes for
any of the following purposes:
(a) to evidence the succession of another person to the Company, and
the assumption by any such successor of the covenants of the Company in the
Notes;
(b) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the Company,
herein, in the Notes;
(c) to cure any ambiguity, to correct or supplement any provision
herein, in the Notes which may be defective or inconsistent with any other
provision herein or to make any other provisions with respect to matters or
questions arising under this Indenture or the Notes; provided, however, that,
in each case, such provisions shall not materially adversely affect the legal
rights of any Holder;
(d) to comply with the requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act, as
contemplated by Section 9.05 hereof or otherwise;
(e) to evidence and provide the acceptance of the appointment of a
successor Trustee hereunder;
(f) to mortgage, pledge, hypothecate or grant a security interest in
any property or assets in favor of the Trustee for the benefit of the Holders
as security for the payment and performance of Indenture Obligations; or
(g) to make any other change that does not materially adversely
affect the legal rights of any Holder;
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provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such change, agreement or waiver does not materially
adversely affect the legal rights of any Holder.
Section 9.02. Supplemental Indentures, Agreements and Waivers with
Consent of Holders.
With the written consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Notes delivered to the Company
and the Trustee, the Company when authorized by a Board Resolution, together
with the Trustee, may amend, waive, modify or supplement any other provision of
this Indenture or the Notes; provided, however, that no such amendment, waiver,
modification or supplement may, without the written consent of the Holder of
each Outstanding Note affected thereby:
(i) reduce the principal amount of, change the fixed maturity of,
or alter the redemption provisions of, the Notes,
(ii) change the currency in which any Notes or amounts owing
thereon is payable,
(iii) reduce the percentage of the aggregate principal amount
Outstanding of Notes which must consent to an amendment, supplement or
waiver or consent to take any action under this Indenture or the Notes,
(iv) impair the right to institute suit for the enforcement of any
payment on or with respect to the Notes,
(v) waive a default in payment with respect to the Notes,
(vi) reduce the rate or change the time for payment of interest on
the Notes,
(vii) following the occurrence of a Change of Control or an Asset
Sale, alter the Company's obligation to purchase the Notes in accordance
with this Indenture or waive any default in the performance thereof,
(viii) affect the ranking of the Notes in a manner adverse to the
holder of the Notes, or
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(ix) release any Guarantee except in compliance with the terms of
the Indenture.
Upon the written request of the Company accompanied by a copy of a
Board Resolution of the Board authorizing the execution of any such
supplemental indenture or other agreement, instrument or waiver, and upon the
filing with the Trustee of evidence of the consent of Holders as aforesaid, the
Trustee shall join with the Company in the execution of such supplemental
indenture or other agreement, instrument or waiver.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture or other
agreement, instrument or waiver, but it shall be sufficient if such Act shall
approve the substance thereof.
Section 9.03. Execution of Supplemental Indentures, Agreements and
Waivers.
In executing, or accepting the additional trusts created by, any
supplemental indenture, agreement, instrument or waiver permitted by this
Article Nine or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Section
6.01 hereof) shall be fully protected in relying upon, an Opinion of Counsel
and an Officers' Certificate from each obligor under the Notes entering into
such supplemental indenture, agreement, instrument or waiver, each stating that
the execution of such supplemental indenture, agreement, instrument or waiver
(a) is authorized or permitted by this Indenture and (b) does not violate the
provisions of any agreement or instrument evidencing any other Indebtedness of
the Company or any other Subsidiary of the Company. The Trustee may, but shall
not be obligated to, enter into any such supplemental indenture, agreement,
instrument or waiver which affects the Trustee's own rights, duties or
immunities under this Indenture, the Notes or otherwise.
Section 9.04. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article
Nine, this Indenture and/or the Notes, if applicable, shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture and/or the Notes, if applicable, as the case may be, for all
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purposes; and every Holder of Notes theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby.
Section 9.05. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article Nine
shall conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.06. Reference in Notes to
Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Notes so modified as to conform, in the opinion of the Trustee
and the Board, to any such supplemental indenture may be prepared and executed
by the Company and authenticated and delivered by the Trustee upon a Company
Order in exchange for Outstanding Notes.
Section 9.07. Record Date.
The Company may, but shall not be obligated to, fix, a record date for
the purpose of determining the Holders entitled to consent to any supplemental
indenture, agreement or instrument or any waiver, and shall promptly notify the
Trustee of any such record date. If a record date is fixed, those persons who
were Holders at such record date (or their duly designated proxies), and only
those persons, shall be entitled to consent to such supplemental indenture,
agreement or instrument or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders after such record date. No
such consent shall be valid or effective for more than 90 days after such
record date.
Section 9.08. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder of a Note is a continuing consent by the Holder and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting Holder's Note, even if a notation of the consent is not made on any
Note. However, any such Holder, or subsequent Holder, may revoke the consent
as to his Note or portion of a Note if the Trustee receives the notice of
revocation before the date the
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amendment or waiver becomes effective. An amendment or waiver shall become
effective in accordance with its terms and thereafter bind every Holder.
ARTICLE TEN
COVENANTS
Section 10.01. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of, premium, if
any, and interest on the Notes in accordance with the terms of the Notes and
this Indenture.
Section 10.02. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan in The City of
New York, State of New York, an office or agency where Notes may be presented
or surrendered for payment, where Notes may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The office of the
Trustee at its Corporate Trust Office will be such office or agency of the
Company, unless the Company shall designate and maintain some other office or
agency for one or more of such purposes. The Company will give prompt written
notice to the Trustee of any change in the location of any such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at
the Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York, State of New York)
where the Notes may be presented or surrendered for any or all such purposes,
and may from time to time rescind such designation; provided, however, that no
such designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York, State of
New York for such purposes. The Company will give prompt written notice to the
Trustee of any
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such designation or rescission and any change in the location of any such other
office or agency.
Section 10.03. Money for Note Payments To Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of, premium, if any, or interest on
any of the Notes, segregate and hold in trust for the benefit of the Holders
entitled thereto a sum sufficient to pay the principal, premium, if any, or
interest so becoming due until such sums shall be paid to such persons or
otherwise disposed of as herein provided, and will promptly notify the Trustee
of its action or failure so to act.
If the Company is not acting as Paying Agent, the Company will, on or
before each due date of the principal of, premium, if any, or interest on, any
Notes, deposit with a Paying Agent a sum in same day funds sufficient to pay
the principal, premium, if any, or interest so becoming due, such sum to be
held in trust for the benefit of the Holders entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of such action or any failure so to act.
If the Company is not acting as Paying Agent, the Company will cause
each Paying Agent other than the Trustee to execute and deliver to the Trustee
an instrument in which such Paying Agent will agree with the Trustee, subject
to the provisions of this Section 10.03, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on Notes in trust for the benefit of the Holders
entitled thereto until such sums shall be paid to such Holders or otherwise
disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal of,
premium, if any, or interest on the Notes;
(c) at any time during the continuance of any such Default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held
in trust by such Paying Agent; and
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(d) acknowledge, accept and agree to comply in all aspects with the
provisions of this Indenture relating to the duties, rights and liabilities of
such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent will be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be
paid to the Company upon receipt of a Company Request therefor, or (if then
held by the Company) will be discharged from such trust; and the Holder of such
Note will thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, will thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, at the option of the Company
in the New York Times or the Wall Street Journal (national edition), notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining shall be repaid to the Company.
Section 10.04. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory), licenses and franchises of the
Company and each of the Restricted Subsidiaries; provided, however, that the
Company will not be required to preserve any such right, license or franchise
if the Board shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and the Restricted
Subsidiaries as a whole and that the loss thereof is not adverse in any
material respect to the Holders; provided, further, that the foregoing
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will not prohibit a sale, transfer or conveyance of a Subsidiary of the Company
or any of its assets in compliance with the terms of this Indenture.
Section 10.05. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all material taxes, assessments
and governmental charges levied or imposed (i) upon the Company or any of its
Restricted Subsidiaries or (ii) upon the income, profits or property of the
Company or any of the Restricted Subsidiaries and (b) all material lawful
claims for labor, materials and supplies, which, if unpaid, could reasonably be
expected to become a Lien upon the property of the Company or any of the
Restricted Subsidiaries; provided, however, that the Company will not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim (x) whose amount, applicability or validity is
being contested in good faith by appropriate proceedings properly instituted
and diligently conducted or (y) if the failure to so pay, discharge or cause to
be paid or discharged could not reasonably be expected to have a Material
Adverse Effect (as defined in the Purchase Agreement).
Section 10.06. Maintenance of Properties.
The Company will cause all material properties owned by the Company or
any of the Restricted Subsidiaries or used or held for use in the conduct of
their respective businesses to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
Section 10.06 will prevent the Company from discontinuing the maintenance of
any of such properties if such discontinuance is, in the judgment of the
Company, desirable in the conduct of its business or the business of any of the
Restricted Subsidiaries and is not adverse in any material respect to the
Holders.
Section 10.07. Insurance.
The Company will at all times keep all of its and the Restricted
Subsidiaries' properties which are of an insurable nature insured with
insurers, believed by the Company in good
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faith to be financially sound and responsible, against loss or damage to the
extent that property of similar character is usually and customarily so insured
by corporations similarly situated and owning like properties.
Section 10.08. Books and Records.
The Company will keep proper books of record and account, in which
full and correct entries will be made of all financial transactions and the
assets and business of the Company and each Restricted Subsidiary of the
Company in material compliance with GAAP.
Section 10.09. Provision of Financial Statements.
Subject to Section 10.23, the Company will file with the SEC (so long
as the SEC will accept any such filings) the Trustee and the Initial Purchasers
the annual reports, quarterly reports and other documents required to be filed
with the SEC pursuant to Sections 13 and 15 of the Exchange Act, whether or not
the Company has a class of securities registered under the Exchange Act. The
Company will also comply with the other provisions of Section 314(a) of the
Trust Indenture Act.
Section 10.10. Change of Control.
Upon the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall make an offer
to purchase (the "Change of Control Offer"), on a Business Day (the "Change of
Control Payment Date") not later than 60 days following the Change of Control
Date, all Notes then Outstanding at a purchase price equal to 101% of the
principal amount thereof on any Change of Control Payment Date, plus accrued
and unpaid interest, if any, to such Change of Control Payment Date. Notice of
a Change of Control Offer shall be given to holders of Notes not less than 25
days nor more than 45 days before the Change of Control Payment Date. The
Change of Control Offer is required to remain open for at least 20 Business
Days. Failure to mail the notice of a Change of Control Offer on the date
specified below or to have satisfied the foregoing condition precedent by the
date that such notice is required to be mailed will constitute a covenant
Default under Section 5.01(iii).
Notice of a Change of Control Offer shall be mailed by the Company not
more than 20 Business Days after the Change of Control Date to the Holders of
Notes at their last registered addresses with a copy to the Trustee and the
Paying
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Agent. The Change of Control Offer shall remain open from the time of mailing
for at least 20 Business Days and until 5:00 p.m., New York City time, on the
Change of Control Payment Date. The notice, which shall govern the terms of
the Change of Control Offer, shall include such disclosures as are required by
law and shall state:
(a) that the Change of Control Offer is being made pursuant to this
Section 10.10 and that all Notes tendered into the Change of Control Offer will
be accepted for payment;
(b) the purchase price (including the amount of accrued interest, if
any) for each Note, the Change of Control Payment Date and the date on which
the Change of Control Offer expires;
(c) that any Note not tendered for payment will continue to accrue
interest in accordance with the terms thereof;
(d) that, unless the Company shall default in the payment of the
purchase price, any Note accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest after the Change of Control Payment Date;
(e) that Holders electing to have Notes purchased pursuant to a
Change of Control Offer will be required to surrender their Notes to the Paying
Agent at the address specified in the notice prior to 5:00 p.m., New York City
time, on the Change of Control Payment Date and must complete any form letter
of transmittal proposed by the Company and acceptable to the Trustee and the
Paying Agent;
(f) that Holders of Notes will be entitled to withdraw their election
if the Paying Agent receives, not later than 5:00 p.m., New York City time, on
the Change of Control Payment Date, a facsimile transmission or letter setting
forth the name of the Holders, the principal amount of Notes the Holders
delivered for purchase, the Note certificate number (if any) and a statement
that such Holder is withdrawing his election to have such Notes purchased;
(g) that Holders whose Notes are purchased only in part will be
issued Notes of like tenor equal in principal amount to the unpurchased portion
of the Notes surrendered;
(h) the instructions that Holders must follow in order to tender
their Notes; and
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(i) information concerning the business of the Company, the most
recent annual and quarterly reports of the Company filed with the SEC pursuant
to the Exchange Act (or, if the Company is not required to file any such
reports with the SEC, the comparable reports prepared pursuant to Section
10.09), a description of material developments in the Company's business,
information with respect to pro forma historical financial information after
giving effect to such Change of Control and such other information concerning
the circumstances and relevant facts regarding such Change of Control and
Change of Control Offer as would, in the good faith judgment of the Company, be
material to a Holder of Notes in connection with the decision of such Holder as
to whether or not it should tender Notes pursuant to the Change of Control
Offer.
On the Change of Control Payment Date, the Company will (i) accept for
payment Notes or portions thereof tendered pursuant to the Change of Control
Offer, (ii) deposit with the Paying Agent money, in immediately available
funds, sufficient to pay the purchase price of all Notes or portions thereof so
tendered and accepted and (iii) deliver to the Trustee the Notes so accepted
together with an Officers' Certificate setting forth the Notes or portions
thereof tendered to and accepted for payment by the Company. The Paying Agent
will promptly mail or deliver to the Holders of Notes so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly authenticate
and mail or deliver to such Holders a new Note of like tenor equal in principal
amount to any unpurchased portion of the Note surrendered. Any Notes not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company will publicly announce the results of the Change of
Control Offer not later than the first Business Day following the Change of
Control Payment Date. Except as described above with respect to a Change of
Control, this Indenture does not contain provisions that permit the holders of
the Notes to require that the Company repurchase or redeem the Notes in the
event of a takeover, recapitalization or similar transaction which may be
highly leveraged. If a Change of Control Offer is made, there can be no
assurance that the Company will have available funds sufficient to pay for all
of the Notes that might be delivered by holders of Notes seeking to accept the
Change of Control Offer. The Company shall not be required to make a Change of
Control Offer following a Change of Control if a third party makes the Change
of Control Offer in the manner, at the times and otherwise in compliance with
the requirements applicable to a Change of Control Offer made by the Company
and purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
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If the Company is required to make a Change of Control Offer, the
Company will comply with all applicable tender offer laws and regulations,
including, to the extent applicable, Section 14(e) and Rule 14e-1 under the
Exchange Act, and any other applicable securities laws and regulations. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of this Section 10.10, the Company will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section 10.10 by virtue thereof.
Section 10.11. Limitation on Additional Indebtedness.
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, incur, any Indebtedness (including any Acquired
Indebtedness), except for Permitted Indebtedness (including Acquired
Indebtedness to the extent it would constitute Permitted Indebtedness);
provided, however, that (i) the Company will be permitted to incur Indebtedness
(including Acquired Indebtedness) and (ii) a Restricted Subsidiary will be
permitted to incur Acquired Indebtedness, if, in either case, immediately after
giving pro forma effect to such incurrence (including the application of the
net proceeds therefrom), the ratio of Total Consolidated Indebtedness to
Consolidated Annualized Pro Forma Operating Cash Flow would be less than 6.0 to
1.0.
For purposes of determining compliance with this Section 10.11, in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness permitted by this covenant, the Company in its sole
discretion shall classify such item of Indebtedness and only be required to
include the amount of such Indebtedness as one of such types.
Section 10.12. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, a written
statement signed by the chairman or a chief executive officer, the principal
financial officer or principal accounting officer of the Company, stating (i)
that a review of the activities of the Company during the preceding fiscal year
has been made under the supervision of the signing officers with a view to
determining whether the Company has kept,
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observed, performed and fulfilled its obligations under this Indenture, and
(ii) that, to the knowledge of each officer signing such certificate, the
Company has kept, observed, performed and fulfilled each and every covenant and
condition contained in this Indenture and is not in default in the performance
or observance of any of the terms, provisions, conditions and covenants hereof
(or, if a Default shall have occurred, describing all such Defaults of which
such officers may have knowledge, their status and what action the Company is
taking or proposes to take with respect thereto). When any Default under this
Indenture has occurred and is continuing, or if the Trustee or any Holder or
the trustee for or the holder of any other evidence of Indebtedness of the
Company or any Restricted Subsidiary gives any notice or takes any other action
with respect to a claimed default (other than with respect to Indebtedness
(other than Indebtedness evidenced by the Notes) in the principal amount of
less than $7,500,000), the Company will promptly notify the Trustee of such
Default, notice or action and will deliver to the Trustee by registered or
certified mail or by telegram, or facsimile transmission followed by hard copy
by registered or certified mail an Officers' Certificate specifying such event,
notice or other action within five Business Days after the Company becomes
aware of such occurrence and what action the Company is taking or proposes to
take with respect thereto.
Section 10.13. Limitation on Restricted Payments.
The Company will not, and will not permit any of the Restricted
Subsidiaries to, make, directly or indirectly, any Restricted Payment unless:
(i) no Default shall have occurred and be continuing at the time
of or upon giving effect to such Restricted Payment;
(ii) immediately after giving effect to such Restricted Payment,
the Company would be able to incur $1.00 of Indebtedness under the proviso
of Section 10.11 hereof; and
(iii) immediately after giving effect to such Restricted Payment,
the aggregate amount of all Restricted Payments declared or made on or
after the Issue Date and all Designation Amounts does not exceed an amount
equal to the sum of, without duplication, (a) 50% of the Consolidated Net
Income of the Company accrued on a cumulative basis during the period
beginning on January 1, 1998 and ending on the last day of the fiscal
quarter of the Company immediately preceding the date of such proposed
Restricted Payment (or, if such cumulative Consolidated Net
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Income of the Company for such period is a deficit, minus 100% of such
deficit), plus (b) the aggregate net cash proceeds received by the Company
either (x) as capital contributions to the Company after the Issue Date or
(y) from the issue and sale (other than to a Restricted Subsidiary of the
Company) of its Capital Stock (other than Disqualified Stock) on or after
the Issue Date (including upon exercise of warrants, options or rights),
plus (c) the aggregate net proceeds received by the Company from the
issuance (other than to a Restricted Subsidiary of the Company) on or after
the Issue Date of its Capital Stock (other than Disqualified Stock) upon
the conversion of, or in exchange for, Indebtedness of the Company, plus
(d) in the case of the disposition or repayment (in whole or in part) of
any Investment constituting a Restricted Payment made after the Issue Date
(except for Investments made (1) pursuant to clause (vii) of the second
following paragraph that are not subject to clause (e) or (f) of this
paragraph below, and (2) pursuant to clauses (viii) or (ix) of the second
following paragraph), an amount equal to the lesser of the return of
capital with respect to the applicable portion of such Investment and the
cost of the applicable portion of such Investment, in either case, less the
cost of the disposition of such Investment, plus (e) in the case of any
Revocation with respect to a Subsidiary of the Company that was made
subject to a Designation after the Issue Date, an amount equal to the
lesser of the Designation Amount with respect to such Subsidiary or the
Fair Market Value of the Investment of the Company and the Restricted
Subsidiaries in such Subsidiary at the time of Revocation, plus (f) an
amount equal to the amount of any Investment constituting a Restricted
Payment made after the Issue Date in an ISP which has been included as a
Restricted Payment under this clause (iii) pursuant to the last paragraph
of this Section 10.13 to the extent such ISP thereafter (1) becomes a
Wholly Owned Restricted Subsidiary or is merged with the Company or (2) is
a New ISP that becomes a Restricted Subsidiary or is merged with the
Company, less, in either such case, any amounts credited pursuant to the
preceding clause (d) in respect of any such Investment, minus (g) 50% of
the principal amount of any Indebtedness incurred pursuant to clause (g) of
the definition of "Permitted Indebtedness." For purposes of the preceding
clauses (b)(y) and (c), as applicable, the value of the aggregate net
proceeds received by the Company upon the issuance of Capital Stock either
upon the conversion of convertible Indebtedness or in exchange for
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outstanding Indebtedness or upon the exercise of options, warrants or
rights will be the net cash proceeds received upon the issuance of such
Indebtedness, options, warrants or rights plus the incremental amount
received, if any, by the Company upon the conversion, exchange or exercise
thereof.
For purposes of determining the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount thereof and
property other than cash shall be valued at its Fair Market Value.
The provisions of this Section 10.13 shall not prohibit the following
(each of which shall be given independent effect):
(i) the payment of any dividend or other distribution within 60
days after the date of declaration thereof if at such date of declaration
such payment would be permitted by the provisions of the Indenture;
(ii) the purchase, redemption, retirement or other acquisition of
any shares of Capital Stock of the Company in exchange for, or out of the
net cash proceeds of the substantially concurrent issue and sale (other
than to a Restricted Subsidiary of the Company) of, shares of Capital Stock
of the Company (other than Disqualified Stock); provided that any such net
cash proceeds are excluded from clause (iii)(b) of the second preceding
paragraph;
(iii) so long as no Default shall have occurred and be continuing,
the purchase, redemption, retirement, defeasance or other acquisition of
Subordinated Indebtedness made by exchange for, or out of the net cash
proceeds of, a substantially concurrent issue and sale (other than to a
Restricted Subsidiary of the Company) of (x) Capital Stock (other than
Disqualified Stock) of the Company or (y) other Subordinated Indebtedness
to the extent that its stated maturity for the payment of principal thereof
is not prior to the 180th day after the final stated maturity of the Notes;
provided that any such net cash proceeds are excluded from clause (iii)(b)
of the second preceding paragraph;
(iv) (a) so long as no Default shall have occurred and be
continuing, Investments constituting Restricted Payments by the Company or
any Restricted Subsidiary in a New ISP or a person that becomes a New ISP
as a result of
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such Investment and (b) so long as no Default shall have occurred and be
continuing, Investments constituting Restricted Payments by the Company or
any Restricted Subsidiary in an Existing ISP (x) made out of the net cash
proceeds of a substantially concurrent sale of Capital Stock (other than
Disqualified Stock) of the Company (provided that any such proceeds are
excluded from clause (iii)(b) of the second preceding paragraph) or (y)
such that the aggregate amount of all Investments in Existing ISPs that are
made after the Issue Date pursuant to this subclause (b)(y) would not
exceed $25.0 million in aggregate;
(v) bonds, notes, debentures or other securities received as a
result of Asset Sales pursuant to and in compliance with Section 10.15
hereof;
(vi) so long as no Default shall have occurred and be continuing,
purchases or redemptions of Capital Stock (including cash settlements of
stock options) held by employees, officers or directors upon or following
termination of their employment with the Company or one of its
Subsidiaries; provided that payments shall not exceed $2.0 million in any
fiscal year in the aggregate or $4.0 million in the aggregate during the
term of the Notes;
(vii) so long as no Default shall have occurred and be continuing,
Investments in Unrestricted Subsidiaries to the extent reasonably promptly
made with the proceeds of a substantially concurrent (1) capital
contribution to the Company or (2) issue or sale of Capital Stock (other
than Disqualified Stock) of the Company (other than to a Restricted
Subsidiary of the Company); provided that any such proceeds are excluded
from clause (iii)(b) of the second preceding paragraph;
(viii) loans or advances to employees of the Company or any
Restricted Subsidiary made in the ordinary course of business, including to
fund the purchase of Capital Stock of the Company (provided that any
proceeds from such purchase are excluded from clause (iii)(b) of the second
preceding paragraph to the extent such loan or advance is not reimbursed)
in an amount not to exceed $2.0 million at any time outstanding;
(ix) so long as no Default shall have occurred and be continuing,
Investments constituting Restricted Payments in joint ventures formed to
provide services in furtherance
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of an Internet Service Business of the Company and the ISPs or other
persons engaged principally in an Internet Service Business in an aggregate
amount not to exceed $30.0 million outstanding at any time; provided that
following the first Public Equity Offering resulting in aggregate gross
cash proceeds of $50.0 million or more to the Company, the aggregate amount
of Investments permitted pursuant to this clause (ix) shall be increased to
an aggregate amount not to exceed $50.0 million outstanding at any time;
and
(x) cash payments in lieu of fractional shares pursuant to any
warrant, option or other similar agreement.
In determining whether the receipt of net cash proceeds of a sale of
Capital Stock is "substantially concurrent" for purposes of clause (iv)(b)(x)
of the preceding paragraph, if such net cash proceeds are deposited in escrow
with a third party, free and clear of any Lien (other than the Lien of the
escrow agent), to be applied for purposes directed by the Company and such net
cash proceeds are excluded from clause (iii)(b) of the first paragraph above,
then the application of such net cash proceeds as set forth in such clause
(iv)(b)(x) shall be deemed "substantially concurrent" if they are subsequently
released for immediate application as contemplated by such clause (iv)(b)(x).
In no event shall a Restricted Payment made on the basis of consolidated
financial statements prepared in good faith in accordance with GAAP be subject
to rescission or constitute a Default by reason of any requisite subsequent
restatement of such financial statements which would have made such Restricted
Payment prohibited at the time that it was made.
In determining the amount of Restricted Payments permissible under
this Section 10.13, amounts expended pursuant to clauses (i), (iv)(a),
(iv)(b)(y), (v), (vi) and (ix) (to the extent remaining outstanding) above
shall be included, without duplication, as Restricted Payments.
Section 10.14. Limitation on Transactions with Affiliates.
The Company will not, and will not permit, cause or suffer any
Restricted Subsidiary to, conduct any business or enter into any transaction
(or series of related transactions which are similar or part of a common plan)
with or for the benefit of any of their respective Affiliates (other than
Affiliates that are not also Affiliates of the Company or any
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Wholly Owned Restricted Subsidiary) or any beneficial holder of 10% or more of
the Common Stock of the Company or any officer or director of the Company
(each, an "Affiliate Transaction"), unless the terms of the Affiliate
Transaction are set forth in writing, and are fair and reasonable to the
Company or such Restricted Subsidiary, as the case may be. Each Affiliate
Transaction involving aggregate payments or other Fair Market Value in excess
of $1.0 million shall be approved by a majority of the Board, such approval to
be evidenced by a Board Resolution stating that the Board has determined that
such transaction or transactions comply with the foregoing provisions. In
addition to the foregoing, each Affiliate Transaction involving aggregate
consideration of $5.0 million or more shall be approved by a majority of the
Disinterested Directors; provided that, in lieu of such approval by the
Disinterested Directors, the Company may obtain a written opinion from an
Independent Financial Advisor stating that the terms of such Affiliate
Transaction to the Company or the Restricted Subsidiary, as the case may be,
are fair from a financial point of view. For purposes of this Section 10.14,
any Affiliate Transaction approved by a majority of the Disinterested Directors
or as to which a written opinion has been obtained from an Independent
Financial Advisor, on the basis set forth in the preceding sentence, shall be
deemed to be on terms that are fair and reasonable to the Company or the
Restricted Subsidiaries, as the case may be, and, therefore, shall be permitted
under this Section 10.14.
Notwithstanding the foregoing, the restrictions set forth in this
Section 10.14 shall not apply to (i) transactions with or among, or solely for
the benefit of, the Company and/or any of the Restricted Subsidiaries, (ii)
transactions pursuant to agreements and arrangements existing on the Issue
Date, (iii) transactions related to the provision of internet services in the
ordinary course of business; provided that (x) such transactions are entered
into on an arm's length basis and are fair and reasonable to the Company or
such Restricted Subsidiary, as the case may be, and (y) in the good faith
judgment of the Company or the applicable Restricted Subsidiary, the Fair
Market Value of the consideration received by the Company or such Restricted
Subsidiary, as the case may be, reasonably approximates the Fair Market Value
of the services provided, (iv) dividends paid by the Company pursuant to and in
compliance with Section 10.13 hereof, (v) customary directors' fees,
indemnification and similar arrangements, consulting fees, employee salaries,
bonuses, employment agreements and arrangements, compensation or employee
benefit arrangements or legal fees, (vi) transactions contemplated by any of
the Permitted Affiliate Agreements as in effect on the Issue Date and (vii)
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grants of customary registration rights with respect to securities of the
Company.
The Company shall use, and shall cause each Restricted Subsidiary to
use, its commercially reasonable best efforts to ensure that each person in
which the Company or a Restricted Subsidiary makes an Investment that is an ISP
at the time of the Investment continues to meet the conditions and requirements
of the definition of "ISP" in all material respects until such time as a Rollup
shall have occurred with respect to such ISP.
Section 10.15. Disposition of Proceeds of Asset Sales
The Company will not, and will not permit any Restricted Subsidiary
to, make any Asset Sale unless (a) the Company or such Restricted Subsidiary,
as the case may be, receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the shares or assets sold or otherwise
disposed of and (b) at least 75% of such consideration consists of cash or Cash
Equivalents; provided that the following shall be treated as cash for purposes
of this Section 10.15: (x) the amount of any liabilities (other than
Subordinated Indebtedness or Indebtedness of a Restricted Subsidiary that would
not constitute Restricted Subsidiary Indebtedness) that are assumed by the
transferee of any such assets pursuant to an agreement that unconditionally
releases the Company or such Restricted Subsidiary from further liability
("assumed liabilities") and (y) the amount of any notes or other obligations
that within 30 days of receipt, are converted into cash (to the extent of the
cash received). The Company or the applicable Restricted Subsidiary, as the
case may be, may (i) apply the Net Cash Proceeds from such Asset Sale within
365 days of the receipt thereof to repay an amount of Indebtedness (other than
Subordinated Indebtedness) of the Company in an amount not exceeding the Other
Senior Debt Pro Rata Share and elect to permanently reduce the amount of the
commitments thereunder by the amount of the Indebtedness so repaid, (ii) apply
the Net Cash Proceeds from such Asset Sale to repay any Restricted Subsidiary
Indebtedness and elect to permanently reduce the commitments thereunder by the
amount of the Indebtedness so repaid or (iii) apply such Net Cash Proceeds
within 365 days thereof, to an investment in properties and assets that will be
used in an Internet Service Business (or in Capital Stock and other securities
of any person that will become a Restricted Subsidiary as a result of such
investment to the extent such person owns properties and assets that will be
used
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in an Internet Service Business) of the Company or any Restricted Subsidiary
("Replacement Assets"). Any Net Cash Proceeds from any Asset Sale that are
neither used to repay, and permanently reduce the commitments under, any
Restricted Subsidiary Indebtedness as set forth in clause (ii) of the preceding
sentence or invested in Replacement Assets within the 365-day period as set
forth in clause (iii) shall constitute "Excess Proceeds." Any Excess Proceeds
not used as set forth in clause (i) of the second preceding sentence shall
constitute "Offer Excess Proceeds" subject to disposition as provided below.
When the aggregate amount of Offer Excess Proceeds equals or exceeds
$10.0 million, the Company shall make an offer to purchase (an "Asset Sale
Offer"), from all holders of the Notes, that aggregate principal amount of
Notes as can be purchased by application of such Offer Excess Proceeds at a
price in cash equal to 100% of the principal amount thereof on any purchase
date, plus accrued and unpaid interest, if any, to any purchase date. Each
Asset Sale Offer shall remain open for a period of 20 Business Days or such
longer period as may be required by law. To the extent that the principal
amount of Notes tendered pursuant to an Asset Sale Offer is less than the Offer
Excess Proceeds, the Company or any Restricted Subsidiary may use such
deficiency for general corporate purposes. If the principal amount of Notes
validly tendered and not withdrawn by holders thereof exceeds the amount of
Notes which can be purchased with the Offer Excess Proceeds, Notes to be
purchased will be selected on a pro rata basis. Upon completion of such Asset
Sale Offer, the amount of Offer Excess Proceeds shall be reset to zero.
Notice of an Asset Sale Offer shall be mailed by the Company not more
than 20 Business Days after the obligation to make such Asset Sale Offer arises
to the Holders of Notes at their last registered addresses with a copy to the
Trustee and the Paying Agent. The Asset Sale Offer shall remain open from the
time of mailing for at least 20 Business Days and until 5:00 p.m., New York
City time, on the date fixed for Purchase of Notes validly tendered and not
withdrawn, which date shall be not later than the 30th Business Day following
the mailing of such Asset Sale Offer (the "Asset Sale Offer Purchase Date").
The notice, which shall govern the terms of the Asset Sale Offer, shall include
such disclosures as are required by law and shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
10.15 and that all Notes tendered into the
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Asset Sale Offer will be accepted for payment; provided, however, that if
the aggregate principal amount of Notes tendered in an Asset Sale Offer
plus accrued interest at the expiration of such offer exceeds the aggregate
amount of the Offer Excess Proceeds, the Company shall select the Notes to
be purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000 or
multiples thereof shall be purchased) and that the Asset Sale Offer shall
remain open for a period of 20 Business Days or such longer period as may
be required by law;
(b) the purchase price (including the amount of accrued interest, if
any) for each Note, the Asset Sale Offer Purchase Date and the date on
which the Asset Sale Offer expires;
(c) that any Note not tendered for payment will continue to accrue
interest in accordance with the terms thereof;
(d) that, unless the Company shall default in the payment of the
purchase price, any Note accepted for payment pursuant to the Asset Sale
Offer shall cease to accrue interest after the Asset Sale Offer Purchase
Date;
(e) that Holders electing to have Notes purchased pursuant to an
Asset Sale Offer will be required to surrender their Notes to the Paying
Agent at the address specified in the notice prior to 5:00 p.m., New York
City time, on the Asset Sale Offer Purchase Date and must complete any form
letter of transmittal proposed by the Company and acceptable to the Trustee
and the Paying Agent;
(f) that Holders of Notes will be entitled to withdraw their election
if the Paying Agent receives, not later than 5:00 p.m., New York City time,
on the Asset Sale Offer Purchase Date, a facsimile transmission or letter
setting forth the name of the Holders, the principal amount of Notes the
Holders delivered for purchase, the Note certificate number (if any) and a
statement that such Holder is withdrawing his election to have such Notes
purchased;
(g) that Holders whose Notes are purchased only in part will be
issued Notes of like tenor equal in principal amount to the unpurchased
portion of the Notes surrendered;
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(h) the instructions that Holders must follow in order to tender
their Notes; and
(i) information concerning the business of the Company, the most
recent annual and quarterly reports of the Company filed with the
Commission pursuant to the Exchange Act (or, if the Company is not required
to file any such reports with the SEC, the comparable reports prepared
pursuant to Section 10.09), a description of material developments in the
Company's business, information with respect to pro forma historical
financial information after giving effect to such Asset Sale and such other
information concerning the circumstances and relevant facts regarding such
Asset Sale and Asset Sale Offer as would, in the good faith judgment of the
Company, be material to a Holder of Notes in connection with the decision
of such Holder as to whether or not it should tender Notes pursuant to the
Asset Sale Offer.
On the Asset Sale Offer Purchase Date, the Company will (i) accept for
payment Notes or portions thereof tendered pursuant to the Asset Sale Offer,
(ii) deposit with the Paying Agent money, in immediately available funds,
sufficient to pay the purchase price of all Notes or portions thereof so
tendered and accepted and (iii) deliver to the Trustee the Notes so accepted
together with an Officers' Certificate setting forth the Notes or portions
thereof tendered to and accepted for payment by the Company. The Paying Agent
will promptly mail or deliver to the Holders of Notes so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly authenticate
and mail or deliver to such Holders a new Note of like tenor equal in principal
amount to any unpurchased portion of the Note surrendered. Any Notes not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company will publicly announce the results of the Asset Sale
Offer not later than the first Business Day following the Asset Sale Offer
Purchase Date.
If the Company is required to make an Asset Sale Offer, the Company
shall comply with all applicable tender offer rules, including to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable securities laws or regulations.
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Section 10.16. Limitation on Liens Securing Certain Indebtedness.
The Company will not, and will not permit any Restricted Subsidiary
to, create, incur, assume or suffer to exist any Liens of any kind against or
upon any property or assets of the Company or any Restricted Subsidiary,
whether now owned or hereafter acquired, or any proceeds therefrom, which
secure either (x) Subordinated Indebtedness, unless the Notes are secured by a
Lien on such property, assets or proceeds that is senior in priority to the
Liens securing such Subordinated Indebtedness or (y) Indebtedness of the
Company that is not Subordinated Indebtedness, unless the Notes are equally and
ratably secured with the Liens securing such other Indebtedness, except, in the
case of this clause (y), Permitted Liens.
Section 10.17. Limitation on Business.
The Company will not, and will not permit any of the Restricted
Subsidiaries to, engage in a business which is not substantially an Internet
Service Business.
Section 10.18. Limitation on Certain Guarantees and Indebtedness of
Restricted Subsidiaries.
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to assume, guarantee or in any other manner become liable with
respect to (i) any Subordinated Indebtedness or (ii) any Indebtedness of the
Company that is not Subordinated Indebtedness (other than, in the case of this
clause (ii), Indebtedness under any Permitted Credit Facility to the extent
constituting Permitted Indebtedness), unless, in each case, such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture
providing for the guarantee of payment of the Notes by such Restricted
Subsidiary on a basis senior to any such Subordinated Indebtedness or pari
passu with any such other Indebtedness referred to in clause (ii), as the case
may be. Each guarantee created pursuant to such provisions is referred to as a
"Guarantee" and the issuer of each such Guarantee, so long as the Guarantee
remains outstanding, is referred to as a "Guarantor".
Notwithstanding the foregoing, in the event of the unconditional
release of any Guarantor from its obligations in respect of the Indebtedness
which gave rise to the requirement that a Guarantee be given, such Guarantor
shall be released from all obligations under its Guarantee. In addition, upon
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any sale or disposition (by merger or otherwise) of any Guarantor by the
Company or a Restricted Subsidiary of the Company to any person that is not an
Affiliate of the Company or any of its Restricted Subsidiaries which is
otherwise in compliance with the terms of this Indenture and as a result of
which such Guarantor ceases to be a Restricted Subsidiary of the Company, such
Guarantor will be deemed to be automatically and unconditionally released from
all obligations under its Guarantee; provided that each such Guarantor is sold
or disposed of in accordance with Section 10.15 hereof.
Section 10.19. Limitation on Issuances and Sales of Preferred Stock
by Restricted Sub-sidiaries.
The Company will not permit any Restricted Subsidiary to issue any
Preferred Stock (other than to the Company or a Restricted Subsidiary).
Section 10.20. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries.
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise enter into or cause to become
effective any consensual encumbrance or consensual restriction of any kind on
the ability of any Restricted Subsidiary to (a) pay dividends, in cash or
otherwise, or make any other distributions on its Capital Stock or any other
interest or participation in, or measured by, its profits to the extent owned
by the Company or any Restricted Subsidiary, (b) pay any Indebtedness owed to
the Company or any Restricted Subsidiary, (c) make any Investment in the
Company or any other Restricted Subsidiary or (d) transfer any of its
properties or assets to the Company or to any Restricted Subsidiary, except for
(in each case except as otherwise noted in the following clause (ii)) (i) any
encumbrance or restriction in existence on the Issue Date, (ii) any encumbrance
or restriction existing under agreements relating to an Investment in an ISP
(which in the case of clauses (a) and (b) shall not be permitted in the case of
ISPs that are Restricted Subsidiaries) to the extent consistent with past
practice, (iii) customary non-assignment provisions, (iv) any encumbrances or
restrictions pertaining to an asset subject to a Lien to the extent set forth
in the security documentation governing such Lien, (v) any encumbrance or
restriction applicable to a Restricted Subsidiary at the time that it becomes a
Restricted Subsidiary that is not created in contemplation
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thereof, (vi) any encumbrance or restriction existing under any agreement that
refinances or replaces an agreement containing a restriction permitted by
clause (v) above; provided that the terms and conditions of any such
encumbrance or restriction are not materially less favorable to the holders of
Notes than those under or pursuant to the agreement being replaced or the
agreement evidencing the Indebtedness refinanced, (vii) any encumbrance or
restriction imposed upon a Restricted Subsidiary pursuant to an agreement which
has been entered into for the sale or disposition of all or substantially all
of the Capital Stock or assets of such Restricted Subsidiary or any Asset Sale
to the extent limited to the Capital Stock or assets in question and (viii) any
customary encumbrance or restriction applicable to a Restricted Subsidiary that
is contained in an agreement or instrument governing or relating to
Indebtedness contained in any Permitted Credit Facility; provided that the
provisions of such agreement permit the payment of interest and principal and
mandatory repurchases pursuant to the terms of this Indenture and the Notes and
other Indebtedness that is solely an obligation of the Company, but, provided,
further, that such agreement may nevertheless contain customary net worth,
leverage, invested capital and other financial covenants, customary covenants
regarding the merger of or sale of all or any substantial part of the assets of
the Company or any Restricted Subsidiary, customary restrictions on
transactions with affiliates, and customary subordination provisions governing
Indebtedness owed to the Company or any Restricted Subsidiary.
Section 10.21. Limitation on Designations of Unrestricted
Subsidiaries.
The Company will not designate any Subsidiary of the Company (other
than a newly created Subsidiary in which no Investment has previously been
made) as an "Unrestricted Subsidiary" under this Indenture (a "Designation")
unless:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) except in the case of a Permitted Investment or an Investment made
pursuant to clause (vii) or (ix) of the third paragraph of Section 10.13
hereof, immediately after giving effect to such Designation, the Company
would be able to incur $1.00 of Indebtedness under the proviso of Section
10.11 hereof; and
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(c) the Company would not be prohibited under this Indenture from
making an Investment at the time of Designation (assuming the effectiveness
of such Designation) in an amount (the "Designation Amount") equal to the
Fair Market Value of the net Investment of the Company or any other
Restricted Subsidiary in such Restricted Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to Section
10.13 hereof for all purposes of this Indenture in the Designation Amount.
Neither the Company nor any Restricted Subsidiary shall at any time (x) provide
a guarantee of, or similar credit support to, any Indebtedness of any
Unrestricted Subsidiary (including of any undertaking, agreement or instrument
evidencing such Indebtedness); provided that the Company may pledge Capital
Stock or Indebtedness of any Unrestricted Subsidiary on a nonrecourse basis
such that the pledgee has no claim whatsoever against the Company other than to
obtain such pledged property, (y) be directly or indirectly liable for any
Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly
liable for any other Indebtedness which provides that the holder thereof may
(upon notice, lapse of time or both) declare a default thereon (or cause the
payment thereof to be accelerated or payable prior to its final scheduled
maturity) upon the occurrence of a default with respect to any other
Indebtedness that is Indebtedness of an Unrestricted Subsidiary (including any
corresponding right to take enforcement action against such Unrestricted
Subsidiary), except in the case of clause (x) or (y) to the extent permitted
under Section 10.13 and Section 10.14 hereof.
The Company will not revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") unless:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of this
Indenture.
All Designations and Revocations must be evidenced by Board
Resolutions delivered to the Trustee certifying compliance with the foregoing
provisions.
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Section 10.22. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company and any other
obligor on the Notes will furnish to the Trustee an Officers' Certificate
stating that all conditions precedent, if any, provided for in this Indenture
(including any covenants compliance with which constitutes a condition
precedent) relating to the proposed action have been complied with, and an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that, in the case
of any such application or request as to which the furnishing of such
documents, certificates and/or opinions is specifically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture will include:
(i) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether such covenant or condition has
been complied with; and
(iv) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 10.23. Reports.
For periods prior to the fiscal quarter ending June 30, 1998, the
Company shall furnish without cost to each holder of Notes and file with the
Trustee (i) within 135 days after the end of each fiscal year of the Company,
(x) audited year-end consolidated financial statements (including a balance
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sheet, income statement and statement of changes of cash flow) prepared in
accordance with GAAP and substantially in the form included in the Offering
Memorandum, (y) the information described in Item 303 of Regulation S-K under
the Securities Act with respect to such period, and (z) all pro forma and
historical financial information in respect of any significant transaction
consummated more than 60 days prior to the date such information is furnished
(and any other transaction for which such information is available at such
time) to the extent such financial information would be required in a filing on
Form 10-K with the SEC at such time; and (ii) within 60 days after the end of
each of the first three fiscal quarters of each fiscal year of the Company, (x)
unaudited quarterly consolidated financial statements (including a balance
sheet, income statement and statement of changes of cash flows) prepared in
accordance with GAAP and substantially in the form included in the Offering
Memorandum, (y) the information described in Item 303 of Regulation S-K under
the Securities Act with respect to such period and (z) all pro forma and
historical financial information in respect of any significant transaction
consummated more than 60 days prior to the date such information is furnished
(and any other transaction for which such information is available at such
time) to the extent such financial information would be required in a filing on
Form 10-Q with the SEC at such time. Whether or not the Company has a class of
securities registered under the Exchange Act, the Company shall furnish without
cost to each holder of Notes and file with the Trustee and file with the SEC,
(a) beginning with the fiscal quarter ending June 30, 1998 (i) within the
applicable time period required under the Exchange Act, after the end of each
fiscal year of the Company, the information required by Form 10-K (or any
successor form thereto) under the Exchange Act with respect to such period and
(ii) within the applicable time period required under the Exchange Act after
the end of each of the first three fiscal quarters of each fiscal year of the
Company, the information required by Form 10-Q (or any successor form thereto)
under the Exchange Act with respect to such period and (b) from and after
August 15, 1998, any current reports on Form 8-K (or any successor forms)
required to be filed under the Exchange Act. Prior to such time as the Company
shall file with the SEC its first report on either of Form 10-K or Form 10-Q
under the Exchange Act, the Company shall telephonically make its executive
officers available to holders of Notes upon 10 days advance written request of
holders of at least 10% of the aggregate principal amount of Notes Outstanding
at the time of such request; provided, however, that holders of Notes may make
only one such request per fiscal quarter.
<PAGE> 116
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Section 10.24. Limitation on Status as Investment Company
The Company will not and will not permit any of its Subsidiaries or
controlled Affiliates to, conduct its business in a fashion that would cause
the Company to be required to register as an "investment company" (as that term
is defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act")), or otherwise become subject to regulation under the Investment
Company Act. For purposes of establishing the Company's compliance with this
provision, any exemption which is or would become available under Section
3(c)(1) or Section 3(c)(7) of the Investment Company Act will be disregarded.
ARTICLE ELEVEN
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to
surviving rights or registration of transfer or exchange of Notes herein
expressly provided for) and the Trustee, on written demand of and at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when either
(a) all Notes theretofore authenticated and delivered (other than (A)
Notes which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 3.06 hereof and (B) Notes for whose
payment money has theretofore been deposited in trust or segregated and
held in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 10.03) have been
delivered to the Trustee for cancellation; or
(b) (i) all such Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee in trust an amount of
money in dollars sufficient to pay and discharge the entire Indebtedness on
such Notes not theretofore delivered to the Trustee for cancellation, for
the principal of, premium, if any, and interest to the date of such
deposit;
<PAGE> 117
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(ii) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(iii) the Company has delivered to the Trustee (i) irrevocable
instructions to apply the deposited money toward payment of the Notes at
the Stated Maturities and the Redemption Dates thereof, and (ii) an
Officers' Certificate and an Opinion of Counsel each stating that all
conditions precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with; provided, that such
Opinion of Counsel may rely, as to matters of fact, upon an Officers'
Certificate.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.07 and, if money
shall have been deposited with the Trustee pursuant to subclause (a)(ii) of
this Section 11.01, the obligations of the Trustee under Section 11.02 and the
last paragraph of Section 10.03 shall survive.
Section 11.02. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.03, all
money deposited with the Trustee pursuant to Section 11.01 shall be held in
trust and applied by it, in accordance with the provisions of the Notes and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the persons entitled thereto, of the principal of, premium, if
any, and interest on the Notes for whose payment such money has been deposited
with the Trustee.
ARTICLE TWELVE
REDEMPTION
Section 12.01. Notices to the Trustee.
If the Company elects to redeem Notes pursuant to Paragraph 3 of the
Initial Notes or Paragraph 2 of the Exchange Notes, it shall notify the Trustee
of the Redemption Date and principal amount of Notes to be redeemed.
The Company shall notify the Trustee of any redemption at least 45
days before the Redemption Date by an Officers'
<PAGE> 118
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Certificate, stating that such redemption will comply with the provisions
hereof and of the Notes.
Section 12.02. Selection of Notes To Be Redeemed.
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with any applicable requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes are
not then listed on a national securities exchange (or if the Notes are so
listed but the exchange does not impose requirements with respect to the
selection of debt securities for redemption), on a pro rata basis, by lot or by
such method as the Trustee in its sole discretion shall deem fair and
appropriate; provided, however, that no Notes of a principal amount of $1,000
or less shall be redeemed in part.
The Trustee shall promptly notify the Company and the Registrar in
writing of the Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of the
principal amount of such Note which has been or is to be redeemed.
Section 12.03. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Notes to be redeemed, at the address of such Holder
appearing in the Note register maintained by the Registrar.
All notices of redemption shall identify the Notes to be redeemed and
shall state:
(a) the Redemption Date;
(b) the Redemption Price and the amount of accrued interest, if any,
to be paid;
(c) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the Redemption Date,
<PAGE> 119
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and the only remaining right of the Holders of such Notes is to receive
payment of the Redemption Price plus unpaid interest on the Notes through
the Redemption Date, upon surrender to the Paying Agent of the Notes
redeemed;
(d) if any Note is to be redeemed in part, the portion of the
principal amount (equal to $1,000 or any integral multiple thereof) of such
Note to be redeemed and that on and after the Redemption Date, upon
surrender for cancellation of such Note to the Paying Agent, a new Note or
Notes in the aggregate principal amount equal to the unredeemed portion
thereof will be issued without charge to the Noteholder;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price and the name and address of
the Paying Agent; and
(f) the CUSIP number, if any, relating to such Notes.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's written request, by
the Trustee in the name and at the expense of the Company.
Section 12.04. Effect of Notice of Redemption.
Once notice of redemption is mailed, Notes called for redemption
become due and payable on the Redemption Date and at the Redemption Price.
Upon surrender to the Paying Agent, such Notes called for redemption shall be
paid at the Redemption Price plus accrued interest, if any, to the Redemption
Date, but interest installments whose maturity is on or prior to such
Redemption Date will be payable on the relevant Interest Payment Dates to the
Holders of record at the close of business on the relevant record dates
referred to in the Notes.
Section 12.05. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit with the
Paying Agent an amount of money in same day funds sufficient to pay the
Redemption Price of, and any accrued interest on, all the Notes or portions
thereof which are to be redeemed on that date, other than Notes or portions
thereof called for redemption on that date which have been delivered by the
Company to the Trustee for cancellation.
<PAGE> 120
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If the Company complies with the preceding paragraph, then, unless the
Company defaults in the payment of such Redemption Price, interest on the Notes
to be redeemed will cease to accrue on and after the applicable Redemption
Date, whether or not such Notes are presented for payment, and the Holders of
such Notes shall have no further rights with respect to such Notes except for
the right to receive the Redemption Price plus unpaid interest on the Notes
through the Redemption Date, upon surrender of such Notes. If any Note called
for redemption shall not be so paid upon surrender thereof for redemption, the
principal, premium, if any, and, to the extent lawful, accrued interest thereon
shall, until paid, bear interest from the Redemption Date at the rate provided
in the Notes.
Section 12.06. Notes Redeemed or Purchased in Part.
Upon surrender to the Paying Agent of a Note which is to be redeemed
in part, the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of such Note without service charge, a new Note or Notes,
of any authorized denomination as requested by such Holder in aggregate
principal amount equal to, and in exchange for, the unredeemed portion of the
principal of the Note so surrendered that is not redeemed.
<PAGE> 121
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
VERIO INC.
By: /s/ CARLA HAMRE DONELSON
------------------------
Name: Carla Hamre Donelson
Title: Vice President & General
Counsel
FIRST TRUST NATIONAL ASSOCIATION, as
Trustee
By: /s/ RICHARD H. PROKOSCH
-----------------------
Name: Richard H. Prokosch
Title: Assistant Vice President
<PAGE> 122
EXHIBIT A-1
[FORM OF NOTE]
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED
IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
"OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF REGULATION S, (2) AGREES
THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER
PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT OR ANY
SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DATE ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY OR ANY
PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED
BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS
A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, PURSUANT TO RULE 904 OF REGULATION S, (E) TO AN ACCREDITED
INVESTOR THAT IS ACQUIRING THE SECURITIES FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION
OF THE SECURITIES ACT (AND IF ACQUIRING THE
A-1-1
<PAGE> 123
SECURITIES FROM SUCH AN ACCREDITED INVESTOR, IS ACQUIRING SECURITIES HAVING AN
AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $250,000), OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT
THE COMPANY, THE TRUSTEE, THE TRANSFER AGENT AND THE REGISTRAR SHALL HAVE THE
RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D), (E)
OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE
FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
A-1-2
<PAGE> 124
VERIO INC.
-----------------
10-3/8% SENIOR NOTES DUE 2005, SERIES A
CUSIP No. __________
No. ___________ $175,000,000
VERIO INC., a corporation incorporated under the laws of the State of
Delaware (herein called the "Company," which term includes any successor
corporation under this Indenture hereinafter referred to), for value received,
hereby promises to pay to _______________ or registered assigns, the principal
sum of _______________ Dollars on April 1, 2005, at the office or agency of the
Company referred to below, and to pay interest thereon on April 1 and October 1
(each, an "Interest Payment Date"), of each year, commencing on October 1, 1998,
accruing from the Issue Date or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, at the rate of 10-3/8% per
annum, until the principal hereof is paid or duly provided for. Interest shall
be computed on the basis of a 360-day year of twelve 30-day months.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture referred to on the
reverse hereof, be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the March 15 and
September 15 (each, a "Regular Record Date"), whether or not a Business Day, as
the case may be, next preceding such Interest Payment Date. Any such interest
not so punctually paid, or duly provided for, and interest on such defaulted
interest at the then applicable interest rate borne by the Notes, to the extent
lawful, shall forthwith cease to be payable to the Holder on such Regular Record
Date, and may be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice of which shall be given to Holders of Notes not less than 10 days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in such Indenture.
A-1-3
<PAGE> 125
Payment of the principal of, premium, if any, and interest on this Note
will be made at the office or agency of the Company maintained for that purpose
in the Borough of Manhattan in The City of New York, State of New York, or at
such other office or agency of the Company as may be maintained for such
purpose, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the address of the person entitled thereto as such address shall
appear on the Note Register.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
[Remainder of Page Intentionally Left Blank]
A-1-4
<PAGE> 126
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: VERIO INC.
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 10-3/8% Senior Notes Due 2005, Series A, referred to
in the within-mentioned Indenture.
FIRST TRUST NATIONAL ASSOCIATION, as
Trustee
By:
-----------------------------------
Authorized Signatory
A-1-5
<PAGE> 127
[REVERSE OF NOTE]
1. Indenture. This Note is one of a duly authorized issue of Notes of
the Company designated as its 10-3/8% Senior Notes Due 2005, Series A (herein
called the "Initial Notes"). The Notes are limited (except as otherwise provided
in the Indenture referred to below) in aggregate principal amount to
$175,000,000, which may be issued under an indenture (herein called the
"Indenture") dated as of March 25, 1998, by and between the Company and First
Trust National Association, as trustee (herein called the "Trustee," which term
includes any successor Trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Trustee and the Holders of the Notes, and of the
terms upon which the Notes are, and are to be, authenticated and delivered. The
Notes include the Initial Notes, the Private Exchange Notes and the Unrestricted
Notes (including the Exchange Notes referred to below), issued in exchange for
the Initial Notes pursuant to the Registration Rights Agreement. The Initial
Notes and the Unrestricted Notes are treated as a single class of securities
under the Indenture.
All capitalized terms used in this Note which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of
the Indenture. Notwithstanding anything to the contrary herein, the Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
2. Registration Rights. Pursuant to the Registration Rights Agreement
by and among the Company and the Initial Purchasers, the Company will be
obligated to consummate an exchange offer pursuant to which the Holder of this
Note shall
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<PAGE> 128
have the right to exchange this Note for 10-3/8% Senior Notes Due 2005, Series
B, of the Company (herein called the "Exchange Notes"), which have been
registered under the Securities Act, in like principal amount and having
identical terms as the Notes (other than as set forth in this paragraph). The
Holders of Notes shall be entitled to receive certain additional interest
payments in the event such exchange offer is not consummated and upon certain
other conditions, all pursuant to and in accordance with the terms of the
Registration Rights Agreement.
3. Redemption. The Notes will be redeemable, at the option of
the Company, in whole or in part, on or after April 1, 2002 upon not less than
30 nor more than 60 days' written notice at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon, if any, to the applicable redemption date, if redeemed during
the twelve-month period beginning on April 1 of each of the years indicated
below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C> <C>
2002.................................... 105.188%
2003.................................... 102.594%
2004.................................... 100.000%
</TABLE>
Notwithstanding the foregoing, in the event that after the Issue Date
and prior to April 1, 2001 the Company issues, in one or more transactions,
Capital Stock (other than Disqualified Stock) of the Company to WorldCom or one
or more Strategic Equity Investors or in any Public Equity Offering for
aggregate gross cash proceeds of $50.0 million or more (an "Equity Sale"), the
Company may redeem, at its option, up to a maximum of 35% of the initially
Outstanding aggregate principal amount of Notes from the net proceeds thereof at
a redemption price equal to 110.375% of the principal amount of the Notes,
together with accrued and unpaid interest to the date of redemption; provided
that not less than $113.75 million aggregate principal amount of Notes is
Outstanding following such redemption. Any such redemption may only be effected
once and must be effected upon not less than 30 nor more than 60 days' notice
given within 180 days after such Equity Sale.
4. Offers to Purchase. Sections 10.10 and 10.15 of the Indenture
provide that upon the occurrence of a Change of Control and following certain
Asset Sales, and subject to certain conditions and limitations contained
therein, the Company
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<PAGE> 129
shall make an offer to purchase all or a portion of the Notes in accordance with
the procedures set forth in the Indenture.
5. Defaults and Remedies. If an Event of Default occurs and is
continuing, the principal of all of the Outstanding Notes, plus all accrued and
unpaid interest, if any, to and including the date the Notes are paid, may be
declared due and payable in the manner and with the effect provided in this
Indenture.
6. Defeasance. This Indenture contains provisions (which provisions
apply to this Note) for defeasance at any time of (a) the entire indebtedness of
the Company on this Note and (b) certain restrictive covenants and related
Defaults and Events of Default, in each case upon compliance by the Company with
certain conditions set forth therein.
7. Amendments and Waivers. This Indenture permits, with certain
exceptions as provided therein, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
this Indenture at any time by the Company and the Trustee with the consent of
the Holders of not less than a majority in aggregate principal amount of the
Notes at the time Outstanding. This Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Notes at the time Outstanding, on behalf of the Holders of all the Notes, to
waive compliance by the Company with certain provisions of this Indenture and
certain past Defaults under this Indenture and this Note and their consequences.
Any such consent or waiver by or on behalf of the Holder of this Note shall be
conclusive and binding upon such Holder and upon all future Holders of this Note
and of any Note issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof whether or not notation of such consent or waiver is
made upon this Note.
8. Denominations, Transfer and Exchange. The Notes are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in this Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes of a different authorized denomination, as requested
by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note is registrable on the Note Register of the
Company, upon surrender
A-1-8
<PAGE> 130
of this Note for registration of transfer at the office or agency of the Company
maintained for such purpose in the Borough of Manhattan in The City of New York,
State of New York, or at such other office or agency of the Company as may be
maintained for such purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Registrar
duly executed by, the Holder hereof or his attorney duly authorized in writing,
and thereupon one or more new Notes, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
9. Persons Deemed Owners. Prior to and at the time of due presentment
of this Note for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the person in whose name this Note
is registered as the owner hereof for all purposes, whether or not this Note
shall be overdue, and neither the Company, the Trustee nor any agent shall be
affected by notice to the contrary.
10. GOVERNING LAW. THIS INDENTURE, THIS NOTE AND ANY GUARANTEE SET
FORTH BELOW SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written request
and without charge a copy of this Indenture. Requests may be made to: Verio
Inc., 8005 South Chester Street, Suite 200, Englewood, Colorado 80112.
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<PAGE> 131
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
---------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the date two years (or such shorter period of time as
permitted by Rule 144 under the Securities Act or any successor provision
thereunder) after the later of the original issuance date appearing on the face
of this Note (or any Predecessor Note) or the last date on which the Company or
any Affiliate of the Company was the owner of this Note (or any Predecessor
Note), the undersigned confirms that it has not utilized any general
solicitation or general advertising in connection with the transfer and that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption
from registration under the Securities Act provided by Rule 144A
thereunder.
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<PAGE> 132
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents, including (i) a transferee certificate
substantially in the form of Exhibit C to this Indenture in the
case of a transfer to non-QIB Accredited Investors or (ii) a
transferor certificate substantially in the form of Exhibit D to
this Indenture in the case of a transfer pursuant to Regulation S,
are being furnished which comply with the conditions of transfer
set forth in this Note and this Indenture.
If none of the foregoing boxes is checked and, in the case of (b) above, if the
appropriate document is not attached or otherwise furnished to the Trustee, the
Trustee or Registrar shall not be obligated to register this Note in the name of
any person other than the Holder hereof unless and until the conditions to any
such transfer of registration set forth herein and in Section 3.17 of this
Indenture shall have been satisfied.
Date: Your signature:
----------------- ----------------------------------
(Sign exactly as your name appears
on the other side of this Note)
By:
----------------------------------
NOTICE: To be executed by an
executive officer
Signature Guarantee:
-----------------------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A (including the information
specified in Rule 144A(d)(4)) or has determined not to request such information
and that it is aware that the transferor is relying upon
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<PAGE> 133
the undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
----------------- ----------------------------------
NOTICE: To be executed by an
executive officer
A-1-12
<PAGE> 134
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.10 or 10.15 of the Indenture, check the appropriate box:
Section 10.10 [ ] Section 10.15 [ ]
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.10 or 10.15 of the Indenture, state the amount:
$ _____________
Date: Your signature:
----------------- ----------------------------------
(Sign exactly as your name appears
on the other side of this Note)
By:
----------------------------------
NOTICE: To be executed by an
executive officer
Signature Guarantee:
-----------------------------------
A-1-13
<PAGE> 135
EXHIBIT A-2
VERIO INC.
-----------------
10-3/8% SENIOR NOTES DUE 2005, SERIES B
CUSIP No. __________
No. ___________ $
VERIO INC., a corporation incorporated under the laws of the State of
Delaware (herein called the "Company," which term includes any successor
corporation under this Indenture hereinafter referred to), for value received,
hereby promises to pay to _______________ or registered assigns, the principal
sum of _______________ Dollars on April 1, 2005, at the office or agency of the
Company referred to below, and to pay interest thereon on April 1 and October 1
(each, an "Interest Payment Date"), of each year, commencing on October 1, 1998,
accruing from the Issue Date or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, at the rate of 10-3/8% per
annum, until the principal hereof is paid or duly provided for. Interest shall
be computed on the basis of a 360-day year of twelve 30-day months.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture referred to on the
reverse hereof, be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the March 15 and
September 15 (each, a "Regular Record Date"), whether or not a Business Day, as
the case may be, next preceding such Interest Payment Date. Any such interest
not so punctually paid, or duly provided for, and interest on such defaulted
interest at the then applicable interest rate borne by the Notes, to the extent
lawful, shall forthwith cease to be payable to the Holder on such Regular Record
Date, and may be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice of which shall be given to Holders of Notes not less than 10 days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in such Indenture.
A-2-1
<PAGE> 136
Payment of the principal of, premium, if any, and interest on this Note
will be made at the office or agency of the Company maintained for that purpose
in the Borough of Manhattan in The City of New York, State of New York, or at
such other office or agency of the Company as may be maintained for such
purpose, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the address of the person entitled thereto as such address shall
appear on the Note Register.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
[Remainder of Page Intentionally Left Blank]
A-2-2
<PAGE> 137
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: VERIO INC.
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 10-3/8% Senior Notes Due 2005, Series B,
referred to in the within-mentioned Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By:
------------------------------
Authorized Signatory
A-2-3
<PAGE> 138
[REVERSE OF NOTE]
1. Indenture. This Note is one of a duly authorized issue of Notes of
the Company designated as its 10-3/8% Senior Notes Due 2005, Series B (herein
called the "Initial Notes"). The Notes are limited (except as otherwise provided
in the Indenture referred to below) in aggregate principal amount to
$175,000,000, which may be issued under an indenture (herein called the
"Indenture") dated as of March 25, 1998, by and between the Company and First
Trust National Association, as trustee (herein called the "Trustee," which term
includes any successor Trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Trustee and the Holders of the Notes, and of the
terms upon which the Notes are, and are to be, authenticated and delivered. The
Notes include the Initial Notes, the Private Exchange Notes and the Unrestricted
Notes (including the Exchange Notes referred to below), issued in exchange for
the Initial Notes pursuant to the Registration Rights Agreement. The Initial
Notes and the Unrestricted Notes are treated as a single class of securities
under the Indenture.
All capitalized terms used in this Note which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture. Notwithstanding anything to the contrary herein, the Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
2. Redemption. The Notes will be redeemable, at the option of the
Company, in whole or in part, on or after April 1, 2002 upon not less than 30
nor more than 60 days' written notice at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon, if any, to the applicable redemption
A-2-4
<PAGE> 139
date, if redeemed during the twelve-month period beginning on April 1 of each of
the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C> <C>
2002.................................... 105.188%
2003.................................... 102.594%
2004.................................... 100.000%
</TABLE>
Notwithstanding the foregoing, in the event that after the Issue Date
and prior to April 1, 2001 the Company issues, in one or more transactions,
Capital Stock (other than Disqualified Stock) of the Company to WorldCom or one
or more Strategic Equity Investors or in any Public Equity Offering for
aggregate gross cash proceeds of $50.0 million or more (an "Equity Sale"), the
Company may redeem, at its option, up to a maximum of 35% of the initially
Outstanding aggregate principal amount of Notes from the net proceeds thereof at
a redemption price equal to 110.375% of the principal amount of the Notes,
together with accrued and unpaid interest to the date of redemption; provided
that not less than $113.75 million aggregate principal amount of Notes is
Outstanding following such redemption. Any such redemption may only be effected
once and must be effected upon not less than 30 nor more than 60 days' notice
given within 180 days after such Equity Sale.
3. Offers to Purchase. Sections 10.10 and 10.15 of the Indenture
provide that upon the occurrence of a Change of Control and following certain
Asset Sales, and subject to certain conditions and limitations contained
therein, the Company shall make an offer to purchase all or a portion of the
Notes in accordance with the procedures set forth in the Indenture.
4. Defaults and Remedies. If an Event of Default occurs and is
continuing, the principal of all of the Outstanding Notes, plus all accrued and
unpaid interest, if any, to and including the date the Notes are paid, may be
declared due and payable in the manner and with the effect provided in this
Indenture.
5. Defeasance. This Indenture contains provisions (which provisions
apply to this Note) for defeasance at any time of (a) the entire indebtedness of
the Company on this Note and (b) certain restrictive covenants and related
Defaults and Events of Default, in each case upon compliance by the Company with
certain conditions set forth therein.
6. Amendments and Waivers. This Indenture permits, with certain
exceptions as provided therein, the amendment thereof and the modification of
the rights and obligations of
A-2-5
<PAGE> 140
the Company and the rights of the Holders under this Indenture at any time by
the Company and the Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time Outstanding.
This Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Notes at the time Outstanding,
on behalf of the Holders of all the Notes, to waive compliance by the Company
with certain provisions of this Indenture and certain past Defaults under this
Indenture and this Note and their consequences. Any such consent or waiver by or
on behalf of the Holder of this Note shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note.
7. Denominations, Transfer and Exchange. The Notes are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in this Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes of a different authorized denomination, as requested
by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note is registrable on the Note Register of the
Company, upon surrender of this Note for registration of transfer at the office
or agency of the Company maintained for such purpose in the Borough of Manhattan
in The City of New York, State of New York, or at such other office or agency of
the Company as may be maintained for such purpose, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
8. Persons Deemed Owners. Prior to and at the time of due presentment
of this Note for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the person in whose name this Note
is registered as the owner hereof for all purposes, whether or not this
A-2-6
<PAGE> 141
Note shall be overdue, and neither the Company, the Trustee nor any agent shall
be affected by notice to the contrary.
9. GOVERNING LAW. THIS INDENTURE, THIS NOTE AND ANY GUARANTEE SET FORTH
BELOW SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written request
and without charge a copy of this Indenture. Requests may be made to: Verio
Inc., 8005 South Chester Street, Suite 200, Englewood, Colorado 80112.
A-2-7
<PAGE> 142
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
Date: Your signature:
----------------- ----------------------------------
(Sign exactly as your name appears
on the other side of this Note)
By:
----------------------------------
NOTICE: To be executed by an
executive officer
Signature Guarantee:
-----------------------------------
A-2-8
<PAGE> 143
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.10 or 10.15 of this Indenture, check the appropriate box:
Section 10.10 [ ] Section 10.15 [ ]
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.10 or 10.15 of this Indenture, state the amount:
$ __________
Date: Your signature:
----------------- ----------------------------------
(Sign exactly as your name appears
on the other side of this Note)
By:
----------------------------------
NOTICE: To be executed by an
executive officer
Signature Guarantee:
-----------------------------------
A-2-9
<PAGE> 144
EXHIBIT B
FORM OF LEGEND FOR BOOK-ENTRY SECURITIES
Any Global Note authenticated and delivered hereunder shall
bear a legend (which would be in addition to any other legends required in the
case of a Restricted Note) in substantially the following form:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THIS
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS
NOTE IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A
PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THIS INDENTURE, AND NO TRANSFER OF THIS NOTE
(OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITORY TO A
NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE
DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THIS INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
B-1
<PAGE> 145
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
Verio Inc.
9250 East Costilla Avenue
Suite 400
Englewood, Colorado 80112
Ladies and Gentlemen:
In connection with our proposed purchase of $ aggregate principal
amount of the 10-3/8% Senior Notes Due 2005 (the "Notes" of Verio Inc. (the
"Company"), we confirm that:
1. We understand that the Notes have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and, unless
so registered, may not be sold except as permitted in the following
sentence. We agree on our own behalf and on behalf of any investor account
for which we are purchasing Notes to offer, sell or otherwise transfer such
Notes prior to (x) the date which is two years (or such shorter period of
time as permitted by Rule 144 under the Securities Act) after the later of
the date of original issue of the Notes and (y) such later date, if any, as
may be required by any subsequent change in applicable law (the "Resale
Restriction Termination Date") only (a) to the Company, (b) pursuant to a
registration statement which has been declared effective under the
Securities Act, (c) so long as the Notes are eligible for resale pursuant
to Rule 144A under the Securities Act, to a person we reasonably believe is
a "qualified institutional buyer" under Rule 144A (a "QIB") that purchases
for its own account or for the account of a QIB and to whom notice is given
that the transfer is being made in reliance on Rule 144A, (d) pursuant to
offers and sales that occur outside the United States to "foreign
purchasers" (as defined below) in offshore transactions meeting the
requirements of Rule 904 of Regulation S under the Securities Act, (e) to
an institutional "accredited investor" within the meaning of subparagraph
(a)(1), (2), (3) or (7) of Rule 501 under the Securities Act (an
"Accredited Investor") that is purchasing for its own account or for the
C-1
<PAGE> 146
account of such an institutional "accredited investor," or (f) pursuant to
any other available exemption from the registration requirements of the
Securities Act, subject, in each of the foregoing cases, to any requirement
of law that the disposition of our property or the property of such
investor account or accounts be at all times within our or their control
and to compliance with any applicable state securities laws. The foregoing
restrictions on resale will not apply subsequent to the Resale Restriction
Termination Date. If any resale or other transfer of the Notes is proposed
to be made pursuant to clause (c) above prior to the Resale Restriction
Termination Date, the transferor shall deliver a letter from the transferee
substantially in the form of this letter to the Trustee, which shall
provide, among other things, that the transferee is an Accredited Investor
within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501
under the Securities Act and that it is acquiring such Notes for investment
purposes and not for distribution in violation of the Securities Act. Each
purchaser acknowledges that the Company, the Trustee and the Transfer Agent
and Registrar reserve the right prior to any offer, sale or other transfer
prior to the Resale Restriction Termination Date of the Notes pursuant to
clause (d), (e) or (f) above to require the delivery of an opinion of
counsel, certification and/or other information satisfactory to the Company
and the Trustee.
2. We are an Accredited Investor or a QIB purchasing Notes for
our own account or for the account of one or more Accredited Investors, and
we are acquiring the Notes for investment purposes and not with a view to,
or for offer or sale in connection with, any distribution in violation of
the Securities Act or the securities laws of any state of the United States
and we have such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of our investment in
the Notes, and we and any accounts for which we are acting are each able to
bear the economic risk of our or its investment in the Notes for an
indefinite period.
3. We are acquiring the Notes purchased by us for our own account
or for one or more accounts as to each of which we exercise sole investment
discretion and we and any such account are (a) a QIB, aware that the sale
is being made in reliance on Rule 144A under the Securities Act, (b) an
Accredited Investor, or (c) a person other than a U.S. person ("foreign
purchasers"), which term
C-2
<PAGE> 147
shall include dealers or other professional fiduciaries in the United
States acting on a discretionary basis for foreign beneficial owners (other
than an estate or trust) in offshore transactions meeting the requirements
of Rules 903 and 904 of Regulation S under the Securities Act.
4. We have received a copy of the Offering Memorandum and
acknowledge that we have had access to such financial and other
information, and have been afforded the opportunity to ask such questions
of representatives of the Company and receive answers thereto, as we deem
necessary in order to verify the information contained in the Offering
Memorandum.
5. We are not purchasing the Notes for or on behalf of, and will
not transfer the Notes to, any pension or welfare plan (as defined in
Section 3 of ERISA, except as may be permitted under ERISA and as described
under "Notice to Investors" in the Offering Memorandum.
6. In the event that we purchase any Notes, we will acquire Notes
having an outstanding principal amount of at least $250,000 for our own
account and $250,000 for each account for which we are acting.
We understand that the Trustee and the Transfer Agent will not be
required to accept for registration of transfer any Notes acquired by us, except
upon presentation of evidence satisfactory to the Company and the Trustee that
the foregoing restrictions on transfer have been complied with. We further
understand that the Notes purchased by us will be in the form of definitive
physical certificates and that such certificates will bear a legend reflecting
the substance of this paragraph. We further agree to provide to any person
acquiring any of the Notes from us a notice advising such person that transfers
of such Notes are restricted as stated herein and that certificates representing
such Notes will bear a legend to that effect.
We represent that you, the Company, the Trustee and others are
entitled to rely upon the truth and accuracy of our acknowledgements,
representations and agreements set forth herein, and we agree to notify you
promptly in writing if any of our acknowledgements, representations or
agreements herein cease to be accurate and complete. You are also irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
C-3
<PAGE> 148
We represent to you that we have full power to make the foregoing
acknowledgements, representations and agreements on our own behalf and on behalf
of any investor account for which we are acting as fiduciary agent.
As used herein, the terms "offshore transaction," "United States"
and "U.S. person" have the respective meanings given to them in Regulation S
under the Securities Act.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
Very truly yours,
(Name of Purchaser)
By:
----------------------------------
Date:
--------------------------------
Upon transfer, the Notes would be registered in the name of the new
beneficial owner as follows:
Name:
--------------------------------
Address:
-----------------------------
C-4
<PAGE> 149
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
________________ , ____
First Trust National Association
180 East 5th Street
St. Paul, Minnesota 55101
Attention: Corporate Trust Department
Re: Verio Inc.
(the "Company") 10-3/8% Senior Notes Due 2005
(the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $ aggregate principal
amount of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S under the U.S. Securities Act of 1933, as
amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in
the United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any person acting on our behalf knows that the transaction has
been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
D-1
<PAGE> 150
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act;
(5) we have advised the transferee of the transfer
restrictions applicable to the Securities;
(6) if the circumstances set forth in Rule 904(c) under the
Securities Act are applicable, we have complied with the additional
conditions therein, including (if applicable) sending a confirmation or
other notice stating that the Securities may be offered and sold during
the restricted period specified in Rule 903(c)(2) or (3), as
applicable, in accordance with the provisions of Regulation S; pursuant
to registration of the Securities under the Securities Act; or pursuant
to an available exemption from the registration requirements under the
Securities Act; and
(7) if the sale is made during a restricted period and the
provisions of Rule 903(c)(3) are applicable thereto, we confirm that
such sale has been made in accordance with such provisions.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
-----------------------
Authorized Signature
D-2
<PAGE> 1
EXHIBIT 10.24
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of March 25, 1998
by and among
VERIO INC.
and
SALOMON BROTHERS INC,
LAZARD FRERES & CO. LLC,
CHASE SECURITIES INC.
and
BANCBOSTON SECURITIES INC.
as Initial Purchasers
================================================================================
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of March 25, 1998 by and among VERIO INC., a Delaware
corporation (the "Company"), and SALOMON BROTHERS INC ("Salomon"), LAZARD
FRERES & CO. LLC ("Lazard"), CHASE SECURITIES INC. ("Chase") and BANCBOSTON
SECURITIES INC. ("BancBoston" and, together with Salomon, Lazard and Chase, the
"Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement
dated as of March 19, 1998 by and among the Company and the Initial Purchasers
(the "Purchase Agreement"), which provides for, among other things, the sale by
the Company to the Initial Purchasers of an aggregate of $175,000,000 principal
amount of the Company's 10-3/8% Senior Notes Due 2005 (the "Notes"). In order
to induce the Initial Purchasers to enter into the Purchase Agreement, the
Company has agreed to provide to the Initial Purchasers and their direct and
indirect transferees the registration rights set forth in this Agreement. The
execution and delivery of this Agreement is a condition to the closing under
the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"Additional Interest" see Section 2(e) hereof.
"Advice" see the last paragraph Section 3 hereof.
"Agreement" shall have the meaning set forth in the preamble
to this Agreement.
"Applicable Period" see Section 3(s) hereof.
"BancBoston" shall have the meaning set forth in the preamble
to this Agreement.
Business Day" shall mean a day that is not a Saturday, a
Sunday, or a day on which banking institutions in New York, New York
are required to be closed.
<PAGE> 3
-2-
"Chase" shall have the meaning set forth in the preamble to
this Agreement.
"Closing Time" shall mean the Closing Time as defined in the
Purchase Agreement.
"Company" shall have the meaning set forth in the preamble to
this Agreement and also includes the Company's successors and
permitted assigns.
"Depositary" shall mean The Depository Trust Company, or any
other depositary appointed by the Company; provided, however, that
such depositary must have an address in the Borough of Manhattan, in
The City of New York.
"Effectiveness Period" see Section 2(b) hereof.
"Effectiveness Target Date" see Section 2(e) hereof.
"Event Date" see Section 2(e) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Exchange Notes" shall mean the 10-3/8% Senior Notes Due 2005,
Series B issued by the Company under the Indenture containing terms
identical to the Notes (except that (i) interest thereon shall accrue
from the last date on which interest was paid on the Notes or, if no
such interest has been paid, from March 25, 1998, (ii) the transfer
restrictions with respect to the Notes and all registration rights in
respect thereof shall be eliminated and (iii) the provisions relating
to Additional Interest shall be eliminated) to be offered to Holders
of Notes in exchange for Notes pursuant to the Exchange Offer.
"Exchange Offer" shall mean the exchange offer by the Company
of Exchange Notes for Notes pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under
the Securities Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S- 1, S-3 or S-4 (or, if
applicable, on another appropriate form), and all amendments and
supplements to such registration state-
<PAGE> 4
-3-
ment, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Exchange Period" see Section 2(a) hereof.
"Holders" shall mean the Initial Purchasers, for so long as
they own any Transfer Restricted Notes, each of their direct and
indirect successors, assigns and transferees who become registered
owners of Transfer Restricted Notes under the Indenture and each
Participating Broker-Dealer that holds Exchange Notes for so long as
such Participating Broker-Dealer is required to deliver a prospectus
meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes.
"Indenture" shall mean the Indenture relating to the Notes
dated as of March 25, 1998 between the Company, and First Trust
National Association, as trustee, as the same may be amended from time
to time in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the
preamble to this Agreement.
"Inspectors" see Section 3(m) hereof.
"Issue Date" shall mean the date on which the Notes are
originally issued.
"Lazard" shall have the meaning set forth in the preamble to
this Agreement.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Transfer Restricted Notes.
"Notes" shall have the meaning set forth in the preamble to
this Agreement.
"Participating Broker-Dealer" shall have the meaning set forth
in Section 3(s) hereof.
"Person" shall mean an individual, partnership, corporation,
trust or unincorporated organization, or a government or agency or
political subdivision thereof.
"Private Exchange" see Section 2(a) hereof.
<PAGE> 5
-4-
"Private Exchange Notes" see Section 2(a) hereof.
"Prospectus" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and any
such prospectus as amended or supplemented by any prospectus
supplement, including a prospectus supplement with respect to the
terms of the offering of any portion of the Transfer Restricted Notes
covered by a Shelf Registration Statement, and by all other amendments
and supplements to a prospectus, including post-effective amendments,
and in each case including all material incorporated by reference
therein.
"Purchase Agreement" shall have the meaning set forth in the
preamble to this Agreement.
"Records" see Section 3(m) hereof.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance by the Company with this
Agreement, including without limitation: (i) all applicable SEC,
stock exchange or National Association of Securities Dealers, Inc.
(the "NASD") registration and filing fees, (ii) all fees and expenses
incurred in connection with compliance with state securities or blue
sky laws (including reasonable fees and disbursements of one counsel
for Holders that are Initial Purchasers in connection with blue sky
qualification of any of the Exchange Notes or Transfer Restricted
Notes) and compliance with the rules of the NASD, (iii) all applicable
expenses incurred by the Company in preparing or assisting in
preparing, word processing, printing and distributing any Registration
Statement, any Prospectus and any amendments or supplements thereto,
and in preparing or assisting in preparing any other documents
relating to the performance of and compliance with this Agreement,
(iv) all rating agency fees, if any, (v) the fees and disbursements of
counsel for the Company, (vii) all fees and expenses incurred in
connection with the listing, if any, of any of the Transfer Restricted
Notes on any securities exchange or exchanges, if the Company, in its
discretion, elects to make any such listing; but excluding fees of
counsel to the Holders and underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of
Transfer Restricted Notes by a Holder.
"Registration Statement" shall mean any registration statement
(including, without limitation, the Exchange Of-
<PAGE> 6
-5-
fer Registration Statement and the Shelf Registration Statement) of
the Company which covers any of the Exchange Notes or Transfer
Restricted Notes pursuant to the provisions of this Agreement, and all
amendments and supplements to any such Registration Statement,
including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Shelf Registration" shall mean a registration effected
pursuant to Section 2(b) hereof.
"Shelf Registration Event Date" see Section 2(b).
"Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company pursuant to the provisions of
Section 2(b) hereof which covers all of the Transfer Restricted Notes
or all of the Private Exchange Notes, as the case may be, on an
appropriate form under Rule 415 under the Securities Act, or any
similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference
therein.
"Target Consummation Date" see Section 2(a).
"Target Effectiveness Date" see Section 2(a).
"TIA" shall have the meaning set forth in Section 3(k) hereof.
"Transfer Restricted Notes" means each Note until (i) the date
on which such has been exchanged by a person other than a
broker-dealer for an Exchange Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of a
Note for an Exchange Note, the date on which such Exchange Note is
sold to a purchaser who receives from such broker-dealer on or prior
to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement,
<PAGE> 7
-6-
(iii) the date on which such Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement, (iv) the date on which such Note is
distributed to the public pursuant to Rule 144(k) under the Securities
Act (or any similar provision then in force, but not Rule 144A under
the Securities Act), (v) such Note shall have been otherwise
transferred by the holder thereof and a new Note not bearing a legend
restricting further transfer shall have been delivered by the Company
and subsequent disposition of such Note shall not require registration
or qualification under the Securities Act or any similar state law
then in force or (vi) such Note ceases to be outstanding.
"Trustee" shall mean the trustee with respect to the Notes
under the Indenture.
2. Registration Under the Securities Act.
(a) Exchange Offer. The Company shall, for the benefit of
the Holders, at the Company's cost, (i) unless the Exchange Offer would not be
permitted by applicable law or SEC policy, file with the SEC within 90 days
after the Closing Time an Exchange Offer Registration Statement on an
appropriate form under the Securities Act covering the offer by the Company to
the Holders to exchange all of the Transfer Restricted Notes (other than
Private Exchange Notes (as defined below)) for a like principal amount of
Exchange Notes, (ii) unless the Exchange Offer would not be permitted by
applicable law or SEC policy, use its best efforts to have such Exchange Offer
Registration Statement declared effective under the Securities Act by the SEC
not later than the date which is 150 days after the Closing Time (the "Target
Effectiveness Date"), (iii) have such Registration Statement remain effective
until the closing of the Exchange Offer and (iv) unless the Exchange Offer
would not be permitted by applicable law or SEC policy, commence the Exchange
Offer and use its best efforts to issue, on or prior to the date which is 30
days after the date on which the Exchange Offer Registration Statement was
declared effective by the SEC (the "Target Consummation Date"), Exchange Notes
in exchange for all Notes tendered prior thereto in the Exchange Offer. Upon
the effectiveness of the Exchange Offer Registration Statement, the Company
shall promptly commence the Exchange Offer, it being the objective of such
Exchange Offer to enable each Holder eligible and electing to exchange Transfer
Restricted Notes for Exchange Notes (assuming that such Holder is not an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act and is not a broker-dealer tendering
<PAGE> 8
-7-
Transfer Restricted Notes acquired directly from the Company for its own
account, acquires the Exchange Notes in the ordinary course of such Holder's
business and has no arrangements or understandings with any Person to
participate in the Exchange Offer for the purpose of distributing (within the
meaning of the Securities Act) the Exchange Notes) and to transfer such
Exchange Notes from and after their receipt without any limitations or
restrictions under the Securities Act and under state securities or blue sky
laws.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming
part of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(ii) keep the Exchange Offer open for acceptance for a
period of not less than 20 Business Days after the date notice thereof
is mailed to the Holders (or longer if required by applicable law)
(such period referred to herein as the "Exchange Period");
(iii) utilize the services of the Depositary for the
Exchange Offer;
(iv) permit Holders to withdraw tendered Notes at any time
prior to the close of business, New York time, on the last Business
Day of the Exchange Period, by sending to the institution specified in
the notice, a telegram, telex, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of Notes
delivered for exchange, and a statement that such Holder is
withdrawing his election to have such Notes exchanged; and
(v) otherwise comply in all material respects with all
applicable laws relating to the Exchange Offer.
If, prior to consummation of the Exchange Offer the Initial
Purchasers hold any Notes acquired by them and having the status of an unsold
allotment in the initial distribution, the Company upon the request of any
Initial Purchaser shall, simultaneously with the delivery of the Exchange Notes
in the Exchange Offer, issue and deliver to such Initial Purchaser in exchange
(the "Private Exchange") for the Notes held by such Initial Purchaser, a like
principal amount of debt securities of the Company that are identical (except
that such securities
<PAGE> 9
-8-
shall bear appropriate transfer restrictions) to the Exchange Notes (the
"Private Exchange Notes").
The Exchange Notes and the Private Exchange Notes shall be
issued under (i) the Indenture or (ii) an indenture identical to all material
respects to the Indenture and which, in either case, has been qualified under
the TIA or is exempt from such qualification and shall provide that the
Exchange Notes shall not be subject to the transfer restrictions set forth in
the Indenture. The Indenture or such indenture shall provide that the Exchange
Notes, the Private Exchange Notes and the Notes shall vote and consent together
on all matters as one class and that none of the Exchange Notes, the Private
Exchange Notes or the Notes will have the right to vote or consent as a
separate class on any matter. The Private Exchange Notes shall be of the same
series as and the Company shall use all commercially reasonable efforts to have
the Private Exchange Notes bear the same CUSIP number as the Exchange Notes.
The Company shall not have any liability under this Agreement solely as a
result of such Private Exchange Notes not bearing the same CUSIP number as the
Exchange Notes.
The Exchange Offer and the Private Exchange shall not be
subject to any conditions, other than that (i) the Exchange Offer or Private
Exchange, as the case may be, does not violate applicable law or any applicable
interpretation of the staff of the SEC (ii) no action or proceeding shall have
been instituted or threatened in any court or by any governmental agency which
might materially impair the ability of the Company to proceed with the Exchange
Offer or the Private Exchange, and no material adverse development shall have
occurred in any existing action or proceeding with respect to the Company and
(iii) all governmental approvals shall have been obtained, which approvals the
Company deems necessary for the consummation of the Exchange Offer or Private
Exchange. As soon as practicable after the close of the Exchange Offer and/or
the Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all Transfer Restricted Notes or
portions thereof properly tendered and not validly withdrawn pursuant
to the Exchange Offer in accordance with the terms of the Exchange
Offer Registration Statement and the letter of transmittal which is an
exhibit thereto;
(ii) accept for exchange all Notes properly tendered
pursuant to the Private Exchange; and
<PAGE> 10
-9-
(iii) deliver, or cause to be delivered, to the Trustee for
cancellation all Transfer Restricted Notes or portions thereof so
accepted for exchange by the Company, and issue, and cause the Trustee
under the Indenture to promptly authenticate and deliver to each
Holder, a new Exchange Note or Private Exchange Note, as the case may
be, equal in principal amount to the principal amount of the Transfer
Restricted Notes surrendered by such Holder and accepted for exchange.
To the extent not prohibited by any law or applicable
interpretation of the staff of the SEC, the Company shall use its best efforts
to complete the Exchange Offer as provided above, and shall comply with the
applicable requirements of the Securities Act, the Exchange Act and other
applicable laws in connection with the Exchange Offer. The Exchange Offer
shall not be subject to any conditions, other than those set forth in the
immediately preceding paragraph. Each Holder of Transfer Restricted Notes who
wishes to exchange such Transfer Restricted Notes for Exchange Notes in the
Exchange Offer will be required to make certain customary representations in
connection therewith, including representations that such Holder is not an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act, that any Exchange Notes to be received by it will be acquired in the
ordinary course of business and that at the time of the commencement of the
Exchange Offer it has no arrangement with any Person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes.
The Company shall inform the Initial Purchasers of the names and addresses of
the Holders to whom the Exchange Offer is made, and the Initial Purchasers
shall have the right to contact such Holders and otherwise facilitate the
tender of Transfer Restricted Notes in the Exchange Offer.
Upon consummation of the Exchange Offer in accordance with
this Section 2(a), the provisions of this Agreement shall continue to apply,
mutatis mutandis, solely with respect to Transfer Restricted Notes that are
Private Exchange Notes and Exchange Notes held by Participating Broker-Dealers,
and the Company shall have no further obligation to register Transfer
Restricted Notes (other than Private Exchange Notes) pursuant to Section 2(b)
hereof.
(b) Shelf Registration. If (i) the Company is not permitted
to file the Exchange Offer Registration Statement or to consummate the Exchange
Offer because the Exchange Offer is not permitted by applicable law or SEC
policy, (ii) the Ex-
<PAGE> 11
-10-
change Offer is not for any other reason consummated by the Target Consummation
Date, (iii) any holder of Notes notifies the Company within a specified time
period that (a) due to a change in law or policy, in the opinion of counsel, it
is not entitled to participate in the Exchange Offer, (b) due to a change in
law or policy, in the opinion of counsel, it may not resell the Exchange Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and (x) the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such holder and
(y) such prospectus is not promptly amended or modified in order to be suitable
for use in connection with such resales for such holder and all similarly
situated holders or (c) it is a broker-dealer and owns Notes acquired directly
from the Company or an affiliate of the Company, (iv) the holders of a majority
of the Notes may not resell the Exchange Notes acquired by them in the Exchange
Offer to the public without restriction under the Securities Act and without
restriction under applicable blue sky or state securities laws or (v) the
Exchange Offer shall not have been consummated within 150 days after the Issue
Date (the date of any of (i)-(v), the "Shelf Registration Event Date"), then
the Company shall, at its cost, use its best efforts to cause to be filed a
Shelf Registration Statement prior to the later of (A) 30 days after the Shelf
Registration Event Date or (B) 150 days after the Issue Date and use its best
efforts to cause the Shelf Registration Statement to be declared effective by
the SEC on or prior to 90 days after such obligation arises. Each Holder as to
which any Shelf Registration is being effected agrees to furnish to the Company
all information with respect to such Holder necessary to make any information
previously furnished to the Company by such Holder not materially misleading.
The Company agrees to use its best efforts to keep the Shelf
Registration Statement continuously effective for a period of two years from
the Issue Date (subject to extension pursuant to the last paragraph of Section
3 hereof) (or such shorter period that will terminate when all of the Transfer
Restricted Notes covered by such Shelf Registration Statement have been sold
pursuant thereto) or cease to be outstanding (the "Effectiveness Period");
provided, however, that the Effectiveness Period in respect of the Shelf
Registration Statement shall be extended to the extent required to permit
dealers to comply with the applicable prospectus delivery requirements of Rule
174 under the Securities Act and as otherwise provided herein. The Company
shall not permit any securities other than Transfer Restricted Notes to be
included in the Shelf Registration. The Company further agrees, if necessary,
to supplement
<PAGE> 12
-11-
or amend the Shelf Registration Statement, if required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Shelf Registration Statement or by the Securities Act or by
any other rules and regulations thereunder for shelf registrations, and the
Company agrees to furnish to the Holders of Transfer Restricted Notes copies of
any such supplement or amendment promptly after its being used or filed with
the SEC.
(c) Expenses. The Company shall pay all Registration
Expenses in connection with the registration pursuant to Section 2(a) or 2(b)
hereof and the reasonable fees and expenses of one counsel, if any, designated
in writing by the Majority Holders to act as counsel for the Holders of the
Transfer Restricted Notes in connection with a Shelf Registration Statement.
Except as provided in the preceding sentence, each Holder shall pay all
expenses of its counsel, underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of such Holder's Transfer
Restricted Notes pursuant to the Shelf Registration Statement.
(d) Effective Registration Statement. An Exchange Offer
Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration
Statement pursuant to Section 2(b) hereof will not be deemed to have become
effective unless it has been declared effective by the SEC; provided, however,
that if, after it has been declared effective, the offering of Transfer
Restricted Notes pursuant to a Shelf Registration Statement is interfered with
by any stop order, injunction or other order or requirement of the SEC or any
other governmental agency or court, such Registration Statement will be deemed
not to have been effective during the period of such interference, until the
offering of Transfer Restricted Notes may legally resume. The Company will be
deemed not to have used its best efforts to cause the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
to become, or to remain, effective during the requisite period if it
voluntarily takes any action that would result in any such Registration
Statement not being declared effective or in the Holders of Transfer Restricted
Notes covered thereby not being able to exchange or offer and sell such
Transfer Restricted Notes during that period, unless such action is required by
applicable law and except as otherwise provided in the second paragraph of
Section 2(e) below.
(e) Additional Interest. In the event that (i) the
applicable Registration Statement is not filed with the SEC on or prior to the
date specified herein for such filing, (ii) the
<PAGE> 13
-12-
applicable Registration Statement is not declared effective on or prior to the
date specified herein for such effectiveness after such obligation arises (the
"Effectiveness Target Date"), (iii) if the Exchange Offer is required to be
consummated hereunder, the Company fails to consummate the Exchange Offer
within 30 days of the date on which the Exchange Offer Registration Statement
is declared effective or (iv) the applicable Registration Statement is filed
and declared effective during the period effectiveness is required by Section
2(e) and 3(a) but shall thereafter cease to be effective or usable without
being succeeded immediately by an additional Registration Statement covering
the Transfer Restricted Notes which has been filed and declared effective (each
such event referred to in clauses (i) through (iv), a "Registration Default"),
then the interest rate on the Transfer Restricted Notes as to which such
Registration Default relates will increase ("Additional Interest"), with
respect to the first 90-day period (or portion thereof) while a Registration
Default is continuing immediately following the occurrence of such Registration
Default in an amount equal to 0.50% per annum of the principal amount of the
Notes. The rate of additional Interest will increase by an additional 0.50%
per annum of the principal amount of the Notes for each subsequent 90-day
period (or portion thereof) while a Registration Default is continuing until
all Registration Defaults have been cured, up to a maximum amount of 1.50% of
the principal amount of the Notes. Additional Interest shall be computed based
on the actual number of days elapsed during which any such Registration
Defaults exist. Following the cure of a Registration Default, the accrual of
Additional Interest with respect to such Registration Default will cease.
If the Company issues a notice that the Shelf Registration
Statement is unusable due to the pendency of an announcement of a material
corporate transaction, or such notice is required under applicable securities
laws to be issued by the Company, and the aggregate number of days in any
consecutive twelve-month period for which the Shelf Registration Statement
shall not be usable due to all such notices issued or required to be issued
exceeds 30 days in the aggregate, then the interest rate borne by the Notes
will be increased by 0.50% per annum of the principal amount of the Notes for
the first 90-day period (or portion thereof) beginning on the 31st such date
that such Shelf Registration Statement ceases to be usable, which rate shall be
increased by an additional 0.50% per annum of the principal amount of the Notes
at the beginning of each subsequent 90-day period, up to a maximum amount of
1.50% of the principal amount of the Notes. Upon the Shelf Registration
Statement once again becoming usable, the interest rate
<PAGE> 14
-13-
borne by the Notes will be reduced to the original interest rate if the Company
is otherwise in compliance with this Agreement at such time. Additional
Interest shall be computed based on the actual number of days elapsed in each
90-day period in which the Shelf Registration Statement is unusable.
The Company shall notify the Trustee within three Business
Days after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). Additional
Interest shall be paid by depositing with the Trustee, in trust, for the
benefit of the Holders of Transfer Restricted Notes, on or before the
applicable semiannual interest payment date, immediately available funds in
sums sufficient to pay the Additional Interest then due. The Additional
Interest due shall be payable on each interest payment date to the record
Holder of Notes entitled to receive the interest payment to be paid on such
date as set forth in the Indenture. Each obligation to pay Additional Interest
shall be deemed to accrue from and including the day following the applicable
Event Date.
3. Registration Procedures. In connection with the
obligations of the Company with respect to the Registration Statements pursuant
to Sections 2(a) and 2(b) hereof, the Company shall:
(a) prepare and file with the SEC a Registration
Statement or Registration Statements as prescribed by Sections 2(a)
and 2(b) hereof within the relevant time period specified in Section 2
hereof on the appropriate form under the Securities Act, which form
(i) shall be selected by the Company, (ii) shall, in the case of a
Shelf Registration, be available for the sale of the Transfer
Restricted Notes by the selling Holders thereof and (iii) shall comply
as to form in all material respects with the requirements of the
applicable form and include all financial statements required by the
SEC to be filed therewith; and use their best efforts to cause such
Registration Statement to become effective and remain effective in
accordance with Section 2 hereof. The Company shall not file any
Registration Statement or Prospectus or any amendments or supplements
thereto in respect of which the Holders must provide information for
inclusion therein without the Holders being afforded an opportunity to
review such documentation a reasonable time prior to the filing of
such document if the Majority Holders or such Participating
Broker-Dealer, as the case may be, their
<PAGE> 15
-14-
counsel or the managing underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement effective for the
Effectiveness Period or the Applicable Period, as the case may be; and
cause each Prospectus to be supplemented by any required prospectus
supplement and as so supplemented to be filed pursuant to Rule 424 (or
any similar provision then in force) under the Securities Act, and
comply with the provisions of the Securities Act, the Exchange Act and
the rules and regulations promulgated thereunder applicable to it with
respect to the disposition of all securities covered by each
Registration Statement during the Effectiveness Period or the
Applicable Period, as the case may be, in accordance with the intended
method or methods of distribution by the selling Holders thereof
described in this Agreement (including sales by any Participating
Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each
Holder of Transfer Restricted Notes, at least three Business Days
prior to filing, that a Shelf Registration Statement with respect to
the Transfer Restricted Notes is being filed and advising such Holder
that the distribution of Transfer Restricted Notes will be made in
accordance with the method selected by the Majority Holders; and (ii)
furnish to each Holder of Transfer Restricted Notes, without charge,
as many copies of each Prospectus, and any amendment or supplement
thereto and such other documents as such Holder may reasonably
request, in order to facilitate the disposition of the Transfer
Restricted Notes; and (iii) subject to the last paragraph of Section 3
hereof, hereby consent to the use of the Prospectus or any amendment
or supplement thereto by each of the selling Holders of Transfer
Restricted Notes in connection with the offering and sale of the
Transfer Restricted Notes covered by such Prospectus or any amendment
or supplement thereto subject to the limitations on the use thereof
provided in Sections 2(b) and 2(c);
(d) in the case of a Shelf Registration, use its best
efforts to register or qualify, as may be required by applicable law,
the Transfer Restricted Notes under all applicable state securities or
"blue sky" laws of such jurisdictions by the time the applicable
Registration Statement is declared effective by the SEC as any Holder
of
<PAGE> 16
-15-
Transfer Restricted Notes covered by a Registration Statement shall
reasonably request in advance of such date of effectiveness, and do
any and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in each
such jurisdiction of such Transfer Restricted Notes owned by such
Holder; provided, however, that the Company shall not be required to
(i) qualify as a foreign corporation or as a broker or dealer in
securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (ii) file any general
consent to service of process or (iii) subject itself to taxation in
any such jurisdiction if it is not so subject;
(e) in the case of (1) a Shelf Registration or (2)
Participating Broker-Dealers who have notified the Company that they
will be utilizing the Prospectus contained in the Exchange Offer
Registration Statement as provided in Section 3(t) hereof, notify each
Holder of Transfer Restricted Notes, or such Participating
Broker-Dealers, as the case may be, their counsel, if any, promptly
and confirm such notice in writing (i) when a Registration Statement
has become effective and when any post-effective amendments and
supplements thereto become effective, (ii) of any request by the SEC
or any state securities authority for amendments and supplements to a
Registration Statement or Prospectus or for additional information
after the Registration Statement has become effective, (iii) of the
issuance by the SEC or any state securities authority of any stop
order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (iv) if the Company
receives any notification with respect to the suspension of the
qualification of the Transfer Restricted Notes or the Exchange Notes
to be sold by any Participating Broker-Dealer for offer or sale in any
jurisdiction or the initiation of any proceeding for such purpose, (v)
of the happening of any event or the failure of any event to occur or
the discovery of any facts or otherwise, during the period a Shelf
Registration Statement is effective which makes any statement made in
such Registration Statement or the related Prospectus untrue in any
material respect or which causes such Registration Statement or
Prospectus to omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading and (vi) the Company's reasonable
determination that a post-effective
<PAGE> 17
-16-
amendment to the Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of a Registration Statement
as soon as practicable;
(g) in the case of a Shelf Registration, furnish to each
Holder of Transfer Restricted Notes, without charge, at least one
conformed copy of each Registration Statement relating to such Shelf
Registration and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto,
unless requested);
(h) in the case of a Shelf Registration, cooperate with
the selling Holders of Transfer Restricted Notes to facilitate the
timely preparation and delivery of certificates not bearing any
restrictive legends representing Notes covered by such Shelf
Registration to be sold and relating to the subsequent transfer of
such Notes; and cause such Transfer Restricted Notes to be in such
denominations (consistent with the provisions of the Indenture) and
registered in such names as the selling Holders may reasonably request
at least two Business Days prior to the closing of any sale of
Transfer Restricted Notes;
(i) in the case of a Shelf Registration or an Exchange
Offer Registration, upon the occurrence of any circumstance
contemplated by Section 3(e)(ii), 3(e)(iii), 3(e)(iv), 3(e)(v) or
3(e)(vi) hereof, use their best efforts to prepare a supplement or
post-effective amendment to a Registration Statement or the related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of the Transfer Restricted Notes, such Prospectus will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and
to notify each Holder to suspend use of the Prospectus as promptly as
practicable after the occurrence of such an event, and each Holder
hereby agrees to suspend use of the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or
omission;
(j) obtain a CUSIP number for all Exchange Notes or
Transfer Restricted Notes, as the case may be, not later than the
effective date of a Registration Statement, and
<PAGE> 18
-17-
provide the Trustee with certificates for the Exchange Notes or the
Transfer Restricted Notes, as the case may be, in a form eligible for
deposit with the Depositary;
(k) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended, (the "TIA") in connection with the
registration of the Exchange Notes or Transfer Restricted Notes, as
the case may be, cooperate with the Trustee and the Holders to effect
such changes to the Indenture as may be required for the Indenture to
be so qualified in accordance with the terms of the TIA and execute,
and use its best efforts to cause the Trustee to execute, all
documents as may be required to effect such changes, and all other
forms and documents required to be filed with the SEC to enable the
Indenture to be so qualified in a timely manner;
(l) in the case of a Shelf Registration, enter into such
agreements (including underwriting agreements) and take all such other
appropriate actions as are reasonably requested in order to expedite
or facilitate the registration or the disposition of such Transfer
Restricted Notes, and in such connection, (i) make such
representations and warranties to Holders of such Transfer Restricted
Notes with respect to the business of the Company and its subsidiaries
as then conducted and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, as are customarily made by issuers to
underwriters in underwritten offerings, and confirm the same if and
when requested; (ii) obtain opinions of counsel to the Company and
updates thereof in form and substance reasonably satisfactory to the
Holders of a majority in principal amount of the Transfer Restricted
Notes being sold, addressed to each selling Holder covering the
matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by
such Holders; (iii) obtain "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company (and,
if necessary, any other independent certified public accountants of
any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data are, or are
required to be, included in the Registration Statement, addressed to
the selling Holders of Transfer Restricted Notes, such letters to be
in customary form and covering matters of the type customarily covered
in "cold comfort" letters in connection with underwritten offerings
<PAGE> 19
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and such other matters as reasonably requested by such selling
Holders; and (iv) if an underwriting agreement is entered into, the
same shall contain indemnification provisions and procedures no less
favorable than those set forth in Section 4 hereof (or such other
provisions and procedures acceptable to the Company and the Holders of
a majority in aggregate principal amount of Transfer Restricted Notes
covered by such Registration with respect to all parties to be
indemnified pursuant to said Section (including, without limitation,
such selling Holders). The above shall be done at each closing in
respect of the sale of Transfer Restricted Notes, or as and to the
extent required thereunder;
(m) if (1) a Shelf Registration is filed pursuant to
Section 2(b) or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2(a) is required to
be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, make available for inspection by each such person who would be
an "underwriter" as a result of either (i) the sale by such person of
Notes covered by such Shelf Registration Statement or (ii) the sale
during the Applicable Period by a Participating Broker-Dealer of
Exchange Notes (provided that a Participating Broker- Dealer shall not
be deemed to be an underwriter solely as a result of it being required
to deliver a prospectus in connection with any resale of Exchange
Notes) and any attorney, accountant or other agent retained by any
such person (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable business hours, all financial and
other records, pertinent corporate documents and properties of the
Company and its subsidiaries (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise any applicable due
diligence responsibilities, and cause the officers, directors and
employees of the Company and its subsidiaries to supply all
information in each case reasonably requested by any such Inspector in
connection with such Registration Statement. Records which the
Company determines, in good faith, to be confidential and any Records
which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such Records
is necessary to avoid or correct a material misstatement or omission
in such Registration Statement, (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court of
competent jurisdiction or (iii) the information in such
<PAGE> 20
-19-
Records has been made generally available to the public. Each selling
Holder of such Transfer Restricted Notes and each such Participating
Broker-Dealer will be required to agree that information obtained by
it as a result of such inspections shall be deemed confidential and
shall not be used by it as the basis for any market transactions in
the securities of the Company unless and until such is made generally
available to the public. Each selling Holder of such Transfer
Restricted Notes and each such Participating Broker-Dealer will be
required to further agree that it will, upon learning that disclosure
of such Records is sought in a court of competent jurisdiction, give
notice to the Company and allow the Company at its expense to
undertake appropriate action to prevent disclosure of the Records
deemed confidential;
(n) comply with all applicable rules and regulations of
the SEC and make generally available to its securityholders earnings
statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act) no later than 60 days after the
end of any 12-month period (or 135 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of
any fiscal quarter in which Transfer Restricted Notes are sold to
underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company
after the effective date of a Registration Statement, which statements
shall cover said 12-month periods;
(o) upon consummation of an Exchange Offer or a Private
Exchange, obtain an opinion of counsel to the Company addressed to the
Trustee for the benefit of all Holders of Transfer Restricted Notes
participating in the Exchange Offer or the Private Exchange, as the
case may be, and which includes an opinion that (i) the Company has
duly authorized, executed and delivered the Exchange Notes and Private
Exchange Notes, and (ii) each of the Exchange Notes or the Private
Exchange Notes, as the case may be, constitute a legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its respective terms (in each case, with customary
exceptions);
(p) if an Exchange Offer or a Private Exchange is to be
consummated, upon proper delivery of the Transfer Re-
<PAGE> 21
-20-
stricted Notes by Holders to the Company (or to such other Person as
directed by the Company) in exchange for the Exchange Notes or the
Private Exchange Notes, as the case may be, the Company shall mark, or
cause to be marked, on such Transfer Restricted Notes and on the books
of the Trustee, the Transfer Agent, the Registrar and the Depositary
delivered by such Holders that such Transfer Restricted Notes are
being canceled in exchange for the Exchange Notes or the Private
Exchange Notes, as the case may be; but in no event shall such
Transfer Restricted Notes be marked as paid or otherwise satisfied
solely as a result of being exchanged for Exchange Notes or Private
Exchange Notes in the Exchange Offer or the Private Exchange, as the
case may be;
(q) cooperate with each seller of Transfer Restricted
Notes covered by any Registration Statement participating in the
disposition of such Transfer Restricted Notes and one counsel acting
on behalf of all such sellers in connection with the filings, if any,
required to be made with the NASD;
(r) use its best efforts to take all other steps
necessary to effect the registration of the Transfer Restricted Notes
covered by a Registration Statement contemplated hereby; and
(s) (A) in the case of the Exchange Offer Registration
Statement (i) include in the Exchange Offer Registration Statement a
section entitled "Plan of Distribution," which section shall be
reasonably acceptable to Salomon, as representative of the Initial
Purchasers, and which shall contain a summary statement of the
positions taken or policies made by the staff of the SEC with respect
to the potential "underwriter" status of any broker-dealer (a
"Participating Broker-Dealer") that holds Transfer Restricted Notes
acquired for its own account as a result of market-making activities
or other trading activities and that will be the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of Exchange Notes to be
received by such broker-dealer in the Exchange Offer, whether such
positions or policies have been publicly disseminated by the staff of
the SEC or such positions or policies, in the reasonable judgment of
Salomon, as representative of the Initial Purchasers or such other
representative, represent the prevailing views of the staff of the
SEC, including a statement that any such broker-dealer who receives
Exchange Notes for Transfer Restricted Notes pursuant to the
<PAGE> 22
-21-
Exchange Offer may be deemed a statutory underwriter and must deliver
a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes, (ii) furnish to
each Participating Broker-Dealer who has delivered to the Company the
notice referred to in Section 3(e), without charge, as many copies of
each Prospectus included in the Exchange Offer Registration Statement,
and any amendment or supplement thereto, as such Participating
Broker-Dealer may reasonably request; (iii) hereby consent to the use
of the Prospectus forming part of the Exchange Offer Registration
Statement or any amendment or supplement thereto, by any Person
subject to the prospectus delivery requirements of the SEC, including
all Participating Broker-Dealers, in connection with the sale or
transfer of the Exchange Notes covered by the Prospectus or any
amendment or supplement thereto, (iv) use their best efforts to keep
the Exchange Offer Registration Statement effective and to amend and
supplement the Prospectus contained therein in order to permit such
Prospectus to be lawfully delivered by all Persons subject to the
prospectus delivery requirements of the Securities Act for such period
of time as such Persons must comply with such requirements in order to
resell the Exchange Notes; provided, however, that such period shall
not be required to exceed 90 days (or such longer period if extended
pursuant to the last sentence of Section 3 hereof) (the "Applicable
Period"), and (iv) include in the transmittal letter or similar
documentation to be executed by an exchange offeree in order to
participate in the Exchange Offer (x) the following provision:
"If the exchange offeree is a broker-dealer holding Transfer
Restricted Notes acquired for its own account as a result of
market-making activities or other trading activities, it will
deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of Exchange Notes
received in respect of such Transfer Restricted Notes pursuant
to the Exchange Offer";
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in clause (x) and by delivering a Prospectus
in connection with the exchange of Transfer Restricted Notes, such
broker-dealer will not be deemed to admit that it is an underwriter
within the meaning of the Securities Act; and
<PAGE> 23
-22-
(B) in the case of any Exchange Offer Registration Statement,
the Company agrees to deliver, upon request, to the Trustee or to
Participating Broker-Dealers upon consummation of the Exchange Offer
(i) an opinion of counsel substantially in the form attached hereto as
Exhibit A, and (ii) an officers' certificate containing certifications
substantially similar to those set forth in Section 6(c) of the
Purchase Agreement.
The Company may require each seller of Transfer Restricted
Notes as to which any registration is being effected to furnish to the Company
such information regarding such seller and the proposed distribution of such
Transfer Restricted Notes, as the Company may from time to time reasonably
request in writing. The Company may exclude from such registration the
Transfer Restricted Notes of any seller who fails to furnish such information
within a reasonable time (not to exceed 10 Business Days) after receiving such
request and shall be under no obligation to compensate any such seller for any
lost income, interest or other opportunity forgone, or any liability incurred,
as a result of the Company's decision to exclude such seller.
In the case of (1) a Shelf Registration Statement or (2)
Participating Broker-Dealers who have notified the Company that they will be
utilizing the Prospectus contained in the Exchange Offer Registration Statement
as provided in Section 3(t) hereof, that are seeking to sell Exchange Notes and
are required to deliver Prospectuses, each Holder agrees that, upon receipt of
any notice from the Company of the happening of any event of the kind described
in Section 3(e)(ii), 3(e)(iii), 3(e)(v), 3(e)(vi) or 3(e)(vii) hereof, such
Holder will forthwith discontinue disposition of Transfer Restricted Notes
pursuant to a Registration Statement until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 3(i) hereof
or until it is advised in writing (the "Advice") by the Company that the use of
the applicable Prospectus may be resumed, and, if so directed by the Company,
such Holder will deliver to the Company (at the Company's expense) all copies
in such Holder's possession, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted Notes
or Exchange Notes, as the case may be, current at the time of receipt of such
notice. If the Company shall give any such notice to suspend the disposition
of Transfer Restricted Notes or Exchange Notes, as the case may be, pursuant to
a Registration Statement, the Company shall use its best efforts to file and
have declared effective (if an amendment) as soon as practicable an
<PAGE> 24
-23-
amendment or supplement to the Registration Statement and, in the case of an
amendment, have such amendment declared effective as soon as practicable and
shall extend the period during which such Registration Statement shall be
maintained effective pursuant to this Agreement by the number of days in the
period from and including the date of the giving of such notice to and
including the date when the Company shall have made available to the Holders
(x) copies of the supplemented or amended Prospectus necessary to resume such
dispositions or (y) the Advice.
4. Indemnification and Contribution. (a) The Company shall
indemnify and hold harmless each Initial Purchaser, each Holder, each
Participating Broker-Dealer, each underwriter who participates in an offering
of Transfer Restricted Notes, their respective affiliates, each Person, if any,
who controls any of such parties within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, joint or several, as incurred, arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment or
supplement thereto), covering Transfer Restricted Notes or Exchange
Notes, including all documents incorporated therein by reference, or
the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, joint or several, as incurred, to the extent
of the aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any court or governmental agency or
body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission; provided that (subject to Sections 4(c) and
4(d) below) any such settlement is effected with the prior written
consent of the Company; and
<PAGE> 25
-24-
(iii) against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of one counsel (in
addition to any local counsel) chosen by Salomon, such Holder, such
Participating Broker-Dealer or any underwriter (except to the extent
otherwise expressly provided in Section 4(c) hereof)), reasonably
incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any court or
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under subparagraph (i) or (ii) of this Section
4(a);
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission (i) made in reliance upon and
in conformity with written information furnished in writing to the Company by
or on behalf of such Initial Purchaser, such Holder, such Participating
Broker-Dealer or any underwriter with respect to such Initial Purchaser,
Holder, Participating Broker-Dealer or underwriter, as the case may be,
expressly for use in the Registration Statement (or any amendment or supplement
thereto) or any Prospectus (or any amendment or supplement thereto) or (ii)
contained in any preliminary prospectus if such Initial Purchaser, such Holder,
such Participating Broker-Dealer or such underwriter failed to send or deliver
a copy of the Prospectus (in the form it was first provided to such parties for
confirmation of sales) to the Person asserting such losses, claims, damages or
liabilities on or prior to the delivery of written confirmation of any sale of
securities covered thereby to such Person in any case where the Company shall
have previously furnished copies thereof to such Initial Purchaser, such
Holder, such Participating Broker-Dealer or such underwriter, as the case may
be, in accordance with this Agreement, at or prior to the written confirmation
of the sale of such Notes to such Person and the untrue statement contained in
or the omission from the preliminary prospectus was corrected in the Final
Prospectus (or any amendment or supplement thereto). Any amounts advanced by
the Company to an indemnified party pursuant to this Section 4 as a result of
such losses shall be returned to the Company if it shall be finally determined
by a court of competent jurisdiction in a judgment not subject to appeal or
final review that such indemnified party was not entitled to indemnification by
the Company.
<PAGE> 26
-25-
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, each Initial Purchaser, each
underwriter who participates in an offering of Transfer Restricted Notes and
the other selling Holders and each of their respective directors and each
Person, if any, who controls any of the Company, any Initial Purchaser, any
underwriter or any other selling Holder within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, against any and all loss, liability,
claim, damage and expense whatsoever described in the indemnity contained in
Section 4(a) hereof, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment or supplement thereto) or any Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such selling
Holder with respect to such Holder expressly for use in the Registration
Statement (or any supplement thereto), or any such Prospectus (or any amendment
thereto); provided, however, that, in the case of the Shelf Registration
Statement, no such Holder shall be liable for any claims hereunder in excess of
the amount of net proceeds received by such Holder from the sale of Transfer
Restricted Notes pursuant to the Shelf Registration Statement; provided,
further, however, that for purposes of Section 4(a)(iii), such counsel shall
(subject to Section 4(c) hereof) be chosen by the Company.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve such indemnifying party
from any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which
it may have otherwise than on account of this indemnity agreement. In the case
of parties indemnified pursuant to Section 4(a) above, one counsel to all the
indemnified parties shall be selected by Salomon, and, in the case of parties
indemnified pursuant to Section 4(b) above, counsel to all the indemnified
parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party.
Notwithstanding the foregoing, if it so elects within a reasonable time after
receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such ac-
<PAGE> 27
-26-
tion with counsel chosen by it and approved by the indemnified parties
defendant in such action (which approval shall not be unreasonably withheld),
unless such indemnified parties reasonably object to such assumption on the
ground that there may be legal defenses available to them which are different
from or in addition to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the indemnifying parties
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent
of the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 4 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes a full and unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim
and the offer and sale of any Notes and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of
any indemnified party.
(d) If at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for reasonable fees
and expenses of counsel pursuant to Section 4(a)(iii) above, then such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 4(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
(e) In order to provide for just and equitable contribution
in circumstances under which any of the indemnity provisions set forth in this
Section 4 is for any reason held to be unavailable to the indemnified parties
although applica-
<PAGE> 28
-27-
ble in accordance with its terms, the Company, the Initial Purchasers and the
Holders, as applicable, shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement incurred by the Company, the Initial Purchasers and the Holders;
provided, however, that no Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any Person that was not guilty of such fraudulent
misrepresentation. As between the Company and the Initial Purchasers and the
Holders, such parties shall contribute to such aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement in such proportion as shall be appropriate to reflect the relative
fault of the Company on the one hand and of the Holder of Transfer Restricted
Notes, the Participating Broker-Dealer or Initial Purchaser, as the case may
be, on the other hand in connection with the statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative fault of the Company on the one hand and the
Holder of Transfer Restricted Notes, the Participating Broker-Dealer or the
Initial Purchasers, as the case may be, on the other hand shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, or by the Holder
of Transfer Restricted Notes, the Participating Broker-Dealer or the Initial
Purchasers, as the case may be, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Holders of the Transfer Restricted Notes
and the Initial Purchasers agree that it would not be just and equitable if
contribution pursuant to this Section 4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 4.
For purposes of this Section 4, each affiliate of any Person,
if any, who controls a Holder of Transfer Restricted Notes, an Initial
Purchaser or a Participating Broker-Dealer within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act shall have the same rights
to contribution as such other Person, and each director of the Company, each
affiliate of the Company, each executive officer of
<PAGE> 29
-28-
the Company who signed the Registration Statement, and each Person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
the Company.
5. [Intentionally Omitted]
6. [Intentionally Omitted]
7. Miscellaneous.
(a) Rule 144 and Rule 144A. The Company shall provide to
each Holder such reports as are required under Section 10.23 of the Indenture
and, upon the request of any Holder of Transfer Restricted Notes (a) make
publicly available such information as is necessary to permit sales pursuant to
Rule 144 under the Securities Act, (b) deliver such information to a
prospective purchaser as is necessary to permit sales pursuant to Rule 144A
under the Securities Act and it will take such further action as any Holder of
Transfer Restricted Notes may reasonably request, and (c) take such further
action, if any, that is reasonable in the circumstances, in each case, to the
extent required from time to time to enable such Holder to sell its Transfer
Restricted Notes without registration under the Securities Act within the
limitation of the exemptions provided by (i) Rule 144 under the Securities Act,
as such rule may be amended from time to time, (ii) Rule 144A under the
Securities Act, as such rule may be amended from time to time, or (iii) any
similar rules or regulations hereafter adopted by the SEC. Upon the reasonable
request of any Holder of Transfer Restricted Notes, the Company will deliver to
such Holder a written statement as to whether they have complied with such
requirements.
(b) No Inconsistent Agreements. The rights granted to the
Holders hereunder do not, and will not for the term of this Agreement in any
way conflict with and are not, and will not during the term of this Agreement
be inconsistent with the rights granted to the holders of the Company's other
issued and outstanding securities under any other agreements entered into by
the Company.
(c) Amendments and Waivers. The provisions of this
Agreement, including provisions of this sentence, may not be amended, modified
or supplemented, and waivers or consents to departures from the provisions
hereof may not be given, otherwise than with the prior written consent of the
Company and the Majority Holders; provided, however, that no amendment, modifi-
<PAGE> 30
-29-
cation, or supplement or waiver or consent to the departure with respect to the
provisions of Section 4 hereof shall be effective as against any Holder of
Transfer Restricted Notes or the Company unless consented to in writing by such
Holder of Transfer Restricted Notes or the Company, as the case may be.
(d) Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, telex, telecopier, or any courier guaranteeing
overnight delivery (i) if to a Holder, at the most current address given by
such Holder to the Company by means of a notice given in accordance with the
provisions of this Section 7(d), which address initially is, with respect to
the Initial Purchasers, the address set forth in the Purchase Agreement; and
(ii) if to the Company, initially at the Company's address set forth in the
Purchase Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 7(d).
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied;
and on the next Business Day, if timely delivered to an air courier
guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications
shall be concurrently delivered by the Person giving the same to the Trustee,
at the address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors, assigns and transferees of
the Initial Purchasers, including, without limitation and without the need for
an express assignment, subsequent Holders; provided, however, that nothing
herein shall be deemed to permit any assignment, transfer or other disposition
of Transfer Restricted Notes in violation of the terms of the Purchase
Agreement or the Indenture. If any transferee of any Holder shall acquire
Transfer Restricted Notes, in any manner, whether by operation of law or
otherwise, such Transfer Restricted Notes shall be held subject to all of the
terms of this Agreement, and by taking and holding such Transfer Restricted
Notes, such Person shall be conclusively deemed to have agreed to be bound by
and to perform all of the terms and provisions of this Agreement and such
Person shall be entitled to receive the benefits hereof.
<PAGE> 31
-30-
(f) Third Party Beneficiary. Each of the Initial Purchasers
and each Holder shall be a third party beneficiary of the agreements made
hereunder between the Company, on the one hand, and the Initial Purchasers, on
the other hand, and shall have the right to enforce such agreements directly to
the extent it deems such enforcement necessary or advisable to protect its
rights or the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS. SPECIFIED TIMES OF DAY
REFER TO NEW YORK CITY TIME.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(k) Notes Held by the Company or any of its Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
Transfer Restricted Notes is required hereunder, Transfer Restricted Notes held
by the Company or any of their affiliates (as such term is defined in Rule 405
under the Securities Act) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.
[Signature Page Follows]
<PAGE> 32
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
VERIO INC.
By: /s/ CARLA HAMRE DONELSON
---------------------------------
Name: Carla Hamre Donelson
Title: Vice President & General
Counsel
Confirmed and accepted as of
the date first above written:
SALOMON BROTHERS INC
LAZARD FRERES & CO. LLC
CHASE SECURITIES INC.
BANCBOSTON SECURITIES INC.
By: SALOMON BROTHERS INC
By: /s/ SAMIR H. HUSSEIN
----------------------------
Name: Samir H. Hussein
Title: Attorney-in-fact
<PAGE> 1
EXHIBIT 10.25
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
QWEST COMMUNICATIONS CORPORATION
CAPACITY AND SERVICES AGREEMENT
This Capacity and Services Agreement, having Service Agreement No.
___________________, is entered into as of March 31, 1998 (the "EFFECTIVE
DATE"), by and between Qwest Communications Corporation, a Delaware
corporation ("QWEST"), and Verio Inc. a Delaware corporation ("VERIO").
1. SERVICES TO BE PROVIDED BY QWEST:
1.1 Qwest shall make available to Verio the telecommunications capacity, and
related ancillary services identified in the Service and Pricing Exhibit
attached hereto as "EXHIBIT A", which is incorporated by this reference
(the "SERVICE AND PRICING EXHIBIT") together with any other services
and/or products or facilities that Qwest makes generally available to its
customers from time to time (the "SERVICE" or "SERVICES"). Services
requested by Verio shall be in the form of the Service Order attached as
"EXHIBIT B" to this Agreement, which is incorporated by this reference
(hereafter, any such order is a "SERVICE ORDER(S)"). Each Service Order
shall reference this Agreement by Service Agreement Number and shall become
a part of this Service Agreement when executed by duly authorized
representatives of Qwest and Verio.
1.2 Qwest shall be deemed to have accepted on receipt any Service Order
submitted by Verio that is (i) complete; (ii) conforms with the terms of
this Agreement; (iii) requests services at an (***) level or below; and
(iv) is within the Network Build Plan attached as "EXHIBIT C" to this
Agreement, as such plan may be amended from time to time ("a Permitted
Service Order") and, to the extent applicable, the Interval Guidelines set
forth in Schedule A-1 to Exhibit A. Qwest shall provide to Verio the
Services identified in the Permitted Service Order, in accordance with the
terms of the Service Order and this Agreement. In addition to any Permitted
Service Order, Verio may submit Service Orders for other Services
("Additional Service Orders"). Qwest reserves the right to reject any
Additional Service Order. Any Additional Service Order not rejected by
Qwest within five (5) business days of submission shall be deemed to have
been accepted by Qwest. Upon acceptance by Qwest of a duly executed
Additional Service Order, Qwest shall provide to Verio those Services
identified in the Service Order, in accordance with the terms of the
Service Order and this Agreement.
1.3 As used herein, the term "Verio" includes Verio, Inc., and any subsidiary
or other entity in which Verio, Inc. holds or has the option to acquire at
least a twenty percent (20%) ownership interest (each a "Verio Affiliate").
Any Verio Affiliate may order Services subject to the terms and conditions
of this Agreement, and all payments to Qwest for such Services by any Verio
Affiliate shall be aggregated for the purposes of determining whether the
Total Minimum Commitment or any Minimum Annual Purchase ("MAPC") set forth
in EXHIBIT A has been satisfied. Verio, Inc. shall remain primarily
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
liable to Qwest for all payments due to Qwest hereunder, irrespective of
whether a given Service was ordered by or provided to any Verio Affiliate.
1.4 For purposes of this Agreement, a reference to a "year" means a contract
year.
1.5 If Qwest fails to deliver Services ordered under a Permitted Service Order
or an accepted Additional Service Order within (***) days of the
Availability Date stated in such Service Order, then the charges that would
have been payable for such services over the Service Term stated in the
Service Order, calculated in accordance with Exhibit A hereof, shall be
included for purposes of determining whether Verio has met its MAPC and
Total Minimum Commitment for purposes of Exhibit A hereto and at Verio's
election:
(a) Verio shall be entitled to terminate the Service Order or to obtain
specific performance of Qwest's obligation to deliver the Services; or
(b) Verio may require Qwest to obtain, on Verio's behalf, services from a
third party substantially equivalent to the Services for the term of
the Service Order ("alternative services"), provided, however, that
Qwest shall pay to Verio the difference between the cost of the
alternative services and the charges which would have been payable for
the Ordered Services under this Agreement. If Qwest provisions
alternative services, Qwest shall ensure that the alternative services
are discontinued at Qwest's costs and replaced with Services provided
by Qwest under this Agreement at such time as Qwest is able to provide
such Services. If Qwest fails to obtain the alternative services within
(***) days of the Availability Date, Qwest shall immediately advise
Verio of the period by which Qwest believes that it will be in a
position to provide the Services ("future availability date"),
following which Verio may obtain alternative services. Qwest shall pay
to Verio the difference between the costs of the alternative Services
and the charges which Verio would have paid had Qwest provided the
Services in accordance with this Agreement, provided that Verio agrees
to use reasonable efforts to minimize such costs and, to the extent
commercially practicable, to negotiate terms for the provision of the
alternative services that will permit Qwest, at Qwest's cost, to
replace the alternative services as at the future availability date
with equivalent Services to be delivered by Qwest.
1.6 In the event that Verio (***) hereof, and in addition to the remedies set
forth in Section 1.5, if Qwest fails to deliver (***) Services ordered by
Verio under (***) Permitted Service Order, or fails to deliver (***)
Services ordered under an accepted Additional Service Order, on (***)
consecutive occasions or more than (***) times in any one year during the
Term, the charges for which over the (***) year of the Minimum Service Term
for those Services would equal or exceed (***) percent (***%) of the
MAPC for the year in which the Services are ordered, then, (***)
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
1.7 In addition to the remedies in Section 1.5, if Qwest fails to deliver (***)
Services ordered by Verio under a Permitted Service Order, or fails to
deliver one or more Services ordered by Verio under an accepted Additional
Service Order, the charges for which over the (***) year of the Minimum
Service Term for those Services would equal or exceed (***) percent (***%)
of the MAPC for the year in which the Services are ordered, then Verio may
elect, at its option either to (i) terminate the provisions of Sections 3.1
and 3.2 of Exhibit A and continue this Agreement in effect without the MAPC
applying thereafter or (ii) terminate this Agreement with no further
obligations to Qwest hereunder (except for the obligation to pay for any
Services delivered prior to the date of termination not previously invoiced
or paid), whereupon Qwest shall immediately (***).
1.8 Qwest shall make available to Verio collocation facilities in accordance
with the Network Build Plan, subject to the terms and conditions of the
Collocation Agreement set forth in the attached "EXHIBIT E" and subject to
Qwest's commitments as at the date of this Agreement.
1.9 (***)
2. OBLIGATIONS OF VERIO:
Verio acknowledges that Qwest shall have no responsibility for
installation, testing and operation of the Interconnection Facilities (as
defined in Section 1.4 of the Service and Pricing Exhibit), and any
services and equipment other than those Services specifically provided by
Qwest under this Agreement.
3. IMPLEMENTATION, NETWORK PLANNING, AND JOINT MARKETING
3.1 Within thirty (30) days of the Effective Date each party will assign a
Project Manager with responsibility for ensuring coordination between the
parties and implementation of this Agreement.
3.2 Qwest and Verio will jointly establish a Network Planning Team. This
Network Planning Team will be responsible for developing the Network
Transition Plan, which will define the key components of the timely
transition of the Verio network capacity requirements onto the Qwest
network. Once the Network Transition Plan has been completed, the Network
Planning Team will be responsible for developing the Verio Network
Evolution Plan on the Qwest network during the term of this Agreement. This
Network Planning Team will meet as required, but not less than once a
quarter, to develop the Verio
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
network evolutionary design and capacity forecast requirements. Qwest will
deliver Services under this Agreement in accordance with the Network
Build Plan which is attached hereto as Exhibit B. Qwest may amend the
Network Build Plan from time to time by adding to the capacity or routes
which Qwest plans to construct, but Qwest may not delete routes or capacity
from a prior version of the Network Build Plan, or extend projected
delivery dates. The Network Build Plan and delivery schedule reflected
therein for new capacity not reflected in the prior version of the Network
Build Plan shall be consistent with network build plans developed by Qwest
for its other customers. Verio will have the right to order Services in
accordance with the routes, service availability, and space availability
information set forth in the Network Build Plan. As part of the Network
Planning Team, Qwest will provide at a minimum quarterly updates of its
Network Build Plan. In the event that Qwest proposes to undertake major
expansions of its network, including in relation to capacity or route
swaps, Qwest shall notify Verio of such expansion proposals as soon as
practicable.
3.3 In the event that Verio has requirements for circuits or Services not
included in the Network Build Plan, then at Verio's request, Qwest will
work cooperatively with Verio to purchase off-net circuits (i.e., circuits
or Services acquired by Qwest from a network operated by a third party) in
order to make such circuits or services available to Verio in lieu of
Services provided by use of Qwest's own network.
3.4 Qwest will use its best efforts to provide an electronic provisioning tool
to Verio, as it becomes available to Qwest as part of its network
facilities. Qwest and Verio will cooperate to link their respective Network
Operating Centers through use of a common platform and integrated trouble
ticketing systems.
3.5 (***)
3.6 The parties agree to use reasonable efforts to develop a non-exclusive
joint marketing program for products and services. The joint marketing
program may include linkage of brands in marketing communications, joint
product development and leverage of customer relationships, as the parties
may agree in writing. Qwest will grant Verio the right to incorporate the
"QwestLinked(TM)" logo and brand name into any sales initiative that may
become a part of any such joint marketing programs.
4. TERM:
4.1 This Agreement shall be effective between the parties as of the Effective
Date. The initial term (the "INITIAL TERM") of this Agreement shall expire
fifteen (15) years from the
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
Effective Date, unless either party earlier terminates this Agreement in
the manner provided herein.
4.2 Upon the expiration of the Initial Term, the term of this Agreement shall
be renewed automatically on a month-to-month basis (hereafter, the "RENEWAL
TERM") unless and until an Amendment is executed by both parties extending
the Renewal Term, or either party terminates this Agreement in the manner
provided herein.
4.3 The Initial Term and Renewal Term are sometimes referred to together herein
as the "TERM."
4.4 Notwithstanding anything to the contrary in this Section 4, if the Minimum
Service Term (as set forth in Section 4.3 of the Service and Pricing
Exhibit) for a particular circuit or Service extends beyond the expiration
of the Term of this Agreement, then this Agreement shall continue in effect
until the expiration or termination of the applicable Minimum Service Term,
but only as to the circuit or Service so affected, subject to the
termination rights of Qwest and Verio under Sections 1 and 8 of this
Service Agreement.
5. MINIMUM COMMITMENTS, RATES AND PAYMENTS:
5.1 Rates and charges for the Services, as well as Verio's Total Minimum
Commitment and Minimum Annual Purchase Commitments to purchase Services,
are set forth in the Service and Pricing Exhibit except as otherwise
specifically provided in this Agreement.
5.2 Recurring charges shall be invoiced by Qwest on a monthly basis in advance
and non-recurring charges shall be invoiced in arrears. On or after the
fifth business day of each month during the Term, Qwest shall issue one
consolidated invoice covering all recurring charges for the current month
and non-recurring charges for the previous month. If the Start of Service
Date (as defined in Section 2.1 of the Service and Pricing Exhibit) for any
Service falls on other than the first day of any month, the first invoice
to Verio shall consist of: (1) the pro-rata portion of the applicable
monthly charge covering the period from the Start of Service Date to the
first day of the subsequent month, and (2) the monthly charge for the
following month.
5.3 Verio shall make all payments due hereunder within thirty (30) days after
the date of Verio's receipt of Qwest's invoice. If any undisputed amount
due under this Agreement is not received by the due date, in addition to
its other remedies available hereunder, Qwest may in its sole discretion:
(a) impose a late payment charge of the lower of 1.5% per month and the
highest rate legally permissible (such late charge shall be payable upon
demand by Qwest); and/or (b) if there are three (3) or more failures by
Verio in any twelve (12) month period to make payments of undisputed
recurring charges in accordance with this Section 5.3 or if Verio fails to
make payments when due of undisputed non-recurring charges in excess of
$(***), require the prepayment of up to two (2) months of recurring
charges referred to in the relevant unpaid invoices as a
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
condition of the continued availability of the Services, which prepayment
subject to Sections 1.6 and 1.7 hereof shall be held until satisfaction of
the Total Minimum Commitment, or, if the Total Minimum Commitment has not
been satisfied shall be held and applied against the last two (2) months of
charges hereunder prior to termination of this Agreement. Notwithstanding
anything in this Agreement to the contrary, no payment due hereunder is
subject to reduction, set-off or adjustment of any nature by Verio, except
as is specifically provided in Section 1 of this Agreement or Section 5 of
the Service and Pricing Exhibit regarding Outage Credits. In no event shall
the malfunction or nonoperation of Verio's Interconnection Facilities
(including local access when Verio is responsible therefor) relieve Verio
of its obligation to pay for the Services.
5.4 (***)
5.5 All disputes or requests for billing adjustments must be submitted in
writing and submitted with payment of undisputed amounts due. Any amounts
which are determined by Qwest to be in error or not in compliance with this
Agreement shall be adjusted on the next month's invoice. Disputes shall not
be cause for Verio to delay payment of the undisputed balance to Qwest
according to the terms outlined in Section 5.3 above.
5.6 Invoices submitted to Verio by Qwest shall conform to Qwest's standard
billing format and content, as modified by Qwest from time to time.
5.7 Verio shall be responsible for payment of any local, state or federal
sales, excise, access or other similar surcharges imposed on or based upon
the provision, sales or use of Services provided under this Agreement,
unless otherwise exempt as a matter of law.
6. EVENTS OF DEFAULT
6.1 A "DEFAULT" shall occur if: (a) Verio fails to make any undisputed payment
required to be made by it under this Agreement and any such failure remains
uncorrected for a period of twenty (20) business days after written notice
by Qwest to Verio of the payment failure; (b) Verio fails to make a deposit
which is required to be made under Section 5.3 hereof within twenty (20)
business days after written notice by Qwest to Verio of the requirement for
such deposit; (c) either party fails in any material respect to perform or
observe any material term or obligation contained in this Agreement (other
than any payment, or
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
deposit obligation of Verio), which failure remains uncorrected for a
period of 30 calendar days after written notice from the non-defaulting
party informing the defaulting party of such failure; (d) there is an
Adverse Material Change (as defined Section 6.2 of this Service Agreement)
in Verio's creditworthiness following the Effective Date; (e) if more than
(***) percent (***%) of the Services comprised of telecommunications
capacity provided to Verio hereunder chronically fail to comply with the
Technical Specifications set forth in Schedule A-2 to Exhibit A hereto
(with chronic failure meaning a service, facility or circuit experiencing
(***) or (***) failures or more than (***) hours of Outages over any (***)
consecutive day period); (f) Qwest makes a general assignment for the
benefit of creditors, or a petition in bankruptcy or under any insolvency
law us filed by or against Qwest and such petition is not dismissed within
sixty (60) days after it has been filed; (***)
7. REMEDIES FOLLOWING DEFAULT
7.1. If Verio is in Default under Section 6.1 (a) hereof, Qwest shall be
entitled to exercise the remedies described in Section 5.3 hereof and no
others. If Verio is in Default under Section 6.1 (b) hereof, Qwest may, at
its election, condition its acceptance of any further Service Orders
submitted by Verio following the date of such Default on Verio's curing
such Default or, if Verio fails to cure such Default, providing such other
assurance of payment as Qwest may require to establish assurance of
payment. If a Default by Verio under Section 6.1 (b) continues uncured for
a period of thirty (30) days, subject to the last sentence of this Section,
Qwest may then suspend Services or terminate this Agreement by providing
written notice to Verio in the manner provided in Section 8.2 below. If
Verio is in default under Section 6.1 (c), and such Default would have a
material adverse impact on Verio's ability to discharge its payment
obligations hereunder or is a Default with respect to Section 12.1 hereof,
or if Verio is in Default under Section 6.1 (d), then, in addition to its
other rights and remedies under this Services Agreement or under law, Qwest
may terminate this Services Agreement as provided herein. (***)
7.2 If Qwest is in Default under Section 6.1 (c) as a result of its failure to
deliver Services hereunder, then Verio shall be entitled to exercise the
remedies described in Sections 1.5, 1.6 and 1.7 hereof, including the right
to terminate this Agreement in the events and as described in Section 1.7,
or (***) If Qwest is in Default under Section 6.1 (e), then Verio shall be
entitled to exercise the same remedies described in Sections 1.5, 1.6 and
1.7, as if Qwest had failed to
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
deliver the Services that chronically failed to meet the Technical
Specifications. (***)
7.3 Except as and to the extent that the rights and remedies of the parties are
expressly defined or limited pursuant to Sections 7.1 and 7.2 above or
Section 14 below, all remedies provided under this Services Agreement are
cumulative and are without prejudice to any other rights or remedies that
the parties may have at law or in equity.
8. TERMINATION:
8.1 Verio may terminate this Agreement: (a) effective upon written notice to
Qwest as provided in Sections 1.7 and 7.2 if Qwest is in Default
hereunder; (b) effective upon thirty (30) calendar days prior written
notice, if any material rate or term contained herein and relevant to the
affected Services is materially changed by order of the highest court of
competent jurisdiction to which the matter is appealed, the Federal
Communications Commission, or other local, state or federal government
authority; (c) effective upon thirty (30) calendar days prior written
notice, with or without cause, following the expiration of the Initial
Term; or (d) pursuant to Section 9.2 hereof or elect to terminate one or
more Service Orders and/or terminate the provisions of Sections 3.1 and
3.2 of Exhibit A and continue the remaining Agreement in place.
8.2 Qwest may terminate this Agreement: (a) effective upon written notice to
Verio as provided in Section 7.1 if Verio is in Default hereunder; (b)
effective upon thirty (30) calendar days prior written notice, with or
without cause, following the expiration of the Initial Term; or (c)
provided that Qwest has complied with its obligations under Section 9.4
hereof, effective immediately upon written notice to Verio if Qwest does
not maintain or loses any required regulatory or other governmental
authorizations to provide the Services, as described in Section 9.1 of this
Agreement, without any further obligation on the part of Verio thereafter
other than to meet its payment obligations hereunder for Services delivered
by Qwest prior to the date of termination.
8.3 Verio may terminate the affected circuit, facility or other portion or
portions of a Service Order or Service Orders upon ten (10) calendar days
prior written notice following failure of performance, in the manner and
subject to Sections 1.5, 10.2 of this Agreement or in the event that a
Service, facility or circuit chronically (as that term is defined in
Section 8.1(d) hereof) fails to comply with the Specifications. If Verio
exercises its termination
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
rights pursuant to this Section 8.3, the charges which would have been
payable for the terminated Services for the Service Term for those Services
shall be included for purposes of determining whether Verio has met its
MAPC and Total Minimum Commitment pursuant to Section 3 of Exhibit A
hereof.
8.4 Upon any termination of this Agreement by Verio pursuant to Section 8.1(a),
any and all of Verio's remaining obligations pursuant to Exhibit A
hereto shall terminate, (***) On any other termination of this Agreement
by Verio pursuant to Section 8.1, (***) Should Verio exercise its right to
terminate this Agreement in whole or in part pursuant to Section 8, at
Verio's election, (***)
9. GOVERNMENTAL AUTHORITY:
9.1 Each party shall fully comply with all laws, regulations and authorities
relating to its business which are material to its performance under this
Service Agreement, including, but not limited to, those outlined in this
Section 9.
9.2 Verio acknowledges that the obligation of Qwest to provide the Services to
Verio is subject to the receipt by Qwest of any required regulatory or
other governmental authorizations. In the event that Qwest files a tariff
with the appropriate regulatory agency that is in any manner inconsistent
with the Terms of this Agreement, the Terms of this Agreement shall
control. If Qwest chooses to apply tariff terms which are inconsistent with
the Terms set forth herein, Verio may terminate this Agreement without any
liability to Qwest, apart from liability for Services rendered by Qwest in
accordance with this Agreement to the date of termination. Qwest
acknowledges that any tariff provision which alters Verio's right to
terminate this Agreement is materially inconsistent with this Agreement.
Provided that Qwest has met its obligations under Section 9.3(c) hereof,
Qwest reserves the right to terminate this Agreement pursuant to Section
8.2 of this to this Agreement pursuant to Section 8.2 of this
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Service Agreement if at any time Qwest does not have or loses the required
regulatory or other governmental authorizations to provide the Services.
9.3 Verio represents and warrants that: (a) Verio has received all necessary
permits, licenses, approvals, grants, and charters of whatsoever kind
necessary to carry out the business in which Verio is engaged; and (b)
Verio has complied and does comply with all laws, regulations, orders, and
statutes which may be applicable to Verio, whether local, State or Federal.
From the date of this Agreement until the termination hereof, Verio agrees
to operate in accordance with and to maintain current all such
certifications, permits, licenses, approvals, grants, charters, and to
comply with all applicable laws, regulations, orders and statutes, whether
local, State or Federal. A breach by Verio of any of the representations,
warranties or covenants of this Section 9.2 shall be deemed a Default
hereunder, and shall allow Qwest to terminate this Agreement in the manner
described in Section 8.2 of this Service Agreement.
9.4 Qwest represents and warrants that: (a) Qwest has received all necessary
permits, licenses, approvals, grants, and charters of whatsoever kind
necessary to carry out the business in which Qwest is engaged; (b) Qwest
has complied and does comply with all laws, regulations, orders, and
statutes which may be applicable to Qwest, whether local, State or Federal;
(c) from the date of this Agreement until the termination hereof, Quest
agrees to operate in accordance with and to obtain and maintain current all
such certifications, permits, licenses, approvals, grants, charters, and to
comply with all applicable laws, regulations, orders and statutes, whether
local, State or Federal.
9.5 Notwithstanding any other provision of this Agreement, a failure by a Party
to comply with its obligations under Sections 9.1, 9.3 or 9.4 shall not be
deemed a Default by that Party unless the failure would have a material
adverse effect on the Party's ability to perform its obligations under this
Agreement.
10. FORCE MAJEURE
10.1 Except as is provided in Section 10.2 below, neither party shall not be
liable for any failure of performance hereunder due to causes beyond its
reasonable control, including, but not limited to: acts of God, storm,
extreme temperatures or other similar catastrophes; any law, order,
regulation, direction, action or request of the United States government,
or of any other government, including state and local governments having
jurisdiction over either of the parties, or of any department, agency,
commission, court, bureau, corporation or other instrumentality of any one
or more said governments, or of any civil or military authority; national
emergencies, insurrections, riots, wars, or strikes, lock-outs, work
stoppages or other labor difficulties; actions or inaction's of a third
party provider or operator of facilities employed in provision of the
Services; or any other conditions or circumstances beyond the reasonable
control of Qwest which impede or affect the Services or the transmission of
telecommunications services. Notwithstanding the foregoing, the following
are not events of Force Majeure: fire, explosion, vandalism, fiber
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optic cable cut, or the failure of a subcontractor to perform its
obligations under an agreement with a Party.
10.2 If any failure of performance on the part of Qwest described in Section
10.1 of this Service Agreement shall be: (a) for thirty (30) calendar days
or less, then this Agreement shall remain in effect, but Verio shall be
relieved of its obligation to pay for that portion of the Services affected
for the period of such failure of performance; or (b) for more than thirty
(30) days, then Verio may terminate only that portion of any Service Order
or Service Orders related to the Services so affected, by written notice to
Qwest, in accordance with Section 8.3 of this Service Agreement, in which
case the charges which would have been payable in respect of the terminated
Services for the Service Term applicable to those Services shall be
included for purposes of determining whether Verio has met its MAPC and
Total Minimum Commitment pursuant to Section 3 of Exhibit A hereof.
10.3 If the Services are unavailable to Verio as a result of any events
described in Section 10.1, Verio shall be entitled to an Outage Credit
under Section 5 of the Service and Pricing Exhibit.
11. INDEMNIFICATION:
Each party ("Indemnitor") shall defend, hold harmless, and indemnify the
other ("Indemnitee") from and against all claims, demands, actions, causes
of action, judgments, costs and reasonable attorneys' fees and expenses of
any kind or nature for bodily injury, death, property damage, or other
damages of any kind incurred by Indemnitee, its employees, or third parties
arising under this Agreement due to Indemnitor's negligence or willful
misconduct; except that Verio shall defend, indemnify and hold Qwest
harmless from and against any claim of libel, slander, or infringement of
any third party's copyright, trademark or other proprietary right if such
claim is caused by Verio's transmissions using Qwest Facilities unless due
to Qwest's negligence or willful misconduct.
12. ASSIGNMENT:
12.1 Neither this Agreement nor any of Verio's rights or obligations hereunder
may be sold, assigned, sublet, encumbered or transferred by operation of
law or otherwise (hereafter, a "Transfer"), except (a) in the ordinary
course of its business as an Internet service provider, (b) to a Verio
Affiliate, (c) in connection with a sale or assignment by operation of law
or otherwise of all or substantially all of Verio's assets, without the
prior written consent of Qwest, which will not be unreasonably withheld or
(d) in connection with a transfer to or enforcement by a secured creditor
by way of security (each a "Permitted Transfer"). Any Transfer by Verio
other than a Permitted Transfer without Qwest's prior written Consent shall
entitle Qwest, at its option, to: (x) consider the Transfer void; (y)
consent to the Transfer, and thereafter hold any transferee(s) liable
hereunder; or (z) terminate this Agreement upon delivering written notice
to Verio. Subject to the
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
foregoing, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors or assigns. (***) In all
other cases, Qwest may transfer, assign or otherwise in any manner encumber
this Agreement and its rights and obligations hereunder without the need to
obtain Verio's prior consent.
13. TITLE:
(***) Verio expressly disclaims any right, title, perpetual right of
use or any other interest in or to any equipment or property used or
supplied by Qwest under this Agreement.
14. WARRANTIES AND LIMITATION OF LIABILITY:
14.1 Qwest warrants (a) that the Services shall be provided to Verio and shall
operate in accordance with prevailing telecommunications industry standards
(hereinafter the "TECHNICAL STANDARDS") and the Specifications set forth in
Exhibit A hereof. If Verio determines that the Services are not being
provided in accordance with the Technical Standards and the Specifications
(hereinafter, a "DEFECT" or "DEFECTS"), Qwest shall use commercially
reasonable best efforts under the circumstances to conform the Services to
the Technical Standards, and (b) the Services and any that all components
of any systems/product utilized or relied upon by Qwest to perform the
Services, are designed to be used prior to, during and after the calendar
year 2000 AD, and that the Services and the systems/product will operate
during each such time period without error or interruption relating to
date data, including without limitation, any error or interruption relating
to, or the product of, date data which represents or references different
centuries or more than one century, or leap year, in any level of any
systems/product hardware or software, including, without limitation,
microcode, firmware, application programs, user interfaces, files and
databases.
14.2 THE WARRANTIES CONTAINED IN SECTION 14.1 OF THIS SERVICE AGREEMENT ARE
EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESS, IMPLIED OR
STATUTORY, INCLUDING WITHOUT LIMITATION IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. QWEST HEREBY
SPECIFICALLY DISCLAIMS ANY LIABILITY TO CUSTOMER FOR INTERRUPTIONS
AFFECTING THE SERVICES FURNISHED HEREUNDER WHICH ARE ATTRIBUTABLE TO
CUSTOMER'S INTERCONNECTION FACILITIES (AS DEFINED IN SECTION 1.4 OF THE
SERVICE AND PRICING EXHIBIT) OR TO CUSTOMER'S EQUIPMENT FAILURES, OR TO
CUSTOMER'S BREACH OF THIS AGREEMENT.
Qwest Communications
12
<PAGE> 13
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
14.3 APART FROM CLAIMS ARISING UNDER SECTION 15 HEREOF, IN NO EVENT SHALL EITHER
PARTY OR ANY OF ITS AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS
AFFILIATES OR EMPLOYEES OR TO ANY THIRD PARTY FOR ANY LOSS OF PROFIT OR
REVENUE, OR FOR ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR
SIMILAR OR ADDITIONAL DAMAGES, WHETHER INCURRED OR SUFFERED AS A RESULT OF
UNAVAILABILITY OF FACILITIES OR SERVICES, INCORRECT OR DEFECTIVE
TRANSMISSIONS, PERFORMANCE, NON-PERFORMANCE, TERMINATION, BREACH, OR OTHER
ACTION OR INACTION UNDER THIS AGREEMENT, OR FOR ANY OTHER REASON, EVEN IF
THAT PARTY IS ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGE;
14.4 Verio acknowledges that Qwest has no ability to independently test or
maintain Services between off net cities. Consequently, if Qwest provides
such Services, then notwithstanding anything in this Agreement to the
contrary, Qwest's entire duty with respect to such Services shall be to use
its best efforts to test and maintain such Services in accordance with
Qwest's Specifications.
15. NON-DISCLOSURE AND PUBLICITY:
15.1 The parties acknowledge that the Mutual Non-Disclosure Agreement dated
October 31, 1997 ("NDA"), currently in effect between Verio and Qwest,
remains in full force and effect, and that this Agreement and all
information related hereto constitutes Proprietary Information as defined
therein. The parties further acknowledge and agree that all "Proprietary
Information," as defined in the NDA, disclosed in the course of their
discussions concerning this Agreement shall be subject to the terms of that
agreement. Notwithstanding the foregoing, the parties shall not be
precluded from confidential discussions with their respective
stockholders, key employees, legal counsel, accountants, banks and other
agents, who are subject to a duty of confidence in relation to the
Proprietary Information which duty is not inconsistent with the terms of
the NDA and this Agreement, as reasonably deemed necessary by each party,
respectively, in order to facilitate the transactions contemplated hereby.
By its execution hereof, Qwest Communications International, Inc. hereby
agrees that it shall be and hereby is bound by all of the agreements and
obligations of Qwest under the NDA, as if it was a direct party thereto.
16. ARBITRATION:
16.1 The parties shall endeavor to equitably settle all disputes arising out of
or related to this Agreement in an informal manner and in good faith. If
after good-faith negotiations the Parties still are unable to resolve the
dispute, then either Party may escalate resolution of the dispute to
mediation under the auspices of JA.M.S/ENDISPUTE. If the dispute is not
resolved in this manner, either Party may pursue its remedies in a court of
law.
Qwest Communications
13
<PAGE> 14
16.2 The parties hereto agree that a prevailing party shall be entitled to
recover all reasonable costs and expenses (including all reasonable
attorney's fees and disbursements) of such court proceedings, as well as
all cost for said proceeding. Such prevailing party shall also be entitled
to reasonable attorney's fees and costs incurred in enforcing a judgment of
the court separately from and in addition to any other amount included in
such judgment. This Section 16.3 shall be severable from the other
provisions of this Service Agreement and shall survive and not be merged
into any such judgment.
17. USE OF SERVICES:
17.1 Verio shall use and permit the use of the Services provided by Qwest
hereunder solely in connection with Verio's provision of Services to
Verio's Affiliates or provision by Verio or Verio's Affiliates to third
parties of Internet-based services or data services, and not for the
provision of voice telephone services not using Internet protocol
(directly or through an Affiliate, reseller or other third party). Qwest's
obligation to provide the Services specified herein is conditioned upon
Verio using commercially reasonable best efforts to ensure that the
Services are not used for any unlawful purpose or in violation of any
governmental regulations or authorizations as outlined in Section 9 of this
Service Agreement.
18. MISCELLANEOUS:
18.1 Verio shall execute such other documents, provide such information and
cooperate with Qwest, all as may be reasonably required by Qwest in
connection with providing the Services.
18.2 Neither this Agreement, nor the provision of Services hereunder, shall
constitute, create, give effect to or otherwise recognize a joint venture,
partnership, or business entity of any kind, or result in a joint
communications service offering to any third parties, and the rights and
obligations of the parties will be limited to those expressly set forth
herein. Nothing herein will be construed as providing for the sharing of
profits or losses arising out of the efforts of the parties hereto.
18.3 The failure of either party to give notice of default or to enforce or
insist upon compliance with any of the terms or conditions of this
Agreement shall not constitute a waiver of any term or condition of this
Agreement.
18.4 Subject to Section 16 of this Service Agreement, in the event suit is
brought or an attorney is retained by either party to enforce the terms of
this Agreement or to collect any moneys due hereunder or to collect money
damages for breach hereof, the prevailing party shall be entitled to
recover, in addition to any other remedy, reimbursement for reasonable
attorneys' fees, court costs, costs of investigation and other related
expenses incurred in connection therewith.
Qwest Communications
14
Confidential and Proprietary Verio Initials:____
<PAGE> 15
18.5 Verio acknowledges that at least part of the Services are or will be
provided through a Qwest "NETWORK MANAGEMENT CENTER" located in Denver,
Colorado. Accordingly, this Agreement shall be construed under the laws
of the State of Colorado without regard to its choice of law principles.
Except as is provided in Section 16 of this Service Agreement, venue and
jurisdiction shall lie exclusively with the District Court in the City
and County of Denver.
18.6 No subsequent agreement concerning the Services or modification to this
Agreement shall be binding upon the parties unless it is made in writing
by an authorized representative of Verio and an authorized Representative
of Qwest Communications at its headquarters in Denver, Colorado.
18.7 If any part of any provision of this Agreement shall be invalid or
unenforceable under applicable law, said part shall be ineffective to the
extent of such invalidity only, without in any way affecting the
remaining parts of said provision or the remaining provisions of this
Agreement, and the Verio and Qwest agrees to negotiate with respect to
any such invalid or unenforceable part to the extent necessary to render
such part valid and enforceable.
18.8 The terms and provisions contained in this Agreement that by their sense
and context are intended to survive the performance thereof by the
parties hereto shall survive the completion of performance and
termination of this Agreement, including, without limitation, the making
of any and all payments due hereunder.
18.9 Words having technical or trade meanings shall be so construed.
18.10 All notices, requests, demands and other communications required or
permitted hereunder shall be in writing and shall be given by: (a) hand
delivery; (b) first-class registered or certified mail with postage
prepaid; (c) overnight receipted courier service, or (d) telephonically
confirmed facsimile transmission, which notice is addressed to the party
at the address set forth below, or such other address as may hereafter be
designated in writing by the party. Notices given in accordance with this
Section shall be effective upon receipt or when receipt is refused.
All notices to Qwest shall be addressed to
Qwest Communications Corporation
555 17th Street, Suite 1000
Denver, Colorado 80202
Facsimile: (303) 291-1724
Phone: (303) 291-1400
Attn.: Carrier Contracts Admin.
Qwest Communications
15
Confidential and Proprietary Verio Initials:____
<PAGE> 16
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
All notices to Verio shall be addressed to:
Verio, Inc.
8005 S. Chester Street, Suite 200
Englewood, Colorado 80112
Facsimile, 303-792-5621 Phone: 303-645-1903
Attn.: Mr. Chris DeMarche
Copy to: Carla Hamre Donelson, Esq.
At the above address
Facsimile: 303-708-2494 Phone: 303-645-1908
The addresses set forth may be changed by appropriate notice to the other
party.
18.11 This Agreement, including its schedules and exhibits incorporated
herein by reference, together with (*) executed
concurrently herewith and the NDA comprises the complete and exclusive
statement of the agreement of the parties concerning the subject matter
hereof, and supersedes all previous statements, representations, and
agreements concerning the subject matter hereof. In the event of any
conflict between the provisions of this Agreement and the terms of any
Service Order(s) issued and accepted hereunder or any exhibits hereto,
the conflict shall be resolved by reference to said documents in the
following order of priority of interpretation (except as is otherwise
specifically provided in this Agreement or in any exhibits): (a) any
exhibit, with reference to the same in order of attachment to this
Agreement; (b) this Agreement; and (c) any Service Order(s).
Notwithstanding the foregoing, no provision or term of any Service Order
or exhibit shall be a part of this Agreement or binding on Qwest or
Verio unless and until such Service Order or document has been executed
by authorized representatives of Qwest and Verio.
DATED as of the first date written above.
VERIO, INC.:
By: /s/ CHRIS DEMARCHE
--------------------------------------
Name: Chris DeMarche
Title: Chief technical Officer
Date: 3/31/98
QWEST COMMUNICATIONS CORPORATION:
By: /s/ GREGORY M. CASEY
--------------------------------------
Name: Gregory M. Casey
Title: Sr. Vice President, Carrier Markets
Date: 3/31/98
Qwest Communications
16
<PAGE> 17
EXHIBITS
Exhibit A: Service and Pricing Exhibit
Schedules to Exhibit A
----------------------
"A-1" Interval Guidelines
"A-2" Technical Specifications
"A-3" Maintenance Policy
Exhibit B: Service Order Form
Exhibit C: Qwest Network Build Plan
Exhibit D: SONET Protection Availability
Exhibit E: Collocation Agreement
(*) (*)
Qwest Communications
1
Confidential and Proprietary Verio Initials:__________
<PAGE> 18
EXHIBIT A
TO
QWEST COMMUNICATIONS
CAPACITY AND SERVICES AGREEMENT
SERVICE AND PRICING EXHIBIT
This Service and Pricing Exhibit (this "SERVICE AND PRICING EXHIBIT")
is made as of March 31, 1998 with respect to Service Agreement
No._____, (the "AGREEMENT") by and between Qwest Communications
Corporation, a Delaware corporation ("QWEST"), and Verio Inc, Delaware
corporation ("VERIO"),
1. QWEST SERVICES:
1.1 During the Term of the Agreement, Qwest will provide to Verio the
Service or Services requested by Verio in a Permitted Service Order or
a Service Order otherwise accepted by Qwest.
1.2 Qwest shall deliver each Service to be provided under a Permitted
Service Order, or under an Additional Service Order which has been
accepted by Qwest, on or before the Availability Date stated in the
Permitted Service Order or Additional Service Order for that Service.
Services shall be delivered in compliance with the specifications
attached as Schedule A-2 to this Exhibit A (the "Specifications")
which may not be amended without Verio's consent, such consent not to
be unreasonably withheld.
1.3 At each end of the city pairs (the "CITY PAIRS") on which Verio orders
Services, Qwest shall provide, at Qwest's cost, appropriate equipment
in its terminal locations necessary to connect the Services to Verio's
Interconnection Facilities (as defined in Section 1.4 of this Service
and Pricing Exhibit). Qwest hereby grants Verio the right to acquire
leased floor space in Qwest terminals for the purpose of collocation
of Verio equipment, subject to site specific space availability and
mutual agreement upon the applicable charges and other terms, which
shall be reflected in a written Collocation Agreement in the form of
Exhibit E hereof. Verio will be permitted to participate in the
planning process for the building out of collocation space and is
hereby granted a right of first refusal for terminal space available
from Qwest, subject to Qwest's other obligations regarding such space
existing on the date hereof.
1.4 Verio agrees that Verio's Interconnection Facilities shall connect to
the Services provided by Qwest hereunder at the network interface
points located in the Qwest terminals and defined in the
Specifications (as defined in Section 2.1 of this Service and Pricing
Exhibit). As used herein, the term "INTERCONNECTION FACILITIES" shall
mean transmission capacity provided by Verio or its third party
supplier to extend
Qwest Communications
2
Confidential and Proprietary Verio Initials:_________
<PAGE> 19
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
the Services provided by Qwest from a Qwest terminal to any other
location (e.g., a local access telephone service provided by a local
telephone company).
1.5 Qwest shall use reasonable efforts to order Interconnection Facilities
on behalf of Verio from Verio's designated supplier, provided that
Verio furnishes Qwest with an acceptable letter of agency. Verio shall
be billed directly by the supplier of such Interconnection Facilities,
and shall hold harmless and indemnify Qwest from any loss or liability
incurred by Qwest as a result of Qwest's ordering Interconnection
Facilities from any third party. Verio may, at its election, but
subject to Qwest's prior written approval, order its own
Interconnection Facilities. Qwest will make available to Verio at
Qwest's cost, subject to availability of facilities, Interconnection
Facilities which Qwest may have in place with local exchange carriers
and which are in excess of Qwest's own requirements. If any party
other than Qwest provides Interconnection Facilities, then
unavailability, incompatibility, delay in installation, or other
impairment of Interconnection Facilities shall not excuse Verio's
obligation to pay Qwest all Rates or charges applicable to the
Services, whether or not such Services are useable by Verio.
2. START OF SERVICES:
2.1 Start of service for each Service (the "START OF SERVICE DATE") shall
begin on the date on which Verio accepts delivery of such Service. If
Verio fails to give written notice that the Service is in material
non-compliance with the Specifications within five (5) business days
after notification to Verio by Qwest that the Service is available,
Verio shall be deemed to have accepted such Service, and the Start of
Service Date shall commence as of the fifth day following such
notification by Qwest. Following notice by Verio of material
non-compliance as set forth above, Qwest shall promptly take such
reasonable action as is necessary to correct any such non-compliance
in the Service and shall, upon correction, notify Verio of a new Start
of Service Date.
2.2 Notwithstanding anything in Section 2.1 of this Service and Pricing
Exhibit to the contrary, Verio may delay the Start of Service Date for
any Service for up to thirty (30) days from Qwest's Availability Date
by written notice to Qwest at least seventy-two (72) hours prior to
any applicable Availability Date.
Qwest Communications
3
Confidential and Proprietary Verio Initials:__________
<PAGE> 20
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
3. MINIMUM COMMITMENTS AND RATES:
3.1 Set forth below is each of Verio's minimum annual purchase commitments
("MAPC"), payable in each of the first seven (7) years of the Initial
Term of this Agreement commencing on the Effective Date, and which
total One Hundred Million Dollars ($100,000,000.00) (the "Total
Minimum Commitment"), Commencing February 25, 1998, all payments by
Verio to Qwest or any affiliate of Qwest for services, facilities or
products used by Verio, including services, facilities or products
which are provided pursuant to this Agreement and/or any other
agreement between Qwest or an affiliate of Qwest and Verio, together
with payments to third party providers under Section 1.5 of the
Agreement and any credits toward the MAPC as provided for in the
Agreement, shall be included in determining whether Verio has
satisfied its MAPC.
<TABLE>
<CAPTION>
Minimum Annual Purchase Commitments (*)
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
</TABLE> (*) (*) (*) (*) (*) (*) (*)
3.2 (***)
3.3 (***)
Qwest Communications
4
Confidential and Proprietary Verio Initials:__________
<PAGE> 21
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
3.4 (***)
3.5 Qwest shall provide the Services at the rates (the "RATES") set forth
in this Section 3 (exclusive of all sales, use, commercial or other
taxes, surcharges or license fees) or such lower rates as are
determined in accordance with Section 3.7 hereof. The Rates for each
Service include certain Monthly Recurring and Non-Recurring charges,
all as defined in this Section 3. The Rates vary depending on whether
the Services are (***). Finally, the rates vary depending upon the Tier
usage level in effect during each given month of the Term. The Rates
are as follows:
(a) MONTHLY RECURRING CHARGES:
<TABLE>
<CAPTION>
MONTHLY RUN RATE
FOR ALL QWEST SERVICE
(***) (***) (***) (***) (***)
------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
TIER 1 LESS THAN (***) $ (***) $ (***) $ (***) $ (***)
TIER 2 (***) $ (***) $ (***) $ (***) $ (***)
TIER 3 GREATER THAN (***) $ (***) $ (***) $ (***) $ (***)
</TABLE>
After accepting Service Orders for Services that, taken
together with all other existing Services being then provided by
Qwest, an affiliate of Qwest or a third party provider, result in a
monthly total of billed Rates in a (***), the prices for all new and
existing Services shall be adjusted as of the next billing cycle to
reflect the new (***).
(b) NON-RECURRING CHARGES:
A Non-Recurring Installation Charge of (***) per
point-to-point (***) (or Equivalent) shall apply. (***)
Qwest Communications
5
Confidential and Proprietary Verio Initials:__________
<PAGE> 22
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(c) OTHER CHARGES:
In addition to the foregoing Rates, Verio shall pay to Qwest
the following additional charges, as applicable, including any and all
recurring charges imposed on Qwest for the handling of calls under
this agreement:
(i) WAIVED CHARGES:
(***)
(ii) OTHER MONTHLY RECURRING CHARGES:
(***)
(iii) OTHER NON-RECURRING CHARGES
(***)
Qwest Communications
6
Confidential and Proprietary Verio Initials:__________
<PAGE> 23
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(iv) OTHER MISCELLANEOUS CHARGES:
(***)
3.6 The Rates set forth in this Section 3 shall be in effect for the
entire Term of this Agreement, subject to such downward adjustment,
if any, as may result from the application of Section 3.7 of this
Service and Pricing Exhibit.
3.7 (***)
4. FACILITY-SPECIFIC MINIMUM SERVICE TERM:
4.1 Subject to Qwest performing its obligations under the Agreement and
this Service and Pricing Exhibit, and subject to Verio's remedies
under Sections 1.4, 1.5, 8.1 and 8.3 of the Agreement, Verio
acknowledges that the Rates and charges described in Section 3 of this
Service and Pricing Exhibit are based on the commitment of Verio to
each MAPC and to the Total Minimum Commitment. In addition, the Rates
are based on Verio's agreement to utilize each of the specific
circuits, facilities, or other Services provided by Qwest for a
specified minimum period of time. Therefore, notwithstanding anything
in this Agreement to the contrary, Verio shall be liable for and shall
pay to Qwest all Rates, fees and charges which accrue under this
Agreement for each circuit, facility, or identifiable component of any
Service or portion thereof for the entire Minimum Service Term (as
defined in Section 4.2 of this Service and Pricing Exhibit),
regardless of whether or not Verio utilizes all or any part of such
circuit, facility, or Service during all or any part of the Minimum
Service Term applicable to such Service, except as is set forth in
Section 4.3 of this Service and Pricing Exhibit.
4.2 The "MINIMUM SERVICE TERM" for each circuit or other component of
Service shall be (***) months.
Qwest Communications
7
Confidential and Proprietary Verio Initials:__________
<PAGE> 24
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
4.3 Notwithstanding anything in this Agreement to the contrary, Verio's
obligation to pay all Rates, fees and charges which accrue under this
Agreement for each Service for the entire Minimum Service Term
applicable to each such Service shall terminate, as each such Service,
if this Agreement is terminated during the Minimum Service Term which
pertains to each such Service: (a) by Verio, pursuant to Sections 8.1
of the Agreement,; or (b) by Qwest, pursuant to Section 8.2(b) or (c)
of the Service Agreement.
5. OUTAGES:
5.1 Verio acknowledges the possibility of an unscheduled, continuous
and/or interrupted period of time when a Service or Services are
"unavailable" (as defined in Sections 2.2 or 2.3 of Schedule A-2 to
this Exhibit A) (hereafter an "Outage"). In the event of an Outage,
Verio shall be entitled to a credit (the "Outage Credit") determined
according to the following formula:
(***)
5.2 (***)
5.3 (***)
5.4 (***)
Qwest Communications
8
Confidential and Proprietary Verio Initials:__________
<PAGE> 25
month shall not exceed the amount payable by Verio to Qwest for that
same month for such Service.
5.5 In the event of an unscheduled Outage, Qwest will use commercially
reasonable best efforts to restore Services to a level that accords
with the service quality set forth in the Specifications.
Qwest Communications
9
Confidential and Proprietary Verio Initials:__________
<PAGE> 26
SCHEDULE A-1 TO EXHIBIT A
STANDARD & EXPEDITE INTERVAL GUIDELINES
These are the standard order intervals for domestic services on Qwest Owned
Fiber Optic Network ("On-Net" services). If you have any questions regarding
the interval process, please contact your Sales Director.
<TABLE>
<CAPTION>
TOTAL SERVICE INTERVAL IN
CALENDAR DAYS
SERVICE TYPE STANDARD EXPEDITE
<S> <C> <C>
OPTICAL:
POP TO POP (OC-3) 28 ICB
POP TO POP (ALL OTHERS) ICB ICB
LOA PROVIDER ICB ICB
LEC TO LEC ICB ICB
CAP TO CAP ICB ICB
CAP TO LEC ICB ICB
CROSS CONNECTS ICB ICB
DS-3:
POP TO POP 15 ICB
LOA PROVIDED 15 ICB
LEC TO LEC 22 ICB
CAP TO CAP 22 ICB
CAP TO LEC 22 ICB
CROSS CONNECTS 8 ICB
DS-1:
POP TO POP 12 ICB
LOA PROVIDED 12 ICB
LEC TO LEC 20 ICB
CAP TO CAP 20 ICB
CAP TO LEC 20 ICB
CROSS CONNECTS 8 ICB
</TABLE>
ALL INTERVALS ARE SUBJECT TO NETWORK CAPACITY AND LEC FACILITY
AVAILABILITY. SHOULD OFF-NET CAPACITY BE REQUIRED, INTERVALS WILL BE
DETERMINED ON AN ICB BASIS. QWEST DOES NOT GUARANTEE OFF-NET CAPACITY
AND PERFORMANCE.
"ICB" means "Individual Case Basis"
"POP TO POP" means Qwest controls CFA.
CAP's: No optical interface anywhere except with MFS & TCG in Los
Angeles. Equipment Plug-ins: Add 2 days.
================================================================================
Qwest Communications
10
Confidential and Proprietary Verio Initials:__________
<PAGE> 27
SCHEDULE A-2 TO EXHIBIT A
TO
QWEST COMMUNICATIONS CAPACITY AND SERVICES AGREEMENT
TECHNICAL SPECIFICATIONS
1. INTERCONNECT SPECIFICATIONS:
1.1 The customer interconnection point of DS-1 & DS-3 signals at the Qwest
(SPT) location will be at an industry standard (DSX-1) & (DSX-3)
digital cross-connect panels and will be referred to as Qwest Network
Interface in this document.
1.2 The DS-1 & DS-3 signals terminating at the Qwest digital cross-connect
panels will meet the electrical specifications as defined in AT&T
Compatibility Bulletin (CB) No. 119, Issue 3, October, 1979.
1.3 The Qwest Digital Network will be compatible with the Bell System
hierarchical clock synchronization methods and stratum levels as
described in Bellcore Technical Advisory (GR436-Core).
1.4 Verio equipment must also meet the interconnect specifications listed
above and shall comply with jitter requirements of AT&T Technical
Reference PUB 63411.
2. PERFORMANCE STANDARDS.
2.1 DSI, DS3, OC-3, OC-12, OC-48, OC-3c, OC-12c, and OC-48c circuit
performance will be measured using two parameters: Availability and
Error-Free Seconds.
The following assumptions apply to the derived data:
* The circuits originate and terminate on the SONET OC-48 backbone
* High speed protection switching: 1 for N, where N=2
* MTTR for SONET equipment: 2 hours
* MTTR for fiber optic cable: 12 hours (Bellcore Standard)
* Cable cut rate: 4.39 /year/1,000 sheath miles (Bellcore Standard)
The system includes three (3) DCS in Los Angeles, Sacramento,
and San Jose (although not all circuits are routed through the
DCS, they are included in all the calculations)
2.2 Availability is a measure of the relative amount of time during which
the circuit is available for use. According to CCITT and ANSI
definitions, unavailability begins when the Bit Error Ratio (BER) in
each second is worse than 1.0 E-3 for a period of 10 consecutive
seconds.
Qwest Communications
11
Confidential and Proprietary Verio Initials:__________
<PAGE> 28
INTER OFFICE CHANNEL (IOC): An Inter Office Channel refers to the
Qwest Communications network between the points of presence (POP).
OPTICAL CARRIER LEVEL 1 (OC-1): The optical signal that results from
an optical conversion of an electrical STS-1 signal (51.840 Mb/s).
This signal forms the basis of the interface.
OC-3: Optical Carrier level 3 signal operating at 155.520 Mb/s.
OC-12: Optical Carrier level 12 signal transmitting at 622.080 Mb/s.
OC-48: Optical Carrier level 48 signal transmitting at 2488.32 Mb/s.
POINT OF PRESENCE (POP): A physical location where a long distance
carrier terminates lines before connecting to the local exchange
carrier, another carrier, or directly to a customer.
2.3 The availability objective for all circuits between Qwest Network
Interface points specified above is to provide performance levels over
a 12 month period as follows:
<TABLE>
<S> <C>
DS1, DS3, OC-3, OC-12
OC-48, OC-3c, OC-12c,
V&H MILES AND OC-48c
--------- ---------------------
0-2500 99.999%
2501-4000 99.998%
</TABLE>
This excludes any customer provided access links to the Qwest digital
network.
2.4 Error-Free Seconds (EFS) and Error Seconds (ES) are the primary
measure of error performance. An Error-Free Second is defined as any
second in which no bit errors are received. Conversely, an Error
Second is any second in which one or more bit errors are received.
3. SONET: Synchronous Optical Network is a family of optical transmission
rates and interface standards allowing internetworking of products
from different vendors. Base optical rate is 51.840 Mb/s. Higher rates
are direct multiples.
SONET TRANSPORT: Services associated with carrying OC-1 or higher
level signals.
SYNCHRONOUS TRANSPORT SIGNAL LEVEL 1 (STS-1): The basic logical
building block electrical signal with a rate of 51.840 Mb/s.
Qwest Communications
12
Confidential and Proprietary Verio Initials:__________
<PAGE> 29
SYNCHRONOUS TRANSPORT SIGNAL LEVEL N (STS-N): This electrical signal
is obtained by byte interleaving N STS-1 signals together, The rate of
the STS-N is N times 51.840 Mb/s.
TERMINATING MULTIPLEX (TM): Provides the multiplex functions for
multiplexing and demultiplexing between the DS1 or higher signal level
and the SONET OC-N level.
4. ACCEPTANCE CRITERIA. The acceptance criteria for DS1, DS3, OC-3,
OC-12, OC-48, OC-3c, OC-12c, and OC-48c circuits between Qwest Network
Interface points is to provide the performance levels reflected in
Section 2.3 of this Schedule A-2 during a 60 minute test period. lf no
errors are observed during the first 15 minutes of the test, the
facility may be considered acceptable. Access connections to customer
location will be tested in accordance with Bell Publication 62508.
Qwest Communications
13
Confidential and Proprietary Verio Initials:__________
<PAGE> 30
SCHEDULE A-3 TO EXHIBIT A
QWEST MAINTENANCE POLICY
PURPOSE
The Purpose of this document is to provide guidelines for maintenance activity
performed on the Qwest network.
OVERVIEW
Any work that has the potential of causing a service disruption to customer
traffic must be scheduled in advance per the maintenance notification
guidelines (next page). Additionally, the work must be scheduled to be
performed during a maintenance window as outlined below.
I. MAINTENANCE WINDOWS: FRIDAY: 12:00 Midnight until 6:00 Saturday Morning.
SATURDAY: 12:00 Midnight until 6:00 Sunday Morning.
SUNDAY: 12:00 Midnight until 5:00 Sunday Morning.
II. EXEMPT PERIODS: Routine maintenance will not normally be approved to
occur during holiday weekends, including "Mothers day",
or during the period from Thanksgiving weekend through
the first week of January.
III. Typical maintenance not authorized outside of the "maintenance window."
1) Power work: When connecting power equipment, or cabling to
existing power systems, or when modifying existing power
systems.
2) Software upgrade: Software upgrades to DCS, Sonet, or
Switching Systems.
3) Loss of redundancy: Maintenance that will cause the loss of
protection in DCS, Sonet, or Switching Systems.
4) Fiber: Splicing within an existing fiber cable that is
carrying live traffic, or that carries customer fibers.
5) Splice tray: Work to be performed in a fiber splice tray that
has "working" fibers, must normally be performed during the
"maintenance window." Exceptions may be approved by the FOPs
and NMC directors.
6) DSX-3 Panels: Changes, re-cabling, or patch changes on the
"back-side" of a DSX-3 panel must be scheduled to occur during
the maintenance window.
Qwest Communications
14
Confidential and Proprietary Verio Initials:_________
<PAGE> 31
ESCALATION AND CONTACT LIST
24 Hours Response "HOT-LINE" 800-776-7372
SPECIALIST ON DUTY DIRECT LINE 303-291-1631
Network Management Center FACSIMILE 303-291-1762
1st Level Escalation
"ON-DUTY" SUFERVISOR
Network Management Center
2nd Level Escalation
KIM HICKS
Manager - Network Management Center
OFF# 303-291-1582
PGR# 888-712-1979
CELL# 303-907-0330
E-MAIL [email protected]
3rd Level Escalation
JIM THORNBY
Director - Network Management Center
OFF# 303-291-1446
PGR# 888-712-1981
CELL# 303-748-1987
E-MAIL [email protected]
ESCALATION TO VP OPS/NMC.........THROUGH MANAGER OR DIRECTOR
4th Level Escalation
MIKE HENIGAR
Vice President - Network Services
OFF# 303-382-5708
PGR# 888-284-1741
E-Mail [email protected]
ESCALATION BEYOND 4TH LEVEL..........THROUGH V.P. OPS/NMC
TROUBLE TICKET PRIORITIZATION
A Network Management Service Representative will assign a priority to each
reported trouble, based on the following guidelines:
Qwest Communications
15
Confidential and Proprietary Verio Initials:__________
<PAGE> 32
PRIORITY 1:
* Dedicated location account with greater than or equal to 50% of
total service out-of-service
* International country isolation
* Inability to complete to a single or multiple NPA's
* Private line data circuit outage, loss of customer DS3, or
service impairing degradation
* Switched access location greater than 50% of total
service-out-of-service
* Event outage (fiber cut, equipment failure, natural
disaster, etc,)
PRIORITY 2:
* Chronic quality problems
* Switched access connectivity problems
* Dial-up data/Fax quality or connectivity problems
* Technical assistance
PRIORITY 3:
* Trended problems not meeting Priority 1 or 2 criteria
* Single non-circuit-specific quality problems
PRIORITY 4:
* Informational tickets
Escalation Objectives
Qwest Internal Escalation Intervals
<TABLE>
<S> <C> <C>
Management Priority 1 Priority 2
Level Referral +
1 - Supervisor 1 Hour 8 Hours
2 - Manager 2 Hours 16 Hours
3 - Director 4 Hours 32 Hours
4 - Vice President 8 Hours 40 Hours
</TABLE>
<TABLE>
<S> <C> <C>
MANAGEMENT PRIORITY 3 PRIORITY 4
LEVEL (REFERRAL +) (REFERRAL+)
1 - Supervisor 24 Hours N/A
2 - Manager 48 Hours N/A
3 - Director 96 Hours N/A
</TABLE>
Qwest Communications
16
Confidential and Proprietary Verio Initials:__________
<PAGE> 33
EXHIBIT B
CARRIER SERVICES
PRIVATE LINE - SERVICE ORDER
[QWEST LOGO]
Customer Order Number: _________________
Order Date: _______ Requested Availability Date: _______ Sales Person: _______
BILLING INFORMATION
Function Code: / / New / / Change / / Revision / / Supplement / / Disconnect
Expedite: / / Yes / / No - Customer Initial __________
Contract Term: / / 12 M / / 24 M / / 36 M / / 48 M / / 60 M
Customer Name: _____________________________________ Cust. #: _______________
Billing Address: ______________________________________________________________
City: _____________________ State: __________________ Zip: ____________________
Billing Contact: ____________________ Phone: ______________ Fax: ______________
Order Contact: ______________________ Phone: ______________ Fax: ______________
SERVICE INFORMATION
Service V&H City City Qty.
Type Originating Terminating
- -------------------------------------------------------------------
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Unit MRC Total MRC Unit NRC Total NRC
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ORIGINATING ACCESS TYPE TERMINATING ACCESS TYPE
Access: / / Cust. Ordered (CFA/LOA) Access: / / Cust. Ordered (CFA/LOA)
/ / QCC Ordered / / QCC Ordered
Site: _____________________________ Site: _____________________________
Address:___________________________ Address:___________________________
City: ______ State: ____ Zip:______ City: ______ State: ____ Zip:______
Ops. Contact:________ Phone:_______ Ops. Contact:________ Phone:_______
Alternate: _________ Phone:________ Alternate: _________ Phone:________
Access Provider: __________________ Access Provider: __________________
QCC requires 5 working days from QCC requires 5 working days from
receipt of DLR to complete circuit receipt of DLR to complete circuit
installation. installation.
Special Remarks/Comments: ________ Special Remarks/Comments: ________
__________________________________ __________________________________
SIGNATURE / APPROVAL
This Service Order is subject to and governed by the terms and conditions set
forth in the s Capacity and Services Agreement between QCC and Customer. Your
signature acknowledges that you have read, understand and accept such terms and
conditions and that you are duly authorized to execute and deliver this Service
Order. This Service Order shall not become a valid and binding obligation of
Qwest unless so provided under the Capacity and Services Agreement or until
this Service Order has been executed by an authorized representative of Qwest.
For Customer By: _____________________ For Qwest By: _______________________
Signature: ___________________________ Signature: __________________________
Title: _______________________________ Title: ______________________________
<PAGE> 34
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
EXHIBIT C
QWEST COMMUNICATIONS
SERVICE READY POP REPORT
Current on: 3/25/98
(***)
Qwest Confidential Page 1
<PAGE> 35
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
Qwest Communications
Service Ready POP Report
Current on: 3/25/98
(***)
Page 2
<PAGE> 36
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
QWEST COMMUNICATIONS
SERVICE READY POP REPORT
Current on: 3/25/98
(***)
Qwest Confidential
Page 3
<PAGE> 37
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
QWEST COMMUNICATIONS
SERVICE READY POP REPORT
CURRENT ON: 3/25/98
(***)
<PAGE> 38
QWEST COMMUNICATIONS
SERVICE READY POP REPORT
Current on: 3/25/98
------------------
(***)
QWEST CONFIDENTIAL Page 5
<PAGE> 39
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
QWEST COMMUNICATIONS
SERVICE READY POP REPORT
Current on: 3/25/98
---------------
(***)
Qwest Confidential Page 6
<PAGE> 40
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
QWEST COMMUNICATIONS
SERVICE READY POP REPORT
Current on: 3/25/98
-------------------
(***)
<PAGE> 41
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
QWEST COMMUNICATIONS
SERVICE READY POP REPORT
CURRENT ON: 3/25/98
(***)
<PAGE> 42
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
QWEST COMMUNICATIONS
SERVICE READY POP REPORT
Current on: 3/25/98
(***)
<PAGE> 43
EXHIBIT D
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 44
EXHIBIT E
COLLOCATION LICENSE AGREEMENT
(Caged Space)
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 45
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 46
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 47
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 48
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 49
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 50
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 51
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 52
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 53
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 54
ATTACHMENT TO COLLOCATION LICENSE AGREEMENT
THE EQUIPMENT SPACE
11
<PAGE> 55
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
EXHIBIT F
(***)
<PAGE> 56
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 57
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 58
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 59
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 60
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 61
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 62
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
<PAGE> 1
EXHIBIT 10.26
================================================================================
CREDIT AGREEMENT
dated as of
April 6, 1998
between
VERIO INC.,
The LENDERS Party Hereto,
THE CHASE MANHATTAN BANK,
as Administrative Agent
and
FLEET NATIONAL BANK,
as Documentation Agent
-------------------
$57,500,000
-------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Classification of Loans and Borrowings. . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 1.03. Terms Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 1.04. Accounting Terms; GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE II THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.01. The Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.02. Loans and Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.03. Requests for Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.04. Funding of Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.05. Interest Elections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.06. Termination and Reduction of the Commitments. . . . . . . . . . . . . . . . . . . . 26
SECTION 2.07. Repayment of Loans; Evidence of Debt. . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.08. Prepayment of Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.09. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.10. Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.11. Alternate Rate of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.12. Increased Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.13. Break Funding Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.14. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.15. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. . . . . . . . . . . . . 34
SECTION 2.16. Mitigation Obligations; Replacement of Lenders. . . . . . . . . . . . . . . . . . . 36
ARTICLE III REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.01. Organization; Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.02. Authorization; Enforceability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.03. Governmental Approvals; No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.04. Financial Condition; No Material Adverse Change. . . . . . . . . . . . . . . . . . . 38
SECTION 3.05. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 3.06. Litigation and Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 3.07. Compliance with Laws and Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 3.08. Investment Company Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 3.09. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 3.10. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 3.11. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 3.12. Use of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.13. Indebtedness; Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.14. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.15. Subsidiaries and Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 3.16. Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 3.17. Employee Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
-ii-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 3.18. Year 2000 Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE IV CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 4.01. Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 4.02. Each Credit Event. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE V AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Financial Statements and Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 5.02. Notices of Material Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 5.03. Existence; Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 5.04. Payment of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 5.05. Maintenance of Properties; Insurance. . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 5.06. Books and Records; Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 5.07. Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 5.08. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 5.09. Additional Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VI NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6.01. Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6.02. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.03. Mergers and Consolidations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.04. Asset Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 6.05. Asset Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 6.06. Limitation on Restricted Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 6.07. Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 6.08. Limitation on Issuances and Sales of Preferred Stock by Restricted Subsidiaries. . . 55
SECTION 6.09. Limitation on Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 6.10. Financial Covenants and Performance Tests. . . . . . . . . . . . . . . . . . . . . . 55
SECTION 6.11. Limitation on Designations of Unrestricted Subsidiaries. . . . . . . . . . . . . . . 56
SECTION 6.12. Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 6.13. Modifications of Certain Documents. . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE VII EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE VIII THE ADMINISTRATIVE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 9.01. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 9.02. Waivers; Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 9.03. Expenses; Indemnity; Damage Waiver. . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 9.04. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 9.05. Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 9.06. Counterparts; Integration; Effectiveness. . . . . . . . . . . . . . . . . . . . . . 69
SECTION 9.07. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 9.08. Right of Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
</TABLE>
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<TABLE>
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<S> <C> <C>
SECTION 9.09. Governing Law; Jurisdiction; Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 9.10. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 9.11. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 9.12. Treatment of Certain Information; Confidentiality. . . . . . . . . . . . . . . . . . 71
</TABLE>
SCHEDULE 1.01 - Commitments
SCHEDULE 3.06 - Litigation and Environmental Matters
SCHEDULE 3.13(a) - Indebtedness
SCHEDULE 3.13(b) - Liens
SCHEDULE 3.15 - Subsidiaries and Affiliates
SCHEDULE 3.17 - Employee Matters
SCHEDULE 6.07 - Permitted Affiliate Agreements
EXHIBIT A - Form of Assignment and Acceptance
EXHIBIT B - Form of Pledge Agreement
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<PAGE> 5
CREDIT AGREEMENT dated as of April 6, 1998, between VERIO
INC., the LENDERS party hereto, THE CHASE MANHATTAN BANK, as Administrative
Agent and FLEET NATIONAL BANK, as Documentation Agent.
The Borrower (as hereinafter defined) has requested that the
Lenders (as so defined) make loans to it in an aggregate principal amount not
exceeding $57,500,000 at any one time outstanding. The Lenders are prepared to
make such loans upon the terms and conditions hereof, and, accordingly, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement,
the following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate.
"Additional Senior Notes" means Indebtedness of the Borrower
evidenced by unsecured senior notes issued after the Effective Date pursuant to
an Additional Senior Notes Indenture that constitute senior Indebtedness (i.e.
do not constitute Subordinated Indebtedness) of the Borrower, as the same shall
be modified and supplemented and in effect from time to time.
"Additional Senior Notes Indenture" means the indenture(s) or
other agreement(s), pursuant to which the Borrower shall issue Additional
Senior Notes, as the same shall be modified and supplemented and in effect from
time to time.
"Adjusted LIBO Rate" means, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means Chase, in its capacity as
administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" of any specified person means any other person
which, directly or indirectly, controls, is controlled by or is under direct or
indirect common control with such
<PAGE> 6
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specified person. For the purposes of this definition, "control" when used
with respect to any person means the power to direct the management and
policies of such person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the terms "affiliated,"
"controlling" and "controlled" have meanings correlative to the foregoing.
"Alternate Base Rate" means, for any day, a rate per annum
equal to the greatest of (a) the Prime Rate in effect on such day and (b) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change
in the Alternate Base Rate due to a change in the Prime Rate or the Federal
Funds Effective Rate shall be effective from and including the effective date
of such change in the Prime Rate or the Federal Funds Effective Rate,
respectively.
"Annualized Combined Case Revenues" means, at any date of
determination, the Combined Case Revenues for the relevant fiscal quarter of
the Borrower multiplied by four.
"Annualized ISP Revenues" means, with respect to any ISP at
any date of determination, the consolidated revenues of such ISP and its
Subsidiaries for the most recent quarter for which financial information
concerning such ISP is available (determined on a basis consistent with the
Borrower's accounting principles) multiplied by four.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment.
If the Commitments have terminated or expired, the Applicable Percentages shall
be determined based upon the Commitments most recently in effect, giving effect
to any assignments.
"Applicable Rate" means (a) 1.75% in the case of ABR Loans and
(b) 3.00% in the case of Eurodollar Loans. Notwithstanding the foregoing, upon
the consummation of an Initial Public Equity Offering the Applicable Rate
shall be reduced to 0.75% in the case of ABR Loans and 2.00% in the case of
Eurodollar Loans; provided that if an Initial Public Equity Offering shall not
have been consummated (x) on or prior to December 31, 1998, the Applicable Rate
shall be increased on such date to 3.75% in the case of ABR Loans and 5.00% in
the case of Eurodollar Loans or (y) on or prior to June 30, 1999, the
Applicable Rate shall be increased on such date to 5.75% in the case of ABR
Loans and 7.00% in the case of Eurodollar Loans. For purposes hereof, "Initial
Public Equity Offering" means the initial public sale by the Borrower of its
Capital Stock which results in aggregate gross cash proceeds being received by
the Borrower of $50,000,000 or more.
"Asset Sale" means any direct or indirect sale, conveyance,
transfer or lease (that has the effect of a disposition and is not for security
purposes) or other disposition (that is not for security purposes) to any
person other than the Borrower or a Restricted Subsidiary, in one transaction
or a series of related transactions, of (a) any Capital Stock of any Restricted
Subsidiary (other than customary stock option programs), (b) any assets of the
Borrower or any Restricted Subsidiary which constitute substantially all of an
operating unit or line of business of the Borrower and the Restricted
Subsidiaries or (c) any other property or asset of the Borrower or any
Restricted Subsidiary outside of the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" shall not include (i) any
disposition of properties and assets of
<PAGE> 7
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the Borrower that is governed under Section 6.03, (ii) sales of property or
equipment that have become worn out, obsolete or damaged or otherwise
unsuitable for use in connection with the business of the Borrower or any
Restricted Subsidiary, as the case may be, and (iii) for purposes of Section
2.08(b)(iii), any sale, conveyance, transfer, lease or other disposition of any
property or asset, whether in one transaction or a series of related
transactions occurring within one year, either (x) involving assets with a Fair
Market Value not in excess of $500,000 or (y) which constitutes the incurrence
of a Capitalized Lease Obligation.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative
Agent.
"Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Maturity Date and the date
of termination of the Commitments.
"Average Life to Stated Maturity" means, with respect to any
Indebtedness, as at any date of determination, the quotient obtained by
dividing (a) the sum of the products of (i) the number of years from such date
to the date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund requirements) of such Indebtedness
multiplied by (ii) the amount of each such principal payment by (b) the sum of
all such principal payments; provided that, in the case of any Capitalized
Lease Obligation, all calculations hereunder shall give effect to any
applicable options to renew in favor of the Borrower or any Restricted
Subsidiary.
"Board" means the Board of Directors of the Borrower.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Borrower to have been duly
adopted by the Board and to be in full force and effect on the date of such
certification, and delivered to the Administrative Agent.
"Borrower" means Verio Inc., a Delaware corporation.
"Borrowing" means Loans of the same Type, made, converted or
continued on the same date and, in the case of Eurodollar Loans, as to which a
single Interest Period is in effect.
"Borrowing Request" means a request by the Borrower for a
Borrowing in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to remain closed; provided that, when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.
<PAGE> 8
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"Buyout" means (a) an Investment in an Existing ISP or
transaction or series of related transactions as a result of which such
Existing ISP becomes a Wholly Owned Restricted Subsidiary or (b) an Investment
in a New ISP or transaction or series of related transactions as a result of
which such New ISP becomes a Restricted Subsidiary or (c) a merger or
consolidation of any ISP with the Borrower.
"Capital Stock" means, with respect to any person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting and/or non-voting) of, such person's capital
stock, whether outstanding on the Effective Date or issued after the Effective
Date, and any and all rights (other than any evidence of indebtedness),
warrants or options exchangeable for or convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation to pay
rent or other amounts under a lease of (or other agreement conveying the right
to use) any property (whether real, personal or mixed, immovable or movable)
that is required to be classified and accounted for as a capitalized lease
obligation under GAAP, and for the purpose of this Agreement, the amount of
such obligation at any date shall be the capitalized amount thereof at such
date, determined in accordance with GAAP.
"Cash Equivalents" means: (a) any evidence of Indebtedness
(with, for purposes of Section 6.04 only, a maturity of 365 days or less)
issued or directly and fully guaranteed or insured by the United States or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States is pledged in support thereof or such Indebtedness
constitutes a general obligation of such country); (b) deposits, certificates
of deposit or acceptances (with, for purposes of Section 6.04 only, a maturity
of 365 days or less) of any financial institution that is a member of the
Federal Reserve System, in each case having combined capital and surplus and
undivided profits (or any similar capital concept) of not less than
$500,000,000 and whose senior unsecured debt is rated at least "A-1" by S&P or
"P-1" by Moody's; (c) commercial paper with a maturity of 365 days or less
issued by a corporation (other than an Affiliate of the Borrower) organized
under the laws of the United States or any State thereof and rated at least
"A-1" by S&P or "P-1" by Moody's; (d) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States
Government maturing within 365 days from the date of acquisition; (e) other
debt obligations maturing in 365 days or less issued by a corporation (other
than an Affiliate of the Borrower) organized under the laws of the United Sates
or any State thereof and rated at least "A-" by S&P or "A3" by Moody's; and (f)
money market funds which invest substantially all of their assets in securities
of the type described in the preceding clauses (a) through (e).
"Cash Flow" means, for any period, the sum, for the Borrower
and its Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP), of the following: (a) net operating income (calculated
before taxes, Interest Expense, extraordinary and unusual items and income or
loss attributable to equity in Affiliates) for such period plus (b)
depreciation, amortization and any non-cash charges (to the extent deducted in
determining
<PAGE> 9
- 5 -
net operating income) for such period minus (c) any non-cash credits (to the
extent included in determining net operating income) for such period.
"Cash Investments" means cash and Cash Equivalents (other
than restricted cash).
"Casualty Event" means, with respect to any property of any
person, any loss of or damage to, or any condemnation or other taking of, such
property for which such person or any of its Subsidiaries receives, in the
aggregate, insurance proceeds, or proceeds of a condemnation award or other
compensation.
"Change in Control" means the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding World Com, is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has 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 Stock of the
Borrower; or (b) the Borrower consolidates with, or merges with or into,
another person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any person, or any person
consolidates with, or merges with or into, the Borrower, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the Borrower
is converted into or exchanged for cash, securities or other property, other
than any such transaction where (i) the outstanding Voting Stock of the
Borrower 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 an amount which
could be paid by the Borrower as a Restricted Payment hereunder and (ii)
immediately after such transaction no "person" or "group" (as such terms are
used in Section 13(d) and 14(d) of the Exchange Act), excluding World Com, is
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has 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 Stock of the surviving or
transferee corporation or its parent corporation, as applicable; or (c) during
any consecutive two-year period, individuals who at the beginning of such
period constituted the Board (together with any new directors whose election by
the Board or whose nomination for election by the stockholders of the Borrower
was approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason (other
than by action of World Com) to constitute a majority of the Board then in
office. The good faith determination by the Board, based upon advice of
outside counsel, of the beneficial ownership of securities of the Borrower
within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act shall be
conclusive, absent contrary controlling judicial precedent or contrary written
interpretation published by the SEC.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or
<PAGE> 10
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(c) compliance by any Lender (or, for purposes of Section 2.12(b), by any
lending office of such Lender or by such Lender's holding company, if any) with
any request, guideline or directive (whether or not having the force of law) of
any Governmental Authority made or issued after the date of this Agreement.
"Chase" means The Chase Manhattan Bank.
"Closing Date" means the date on which the conditions
specified in Section 4.01 are satisfied (or waived in accordance with Section
9.02).
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Combined Case Revenues" means, at any date of determination,
the aggregate revenues of the Borrower and its Restricted Subsidiaries and any
other ISP in which the Borrower or any of its Restricted Subsidiaries has an
equity Investment minus Excluded Fees, determined in each case for the most
recent quarter for which financial statements have been furnished pursuant to
Section 5.01; provided that, notwithstanding the foregoing (i) if during any
period for which Combined Case Revenues is being determined the Borrower or any
of its Restricted Subsidiaries shall have acquired 100% of the ownership
interests in a New ISP, then, for all purposes of this Agreement, Combined Case
Revenues shall be determined on a pro forma basis for such period as if such
acquisition had been made or consummated on the first day of such period and
(ii) after January 1, 1998, if during any period for which Combined Case
Revenues is being determined, the Borrower or any of its Restricted
Subsidiaries shall have acquired less than 100% of the ownership interests in a
New ISP, then, for all purposes of this Agreement, Combined Case Revenues shall
include the aggregate revenues of such New ISP for such period multiplied by
the Borrower's or the Restricted Subsidiary's percentage of the aggregate
voting equity interests in such New ISP and shall be determined on a pro forma
basis for such period as if such acquisition had been made or consummated on
the first day of such period.
"Commitment" means, with respect to each Lender, the
commitment of such Lender to make Loans hereunder, expressed as an amount
representing the maximum aggregate amount of such Lender's Revolving Exposure
hereunder, as such commitment may be (a) reduced from time to time pursuant to
Section 2.06 or 2.08(b) and (b) reduced or increased from time to time pursuant
to assignments by or to such Lender pursuant to Section 9.04. The initial
amount of each Lender's Commitment is set forth on Schedule 1.01, or in the
Assignment and Acceptance pursuant to which such Lender shall have assumed its
Commitment, as applicable. The initial aggregate amount of the Lenders'
Commitments is $57,500,000.
"Common Stock" means, with respect to any person, any and all
shares, interests or other participations in, and other equivalents (however
designated and whether voting or non-voting) of such person's common stock
whether outstanding at the Effective Date, and includes, without limitation,
all series and classes of such common stock.
<PAGE> 11
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"Consolidated Net Income" means, with respect to any period,
the consolidated net income of the Borrower and the Restricted Subsidiaries for
such period, adjusted, to the extent included in calculating such consolidated
net income, by excluding, without duplication, (i) all extraordinary, unusual
or nonrecurring gains or losses of such person (net of fees and expenses
relating to the transaction giving rise thereto) for such period, (ii) income
of the Borrower and the Restricted Subsidiaries derived from or in respect of
all Investments in persons other than Restricted Subsidiaries, except to the
extent of any dividends or distributions actually received by the Borrower or
any Restricted Subsidiary, (iii) the portion of net income (or loss) of such
person allocable to minority interests in Restricted Subsidiaries for such
period, (iv) net income (or loss) of any other person combined with such person
on a "pooling of interests" basis attributable to any period prior to the date
of combination, (v) any gain or loss, net of taxes, realized by such person
upon the termination of any employee pension benefit plan during such period,
(vi) gains or losses in respect of any Asset Sales (net of fees and expenses
relating to the transaction giving rise thereto) during such period and (vii)
the net income of any Restricted Subsidiary for such period to the extent that
the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulations applicable
to that Restricted Subsidiary or its stockholders.
"consolidation" means, with respect to the Borrower, the
consolidation of the accounts of the Restricted Subsidiaries with those of the
Borrower, all in accordance with GAAP; provided that "consolidation" will not
include consolidation of the accounts of any Unrestricted Subsidiary with the
accounts of the Borrower. The term "consolidated" has a correlative meaning to
the foregoing.
"Debt Incurrence" means the incurrence by the Borrower or any
of its Restricted Subsidiaries after the Closing Date of any Indebtedness for
borrowed money.
"Dedicated Customer" means any person (other than a dial-up
customer) who receives services from an Existing ISP or a New ISP for the
provision of internet services, including, but not limited to, the creation,
hosting or maintenance of web sites, connectivity services and other internet
products.
"Default" means any event or condition which constitutes an
Event of Default or which upon notice, lapse of time or both would, unless
cured or waived, become an Event of Default.
"Designation" has the meaning set forth under Section 6.11.
"Designation Amounts" has the meaning set forth in Section
6.11.
"Disinterested Director" means, with respect to any
transaction or series of related transactions, a member of the Board other than
a director who (a) has any material direct or indirect financial interest in or
with respect to such transaction or series of related transactions or
<PAGE> 12
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(b) is an employee or officer of the Borrower or an Affiliate that is itself a
party to such transaction or series of transactions or an Affiliate of a party
to such transaction or series of related transactions.
"Disqualified Stock" means, with respect to any person, any
Capital Stock which, by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable), or upon the happening of
any event, matures or becomes mandatorily redeemable, pursuant to a sinking
fund obligation or otherwise, or becomes exchangeable for Indebtedness at the
option of the holder thereof, or becomes redeemable at the option of the holder
thereof, in whole or in part, on or prior to the Maturity Date; provided such
Capital Stock shall only constitute Disqualified Stock to the extent it so
matures or becomes so redeemable or exchangeable on or prior to the Maturity
Date; provided, further, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
final maturity date of the Senior Notes shall not constitute Disqualified Stock
if the "asset sale" or "change of control" provisions applicable to such
Capital Stock are no more favorable to the holders of such Capital Stock than
the provisions contained in Section 10.15 and Section 10.10 of the Senior Notes
Indentures as in effect on the date hereof and such Capital Stock specifically
provides that such person will not repurchase or redeem any such stock pursuant
to such provision prior to the Borrower's repurchase of the Senior Notes, or
any of them, as are required to be repurchased pursuant to the relevant
provisions of the respective Senior Notes Indenture relating thereto.
"dollars" or "$" refers to lawful money of the United States
of America.
"Effective Date" means the date of this Agreement.
"Environmental Laws" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Borrower or any
Subsidiary directly or indirectly resulting from or based upon (a) violation of
any Environmental Law, (b) the generation, use, handling, transportation,
storage, treatment or disposal of any Hazardous Materials, (c) exposure to any
Hazardous Materials, (d) the release or threatened release of any Hazardous
Materials into the environment or (e) any contract, agreement or other
consensual arrangement pursuant to which liability is assumed or imposed with
respect to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
<PAGE> 13
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"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code, or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b)
the existence with respect to any Plan of an "accumulated funding deficiency"
(as defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by the Borrower or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate
of any notice, or the receipt by any Multiemployer Plan from the Borrower or
any ERISA Affiliate of any notice, concerning the imposition of Withdrawal
Liability or a determination that a Multiemployer Plan is, or is expected to
be, insolvent or in reorganization, within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
bearing interest at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in
Article VII.
"Excess Cash Flow" means, for any period, the sum for the
Borrower and its Restricted Subsidiaries (determined without duplication) of
(a) Cash Flow for such period minus (b) all payments of principal on
Indebtedness made during such period minus (c) $5,000,000.
"Excluded Fees" means fees paid by Affiliates of the Borrower
to the Borrower for customer care, network operations, billings and accounting
services.
"Excluded Taxes" means, with respect to the Administrative
Agent, any Lender or any other recipient of any payment to be made by or on
account of any obligation of the Borrower hereunder, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of
America or any political subdivision thereof or therein, or by the jurisdiction
under the laws of which such recipient is organized or in which its principal
office is located or any political subdivision thereof or therein or, in the
case of any Lender, in which its applicable lending office is located or any
political subdivision thereof or therein, (b) any branch profits taxes imposed
by the United States of America or any similar tax imposed by any other
jurisdiction in which the Borrower is located and (c) in the case of a Foreign
Lender (other than an assignee pursuant to a request by the Borrower under
Section 2.16(b)), any withholding tax
<PAGE> 14
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that is imposed on amounts payable to such Foreign Lender at the time such
Foreign Lender becomes a party to this Agreement or is attributable to such
Foreign Lender's failure or inability to comply with Section 2.14(e), except to
the extent that such Foreign Lender's assignor (if any) was entitled, at the
time of assignment, to receive additional amounts from the Borrower with
respect to such withholding tax pursuant to Section 2.14(a).
"Existing ISP" means any ISP in which the Borrower or a
Subsidiary of the Borrower has an Investment on the Effective Date.
"Fair Market Value" means, with respect to any asset or
property, the price that could be negotiated in an arms-length free market
transaction, for cash, between a willing seller and a willing buyer, neither of
whom is under pressure or compulsion to complete the transaction. Unless
otherwise specified in this Agreement, Fair Market Value shall be determined by
the Board acting in good faith and shall be evidenced by a Board Resolution.
"Federal Funds Effective Rate" means, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for
such day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System of the United States of America.
"Financial Officer" means the chief financial officer,
principal accounting officer, treasurer or controller of the Borrower.
"Foreign Lender" means any Lender that is organized under the
laws of a jurisdiction other than that in which the Borrower is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"GAAP" means, at any date of determination, generally accepted
accounting principles in effect in the United States and which are applicable
as of the date of determination and which are consistently applied for all
applicable periods.
"Governmental Authority" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
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"Guarantee" means, as applied to any obligation, (i) a
guarantee (other than by endorsement of negotiable instruments for collection
in the ordinary course of business), direct or indirect, in any manner, of any
part or all of such obligation and (ii) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
non-performance) of all or any part of such obligation, including, without
limiting the foregoing, the payment of amounts drawn down by letters of credit.
"Hazardous Materials" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
"Indebtedness" means, with respect to any person, without
duplication, (i) any liability, contingent or otherwise, of such person (A) for
borrowed money (whether or not the recourse of the lender is to the whole of
the assets of such person or only to a portion thereof) or (B) evidenced by a
note, debenture or similar instrument or letter of credit (including a purchase
money obligation) or (C) for the payment of money relating to a Capitalized
Lease Obligation or other obligation relating to the deferred purchase price of
property (except to the extent representing funds deposited in escrow to secure
the deferred purchase price of an acquisition of, or an Investment in, an ISP)
or (D) in respect of an Interest Rate Obligation or currency agreement; or (ii)
any liability of others of the kind described in the preceding clause (i) which
the person has guaranteed or which is otherwise its legal liability; or (iii)
any obligation secured by a Lien (other than (x) Permitted Liens of the types
described in clauses (b), (d) or (e) of the definition of Permitted Liens;
provided that the obligations secured would not constitute Indebtedness under
clauses (i) or (ii) or (iii) of this definition, and (y) Liens on Capital Stock
or Indebtedness of any Unrestricted Subsidiary) to which the property or assets
of such person are subject, whether or not the obligations secured thereby
shall have been assumed by or shall otherwise be such person's legal liability
(the amount of such obligation being deemed to be the lesser of the value of
such property or asset or the amount of the obligation so secured); (iv) all
Disqualified Stock valued at the greater of its voluntary or involuntary
maximum fixed repurchase price plus accrued and unpaid dividends; and (v) any
and all deferrals, renewals, extensions and refundings of, or amendments,
modifications or supplements to, any liability of the kind described in any of
the preceding clauses (i), (ii), (iii) or (iv). In no event shall
"Indebtedness" include trade payables and accrued liabilities that are current
liabilities incurred in the ordinary course of business, excluding the current
maturity of any obligation which would otherwise constitute Indebtedness. For
purposes of Section 6.01, Section 6.06 and the definition of "Events of
Default," in determining the principal amount of any Indebtedness to be
incurred by the Borrower or a Restricted Subsidiary or which is outstanding at
any date, (x) the principal amount of any Indebtedness which provides that an
amount less than the principal amount at maturity thereof shall be due upon any
declaration of acceleration thereof shall be the accreted value thereof at the
date of determination and (y) the principal amount of any Indebtedness shall be
reduced by any amount of cash or Cash Equivalent collateral securing on a
perfected basis, and dedicated for disbursement exclusively to the payment of
principal of and interest on, such
<PAGE> 16
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Indebtedness. Indebtedness of any person that becomes a Restricted Subsidiary
shall be deemed incurred at the time that such a person becomes a Restricted
Subsidiary.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Independent Financial Advisor" means a United States
investment banking firm of national or regional standing in the United States
(i) which does not, and whose directors, officers and employees or Affiliates
do not have, a direct or indirect financial interest in the Borrower and (ii)
which, in the judgment of the Board, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Interest Election Request" means a request by the Borrower to
convert or continue a Borrowing in accordance with Section 2.05.
"Interest Expense" means, for any period, the sum, for the
Borrower and its Restricted Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), of the following: (a) all
interest in respect of Indebtedness (including the interest component of any
payments in respect of Capital Lease Obligations) accrued or capitalized during
such period (whether or not actually paid during such period) plus (b) the net
amount payable (or minus the net amount receivable) in respect of Interest Rate
Obligations during such period (whether or not actually paid or received during
such period).
"Interest Payment Date" means (a) with respect to any ABR
Loan, each Quarterly Date and (b) with respect to any Eurodollar Loan, the last
day of the Interest Period applicable to the Borrowing of which such Loan is a
part and, in the case of a Eurodollar Borrowing with an Interest Period of more
than three months' duration, each day prior to the last day of such Interest
Period that occurs at intervals of three months' duration after the first day
of such Interest Period.
"Interest Period" means, with respect to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on
the numerically corresponding day in the calendar month that is one, two, three
or six months thereafter, as the Borrower may elect; provided that (i) if any
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day and (ii) any
Interest Period that commences on the last Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the last
calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period. For purposes hereof, the date
of a Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.
"Interest Rate Obligations" means the obligations of any
person pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed
<PAGE> 17
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rate of interest on a stated notional amount and shall include without
limitation, interest rate swaps, caps, floors, collars, forward interest rate
agreements and similar agreements.
"Internet Service Business" means any business operating an
internet connectivity or internet enhancement service as it exists from time to
time, including, without limitation, dial up or dedicated internet service, web
hosting or collocation services, security solutions, the provision and
development of software in connection therewith, configuration services,
electronic commerce, intranet solutions, data backup and restoral, business
content and collaboration, communications tools or network equipment products
or services (including, without limitation, any business conducted by the
Borrower or any Restricted Subsidiary on the Effective Date), and any business
reasonably related to the foregoing. A good faith determination by a majority
of the Board as to whether a business meets the requirements of this definition
shall be conclusive, absent manifest error.
"Investment" means, with respect to any person, any advance,
loan, account receivable (other than an account receivable arising in the
ordinary course of business), or other extension of credit (including, without
limitation, by means of any Guarantee) or any capital contribution to (by means
of transfers of property to others, payments for property or services for the
account or use of others, or otherwise), or any purchase or ownership of any
stocks, bonds, notes, debentures or other securities of, any other person.
Notwithstanding the foregoing, in no event shall any issuance of Capital Stock
(other than Disqualified Stock) of the Borrower in exchange for Capital Stock,
property or assets of another person constitute an Investment by the Borrower
in such other person.
"ISP" means any person (a) engaged principally in an Internet
Service Business, (b) of which the Borrower and Wholly Owned Restricted
Subsidiaries own either (x) Qualifying Preferred Stock representing in
aggregate from 20% to 50% of such person's outstanding Capital Stock (on an
economic basis) or (y) Common Stock or Qualifying Preferred Stock representing
in aggregate in excess of 50% of such person's voting Capital Stock, (c) as to
which the Borrower or a Wholly Owned Restricted Subsidiary has an option,
either immediately exercisable or exercisable commencing after one year
(subject to extension under limited circumstances consistent with past
practice) of the Investment made by the Borrower or a Wholly Owned Restricted
Subsidiary, to acquire all of such person's outstanding Capital Stock, (d) as
to which the Borrower or a Wholly Owned Restricted Subsidiary is the
beneficiary of a right of first refusal or other transfer restrictions
generally limiting transfers of such person's Capital Stock by third parties,
(e) as to which the Borrower or a Wholly Owned Restricted Subsidiary has the
right to appoint and has appointed at least one member of such person's board
of directors, in the case where such person would not be a Subsidiary of the
Borrower, or a majority of such person's board of directors, in the case where
such person would be a Subsidiary of the Borrower and (f) which has no
outstanding Capital Stock or Indebtedness other than (i) Common Stock or
options to acquire Common Stock, (ii) Qualifying Preferred Stock held by the
Borrower or a Wholly Owned Restricted Subsidiary, (iii) rights granted to other
stockholders to acquire Capital Stock of such person from the Borrower or its
affiliates in certain circumstances, (iv) preferred stock ranking junior in a
liquidation to any Qualifying Preferred Stock referred to in clause (ii), and
(v) Indebtedness of such person or preferred stock of such
<PAGE> 18
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person ranking prior in a liquidation or deemed liquidation to the Qualifying
Preferred Stock referred to in clause (ii) having an aggregate outstanding
principal balance and liquidation preference, respectively, that (x) in the
case of a person that is a Restricted Subsidiary, is permitted to be incurred
under Section 6.01 and (y) in the case of a person that is not a Restricted
Subsidiary, does not at any time exceed 50% of Annualized ISP Revenues.
"Lenders" means the persons listed on Schedule 1.01 and any
other person that shall have become a party hereto pursuant to an Assignment
and Acceptance, other than any such person that ceases to be a party hereto
pursuant to an Assignment and Acceptance.
"Lenders' Pro Rata Share" means, with respect to any Asset
Sale, the amount of the applicable "Excess Proceeds" thereof (as defined in and
determined pursuant to Section 6.04) obtained by multiplying the amount of such
Excess Proceeds by a fraction, (i) the numerator of which is the aggregate
accreted value and/or principal amount, as the case may be, of all Indebtedness
(other than (x) the Senior Notes and (y) Subordinated Indebtedness) of the
Borrower outstanding at the time of such Asset Sale and (ii) the denominator of
which is the aggregate principal amount or the aggregate accreted value, as the
case may be, of all Indebtedness (other than Subordinated Indebtedness) of the
Borrower outstanding at the time of such applicable Asset Sale.
"LIBO Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, the rate appearing on Page 3750 of the Dow Jones
Markets Service (or on any successor or substitute page of such Service, or any
successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that
such rate is not available at such time for any reason, then the LIBO Rate with
respect to such Eurodollar Borrowing for such Interest Period shall be the rate
at which dollar deposits of $5,000,000 and for a maturity comparable to such
Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"Lien" means any mortgage, charge, pledge, lien (statutory or
other), security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
property of any kind. A person shall be deemed to own subject to a Lien any
property which such person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Loan Documents" means, collectively, this Agreement and the
Security Documents.
<PAGE> 19
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"Loans" means the loans made by the Lenders to the Borrower
pursuant to this Agreement.
"Margin Stock" means "margin stock" within the meaning of
Regulations G, T, U and X of the Federal Reserve Board.
"Material Adverse Effect" means a material adverse effect on
(a) the business, assets, operations, prospects or condition, financial or
otherwise, of the Borrower and its Subsidiaries taken as a whole or (b) the
ability of the Borrower to perform its obligations under this Agreement or any
of the other Loan Documents.
"Material Restricted Subsidiary" means any Restricted
Subsidiary of the Borrower, which, at any date of determination, is a
"Significant Subsidiary" (as that term is defined in Regulation S-X issued
under the Securities Act), but shall, in any event, include any Restricted
Subsidiary of the Borrower which, at any date of determination, is an obligor
under any Indebtedness in an aggregate principal amount equal to or exceeding
$7,500,000.
"Maturity Date" means December 31, 1999.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Available Proceeds" means (a) in the case of any Casualty
Event, the aggregate amount of proceeds of insurance, condemnation awards and
other compensation received by the Borrower and its Restricted Subsidiaries in
respect of such Casualty Event net of (i) reasonable expenses incurred by the
Borrower and its Restricted Subsidiaries in connection therewith, (ii)
contractually required repayments of Indebtedness to the extent secured by a
Lien on such property and any income and transfer taxes payable by the Borrower
or any of its Restricted Subsidiaries in respect of such Casualty Event and
(iii) any portion of such proceeds applied to repair, replace or restore the
affected property in accordance with the proviso contained in Section
2.08(b)(i); and (b) in the case of any Debt Incurrence, the aggregate amount of
all cash received by the Borrower and its Restricted Subsidiaries in respect of
such Debt Incurrence net of reasonable expenses incurred by the Borrower and
its Restricted Subsidiaries in connection therewith.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash (including assumed liabilities and other
items deemed to be cash under the proviso to the first sentence of Section
6.04) or Cash Equivalents including payments in respect of deferred payment
obligations when received in the form of cash or Cash Equivalents (except to
the extent that such obligations are financed or sold with recourse to the
Borrower or any Restricted Subsidiary) net of (i) brokerage commissions and
other fees and expenses (including fees and expenses of legal counsel and
investment bankers) related to such Asset Sale, (ii) provisions for all taxes
payable as a result of such Asset Sale, (iii) amounts required to be paid to
<PAGE> 20
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any person (other than the Borrower or any Restricted Subsidiary) owning a
beneficial interest in or having a Permitted Lien on the assets subject to the
Asset Sale and (iv) appropriate amounts to be provided by the Borrower or any
Restricted Subsidiary, as the case may be, as a reserve required in accordance
with GAAP against any liabilities associated with such Asset Sale and retained
by the Borrower or any Restricted Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale, all as reflected in a certificate of a senior officer delivered to the
Administrative Agent.
"New ISP" means any ISP in which the Borrower or a Subsidiary
of the Borrower makes its first Investment after the Effective Date.
"1997 Senior Notes" means the 13-1/2% Senior Notes due 2004
issued by the Borrower pursuant to the 1997 Senior Notes Indenture.
"1997 Senior Notes Indenture" means the Indenture dated as of
June 24, 1997 entered into by the Borrower, as Issuer, and First Trust National
Association, as Trustee, as the same shall be modified and supplemented and in
effect from time to time.
"1998 Senior Notes" means the 10-3/8% Senior Notes due 2005
issued by the Borrower pursuant to the 1998 Senior Notes Indenture.
"1998 Senior Notes Indentures" means the Indenture dated as
of March 25, 1998 entered into by the Borrower, as Issuer, and First Trust
National Association, as Trustee, as the same shall be modified and
supplemented and in effect from time to time.
"NorthWestNet" means NorthWestNet Inc., an Oregon corporation.
"Other Taxes" means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made under any Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA and any successor entity performing similar functions.
"Permitted Equipment Financing" means any credit facility or
other financing arrangement (including in the form of Capitalized Lease
Obligations and guarantees of Indebtedness of ISPs) entered into with any
vendor or supplier (or any financial institution acting on behalf of or for the
purpose of directly financing purchases from such vendor or supplier) to the
extent the Indebtedness thereunder is incurred for the purpose of financing the
cost (including the cost of design, development, site acquisition,
construction, integration, manufacture or acquisition) of real or personal
property (tangible or intangible) used, or to be used, in an Internet Service
Business.
<PAGE> 21
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"Permitted Investments" means (a) Cash Equivalents; (b)
Investments in prepaid expenses, negotiable instruments held for collection and
lease, utility and workers' compensation, performance and other similar
deposits; (c) Interest Rate Obligations incurred in compliance with Section
6.01; and (d) the extension by the Borrower and the Restricted Subsidiaries of
(i) trade credit to Subsidiaries of the Borrower and ISPs, represented by
accounts receivable, extended on usual and customary terms in the ordinary
course of business or (ii) guarantees of commitments for the purchase of goods
or services by any ISP incurred in the ordinary course of business so long as
such guarantees to the extent constituting Indebtedness are permitted to be
incurred under Section 6.01.
"Permitted Liens" means (a) Liens on property of a person
existing at the time such person is merged into or consolidated with the
Borrower or any Restricted Subsidiary or becomes a Restricted Subsidiary;
provided that (i) such Liens were in existence prior to the contemplation of
such merger, consolidation or acquisition and do not secure any property or
assets of the Borrower or any Restricted Subsidiary other than the property or
assets subject to the Liens prior to such merger or consolidation or
acquisition and (ii) such Liens do not secure any Indebtedness for borrowed
money or any Guarantee thereof (except for such Indebtedness that constitutes
Permitted Equipment Financing); (b) Liens imposed by law, such as carriers',
warehousemen's and mechanics' Liens and other similar Liens arising in the
ordinary course of business that secure payment of obligations not more than 60
days past due or that are being contested in good faith and by appropriate
proceedings; (c) Liens existing on the date hereof and (if any such Lien
secures or relates to any obligation exceeding $100,000) listed in Schedule
3.13(b); provided that the aggregate of all Indebtedness of the Borrower and
its Restricted Subsidiaries existing on the date hereof and secured by a Lien,
the principal or face amount of which is under $100,000 and which is
accordingly not so listed does not exceed $3,000,000; (d) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted; provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (e) easements, rights of way, restrictions and other
similar easements, licenses, restrictions on the use of properties, or minor
imperfections of title that, in the aggregate, are not material in amount and
do not in any case materially detract from the properties subject thereto or
interfere with the ordinary conduct of the business of the Borrower or the
Restricted Subsidiaries; (f) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of
a like nature incurred in the ordinary course of business; (g) Liens securing
any Permitted Equipment Financing but only upon the property being so financed;
(h) Liens to secure any replacement, renewal or extension of any Indebtedness
secured by Liens referred to in the foregoing clauses (a) and (c), but only to
the extent that such Liens do not extend to any other property or assets and
the principal amount of the Indebtedness secured by such Liens is not
increased; (i) Liens on real property incurred in connection with the financing
of the purchase of such real property (or incurred within 60 days of purchase)
by the Borrower or any Restricted Subsidiary; and (j) Liens created pursuant to
the Security Documents.
<PAGE> 22
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"Permitted Subsidiary Indebtedness" means (a) Indebtedness of
any Restricted Subsidiary existing on the date hereof and either listed in
Schedule 3.13(a) or, if the principal or face amount of such Indebtedness is
under $100,000, not listed in Schedule 3.13(a); provided that the aggregate of
all Indebtedness of the Borrower and its Restricted Subsidiaries existing on
the date hereof, the principal or face amount of which is under $100,000 and
which is accordingly not listed in Schedule 3.13(a) does not exceed $3,000,000;
(b) Indebtedness of any Restricted Subsidiary owed to and held by the Borrower
or a Restricted Subsidiary; (c) Indebtedness of any Restricted Subsidiary in
respect of performance bonds of any Restricted Subsidiary or surety bonds
provided by any Restricted Subsidiary incurred in the ordinary course of
business; (d) Indebtedness of any Restricted Subsidiary incurred under any
Permitted Equipment Financing in an aggregate principal amount not to exceed
the Fair Market Value of the assets acquired with the proceeds thereof; (e)
Indebtedness of any Restricted Subsidiary incurred as a result of any Buyout of
any ISP, provided the aggregate principal amount of all such Indebtedness does
not exceed $30,000,000 at any time outstanding; (f) Indebtedness of any
Restricted Subsidiary to the extent it represents a replacement, renewal or
extension (a "Refinancing") of any Indebtedness of such Restricted Subsidiary
permitted under this definition, provided that any such Refinancing shall only
be permitted to the extent (x) it does not result in a lower Average Life to
Stated Maturity of such Indebtedness as compared with the Indebtedness being
Refinanced and (y) it does not exceed the sum of the principal amount (or, if
such Indebtedness provides for a lesser amount to be due and payable upon a
declaration of acceleration thereof, an amount no greater than such lesser
amount) of the Indebtedness being Refinanced plus the amount of accrued
interest thereon and the amount of any reasonably determined prepayment premium
necessary to accomplish such Refinancing and such reasonable fees and expenses
incurred in connection therewith; and (g) any other Indebtedness of any
Restricted Subsidiary not exceeding $250,000 in the aggregate at any time
outstanding.
"person" means any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower
or any ERISA Affiliate is (or, if such plan were terminated, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"Pledge Agreement" means a Pledge Agreement substantially in
the form of Exhibit B between the Borrower, certain Restricted Subsidiaries and
the Administrative Agent, as the same shall be modified and supplemented and in
effect from time to time.
"Preferred Stock" means, with respect to any person, any and
all shares, interests, participations or other equivalents (however designated)
of such person's preferred or preference stock whether now outstanding, or
issued after the Effective Date, and including, without limitation, all classes
and series of preferred or preference stock of such person.
<PAGE> 23
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"Prime Rate" means the rate of interest per annum publicly
announced from time to time by Chase as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as
being effective.
"Public Equity Offering" means an underwritten public offering
of Common Stock (other than Disqualified Stock) made pursuant to a registration
statement filed with the SEC under the Securities Act.
"Qualifying Preferred Stock" means preferred stock of an ISP
(i) having a liquidation and dividend preference at least equal to the amount
of the Investment made by the Borrower or a Restricted Subsidiary in such ISP,
(ii) that, in the case of ISPs not constituting Restricted Subsidiaries, is
redeemable at the option of the holder on a basis consistent with past
practice, and (iii) that is convertible into shares of Common Stock of such ISP
at the option of the holder.
"Quarterly Dates" means the last Business Day of March, June,
September and December in each year, the first of which shall be the first such
day after the date hereof.
"Register" has the meaning set forth in Section 9.04.
"Related Parties" means, with respect to any specified person,
such person's Affiliates and the respective directors, officers, employees,
agents and advisors of such person and such person's Affiliates.
"Required Lenders" means, at any time, Lenders having
Revolving Exposures and unused Commitments representing at least 66-2/3% of the
sum of the total Revolving Exposures and unused Commitments at such time.
"Restricted Payment" means any of the following: (a) the
declaration or payment of any dividend or any other distribution on Capital
Stock of the Borrower or any payment made to the direct or indirect holders (in
their capacities as such) of Capital Stock of the Borrower (other than
dividends or distributions payable solely in Capital Stock (other than
Disqualified Stock) of the Borrower or in options, warrants or other rights to
purchase Capital Stock (other than Disqualified Stock) of the Borrower); (b)
the purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Borrower (other than such Capital Stock owned by the
Borrower or a Wholly Owned Restricted Subsidiary); (c) the purchase,
redemption, defeasance or other acquisition or retirement for value prior to
any scheduled repayment, sinking fund or maturity of any Subordinated
Indebtedness (other than any Subordinated Indebtedness held by a Wholly Owned
Restricted Subsidiary); (d) the making of any payment (whether of dividends or
in respect of liquidation preference) in respect of the Series A Preferred
Stock, the Series B Preferred Stock or the Series C Preferred Stock; or (e) the
making by the Borrower or any Restricted Subsidiary of any Investment (other
than a Permitted Investment) in any person (other than an Investment by a
Restricted Subsidiary in the Borrower or an Investment by the Borrower or a
Restricted Subsidiary in (i) a Wholly Owned Restricted Subsidiary engaged
<PAGE> 24
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principally in an Internet Service Business; (ii) a New ISP that is a
Restricted Subsidiary; (iii) a person (other than an existing ISP) engaged
principally in an Internet Service Business that becomes a Wholly Owned
Restricted Subsidiary as a result of such Investment; (iv) a New ISP that
becomes a Restricted Subsidiary as a result of such Investment; or (v) a
Restricted Subsidiary (other than an Existing ISP) or a person (other than an
Existing ISP) that becomes a Restricted Subsidiary as a result of such
Investment, provided that, in either case, such Restricted Subsidiary would,
but for failing to meet the requirements of clauses (c) and (d) of the
definition of "ISP," be a New ISP).
"Restricted Subsidiary" means any Subsidiary of the Borrower
that has not been designated by the Board, by a Board Resolution delivered to
the Administrative Agent, as an Unrestricted Subsidiary pursuant to and in
compliance with Section 6.11. Any such designation may be revoked by a Board
Resolution delivered to the Administrative Agent, subject to the provisions of
such covenant.
"Restricted Subsidiary Indebtedness" means Indebtedness of any
Restricted Subsidiary (i) which is not subordinated to any other Indebtedness
of such Restricted Subsidiary and (ii) in respect of which the Borrower is not
also obligated (by means of a guarantee or otherwise).
"Revocation" has the meaning set forth under Section 6.11.
"Revolving Exposure" means, with respect to any Lender at any
time, the aggregate outstanding principal amount of such Lender's Loans at such
time.
"S&P" means Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.
"SEC" means the Securities and Exchange Commission, as from
time to time constituted, or if at any time after the execution of this
Agreement such Commission is not existing and performing the applicable duties
now assigned to it, then the body or bodies performing such duties at such
time.
"Security Documents" means, collectively, the Pledge
Agreement, the pledge or security agreement (if any) entered into pursuant to
Section 5.09(b), and all Uniform Commercial Code financing statements required
thereby to be filed with respect to the security interests in personal property
created pursuant thereto.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Senior Notes" means the 1997 Senior Notes, the 1998 Senior
Notes and (if any) any Additional Senior Notes.
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"Senior Notes Indentures" means the 1997 Senior Notes
Indenture, the 1998 Senior Notes Indenture and any Additional Senior Notes
Indentures.
"Statutory Reserve Rate" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Federal Reserve Board to which the
Administrative Agent is subject, with respect to the Adjusted LIBO Rate, for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Federal Reserve Board). Such reserve percentages shall
include those imposed pursuant to such Regulation D. Eurodollar Loans shall be
deemed to constitute eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets
that may be available from time to time to any Lender under such Regulation D
or any comparable regulation. The Statutory Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"Subordinated Indebtedness" means any Indebtedness of the
Borrower or any of its Subsidiaries which is expressly subordinated in right of
payment to any other Indebtedness of the Borrower or such Subsidiary.
"Subsidiary" means, with respect to any person, (i) any
corporation of which the outstanding Capital Stock having at least a majority
of the votes entitled to be cast in the election of directors shall at the time
be owned, directly or indirectly, by such person, or (ii) any other person of
which at least a majority of voting interest is at the time, directly or
indirectly, owned by such person.
"Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any
Governmental Authority.
"Transactions" means the execution, delivery and performance
by the Borrower of this Agreement and the other Loan Documents, the borrowing
of Loans and the use of the proceeds thereof.
"Type", when used in reference to any Loan or Borrowing,
refers to whether the rate of interest on such Loan, or on the Loans comprising
such Borrowing, is determined by reference to the Adjusted LIBO Rate or the
Alternate Base Rate.
"Unrestricted Subsidiary" means any Subsidiary of the Borrower
designated as such pursuant to and in compliance with Section 6.11. Any such
designation may be revoked by a Board Resolution delivered to the
Administrative Agent, subject to the provisions of such covenant.
"Voting Stock" means, with respect to any person, the Capital
Stock of any class or kind ordinarily having the power to vote for the election
of directors or other members of the governing body of such person.
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"Wholly Owned Restricted Subsidiary" means any Restricted
Subsidiary of which 99% or more of the outstanding Capital Stock is owned by
the Borrower or another Wholly Owned Restricted Subsidiary; provided
NorthWestNet shall be deemed a Wholly Owned Restricted Subsidiary
notwithstanding its existing stock option plan and any stock options issued
thereunder. For the purposes of this definition, any directors' qualifying
shares or investments by foreign nationals mandated by applicable law shall be
disregarded in determining the ownership of a Restricted Subsidiary.
"Withdrawal Liability" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan,
as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
"WorldCom" means WorldCom Inc., a Georgia corporation (and its
successors by merger or consolidation) and its controlled Affiliates.
SECTION 1.02. Classification of Loans and Borrowings. For
purposes of this Agreement, Loans may be classified and referred to by Type
(e.g., a "Eurodollar Loan"). Borrowings also may be classified and referred to
by Type (e.g., a "Eurodollar Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms
herein shall apply equally to the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation". The word "will" shall be construed to have the same
meaning and effect as the word "shall". Unless the context requires otherwise
(a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument
or other document as from time to time amended, supplemented or otherwise
modified (subject to any restrictions on such amendments, supplements or
modifications set forth herein), (b) any reference herein to any person shall
be construed to include such person's successors and assigns, (c) the words
"herein", "hereof" and "hereunder", and words of similar import, shall be
construed to refer to this Agreement in its entirety and not to any particular
provision hereof, (d) all references herein to Articles, Sections, Exhibits and
Schedules shall be construed to refer to Articles and Sections of, and Exhibits
and Schedules to, this Agreement and (e) the words "asset" and "property" shall
be construed to have the same meaning and effect and to refer to any and all
tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose),
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regardless of whether any such notice is given before or after such change in
GAAP or in the application thereof, then such provision shall be interpreted on
the basis of GAAP as in effect and applied immediately before such change shall
have become effective until such notice shall have been withdrawn or such
provision amended in accordance herewith.
ARTICLE II
THE CREDITS
SECTION 2.01. The Commitments. Subject to the terms and
conditions set forth herein, each Lender agrees to make Loans to the Borrower
from time to time during the Availability Period in an aggregate principal
amount that will not result in (a) such Lender's Revolving Exposure exceeding
such Lender's Commitment or (b) the total Revolving Exposures exceeding the
total Commitments. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrower may borrow, prepay and reborrow
Loans.
SECTION 2.02. Loans and Borrowings.
(a) Obligations of Lenders. Each Loan shall be made as part
of a Borrowing consisting of Loans of the same Type made by the Lenders ratably
in accordance with their respective Commitments. The failure of any Lender to
make any Loan required to be made by it shall not relieve any other Lender of
its obligations hereunder; provided that the Commitments of the Lenders are
several and no Lender shall be responsible for any other Lender's failure to
make Loans as required.
(b) Type of Loans. Subject to Section 2.11, each Borrowing
shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower
may request in accordance herewith. Each Lender at its option may make any
Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such
Lender to make such Loan; provided that any exercise of such option shall not
affect the obligation of the Borrower to repay such Loan in accordance with the
terms of this Agreement.
(c) Minimum Amounts; Limitation on Number of Borrowings. At
the commencement of each Interest Period for any Eurodollar Borrowing, such
Borrowing shall be in an aggregate amount of $3,000,000 or a larger multiple of
$1,000,000. At the time that each ABR Borrowing is made, such Borrowing shall
be in an aggregate amount equal to $3,000,000 or a larger multiple of
$1,000,000; provided that an ABR Borrowing may be in an aggregate amount that
is equal to the entire unused balance of the total Commitments. Borrowings of
more than one Type may be outstanding at the same time; provided that there
shall not at any time be more than a total of five Eurodollar Borrowings
outstanding.
(d) Limitations on Lengths of Interest Periods.
Notwithstanding any other provision of this Agreement, the Borrower shall not
be entitled to request, or to elect to convert
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to or continue as a Eurodollar Borrowing, any Borrowing if the Interest Period
requested with respect thereto would end after the Maturity Date.
SECTION 2.03. Requests for Borrowings. To request a
Borrowing, the Borrower shall notify the Administrative Agent of such request
by telephone (a) in the case of a Eurodollar Borrowing, not later than 12:00
noon, New York City time, three Business Days before the date of the proposed
Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m.,
New York City time, the day of the proposed Borrowing. Each such telephonic
Borrowing Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Borrowing Request
in a form approved by the Administrative Agent and signed by the Borrower.
Each such telephonic and written Borrowing Request shall specify the following
information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business
Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to
which funds are to be disbursed, which shall comply with the
requirements of Section 2.04.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be
deemed to have selected an Interest Period of one month's duration. Promptly
following receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. Funding of Borrowings.
(a) Funding by Lenders. Each Lender shall make each Loan to
be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon, New York City time, to the account
of the Administrative Agent most recently designated by it for such purpose by
notice to the Lenders. The Administrative Agent will make such Loans available
to the Borrower by promptly crediting the amounts so received, in like funds,
to an account of the Borrower maintained with the Administrative Agent in New
York City and designated by the Borrower in the applicable Borrowing Request.
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(b) Presumption by the Administrative Agent. Unless the
Administrative Agent shall have received notice from a Lender prior to the
proposed date of any Borrowing that such Lender will not make available to the
Administrative Agent such Lender's share of such Borrowing, the Administrative
Agent may assume that such Lender has made such share available on such date in
accordance with paragraph (a) of this Section and may, in reliance upon such
assumption, make available to the Borrower a corresponding amount. In such
event, if a Lender has not in fact made its share of the applicable Borrowing
available to the Administrative Agent, then the applicable Lender and the
Borrower severally agree to pay to the Administrative Agent forthwith on demand
such corresponding amount with interest thereon, for each day from and
including the date such amount is made available to the Borrower to but
excluding the date of payment to the Administrative Agent, at (i) in the case
of such Lender, the Federal Funds Effective Rate or (ii) in the case of the
Borrower, the interest rate applicable to ABR Loans. If such Lender pays such
amount to the Administrative Agent, then such amount shall constitute such
Lender's Loan included in such Borrowing.
SECTION 2.05. Interest Elections.
(a) Elections by the Borrower for Borrowing. Each Borrowing
initially shall be of the Type specified in the applicable Borrowing Request
and, in the case of a Eurodollar Borrowing, shall have an initial Interest
Period as specified in such Borrowing Request. Thereafter, the Borrower may
elect to convert such Borrowing to a different Type or to continue such
Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest
Periods therefor, all as provided in this Section. The Borrower may elect
different options with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing.
(b) Notice of Elections. To make an election pursuant to
this Section, the Borrower shall notify the Administrative Agent of such
election by telephone by the time that a Borrowing Request would be required
under Section 2.03 if the Borrower were requesting a Borrowing of the Type
resulting from such election to be made on the effective date of such election.
Each such telephonic Interest Election Request shall be irrevocable and shall
be confirmed promptly by hand delivery or telecopy to the Administrative Agent
of a written Interest Election Request in a form approved by the Administrative
Agent and signed by the Borrower.
(c) Information in Interest Election Requests. Each
telephonic and written Interest Election Request shall specify the following
information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to
different portions thereof, the portions thereof to be allocated to
each resulting Borrowing (in which case the information to be
specified pursuant to clauses (iii) and (iv) of this paragraph shall
be specified for each resulting Borrowing);
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(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing,
the Interest Period to be applicable thereto after giving effect to
such election, which shall be a period contemplated by the definition
of the term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Notice by the Administrative Agent to Lenders. Promptly
following receipt of an Interest Election Request, the Administrative Agent
shall advise each Lender of the details thereof and of such Lender's portion of
each resulting Borrowing.
(e) Failure to Elect; Events of Default. If the Borrower
fails to deliver a timely Interest Election Request with respect to a
Eurodollar Borrowing prior to the end of the Interest Period applicable
thereto, then, unless such Borrowing is repaid as provided herein, at the end
of such Interest Period such Borrowing shall be converted to a Eurodollar
Borrowing having an Interest Period of one month. Notwithstanding any contrary
provision hereof, if an Event of Default has occurred and is continuing and the
Administrative Agent, at the request of the Required Lenders, so notifies the
Borrower, then, so long as such Event of Default is continuing no outstanding
Borrowing may be converted to or continued as a Eurodollar Borrowing other than
a Eurodollar Borrowing having an Interest Period of one month.
SECTION 2.06. Termination and Reduction of the Commitments.
(a) Scheduled Termination. If the Closing Date shall not
have occurred on or prior to April 30, 1998, the Commitments shall
automatically terminate at such time. Unless previously terminated, the
Commitments shall terminate on the Maturity Date.
(b) Voluntary Termination or Reduction. The Borrower may at
any time terminate, or from time to time reduce, the Commitments; provided that
(i) each reduction of the Commitments pursuant to this Section shall be in an
amount that is $5,000,000 or a larger multiple of $1,000,000 and (ii) the
Borrower shall not terminate or reduce the Commitments if, after giving effect
to any concurrent prepayment of the Loans in accordance with Section 2.08, the
total Revolving Exposures would exceed the total Commitments.
(c) Notice of Voluntary Termination or Reduction. The
Borrower shall notify the Administrative Agent of any election to terminate or
reduce the Commitments under paragraph (b) of this Section at least three
Business Days prior to the effective date of such
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termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Commitments delivered by the Borrower may state that such
notice is conditioned upon the effectiveness of other credit facilities, in
which case such notice may be revoked by the Borrower (by notice to the
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied.
(d) Effect of Termination or Reduction. Any termination or
reduction of the Commitments shall be permanent. Each reduction of the
Commitments shall be made ratably among the Lenders in accordance with their
respective Commitments.
SECTION 2.07. Repayment of Loans; Evidence of Debt.
(a) Repayment. The Borrower hereby unconditionally promises
to pay to the Administrative Agent for the account of each Lender the
outstanding principal amount of each Loan of such Lender on the Maturity Date.
(b) Manner of Payment. Prior to any repayment or prepayment
of any Borrowings hereunder, the Borrower shall select the Borrowing or
Borrowings to be paid and shall notify the Administrative Agent by telephone
(confirmed by telecopy) of such selection not later than 11:00 a.m., New York
City time, three Business Days before the scheduled date of such repayment;
provided that each repayment of Borrowings shall be applied to repay any
outstanding ABR Borrowings before any other Borrowings. If the Borrower fails
to make a timely selection of the Borrowing or Borrowings to be repaid or
prepaid, such payment shall be applied, first, to pay any outstanding ABR
Borrowings and, second, to other Borrowings in the order of the remaining
duration of their respective Interest Periods (the Borrowing with the shortest
remaining Interest Period to be repaid first). Each payment of a Borrowing
shall be applied ratably to the Loans included in such Borrowing.
(c) Maintenance of Loan Accounts by Lenders. Each Lender
shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to such Lender resulting from each
Loan made by such Lender, including the amounts of principal and interest
payable and paid to such Lender from time to time hereunder.
(d) Maintenance of Loan Accounts by the Administrative Agent.
The Administrative Agent shall maintain accounts in which it shall record (i)
the amount of each Loan made hereunder, the Type thereof and the Interest
Period applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Lender hereunder
and (iii) the amount of any sum received by the Administrative Agent hereunder
for the account of the Lenders and each Lender's share thereof.
(e) Effect of Loan Accounts. The entries made in the
accounts maintained pursuant to paragraph (c) or (d) of this Section shall be
prima facie evidence of the existence and amounts of the obligations recorded
therein; provided that the failure of any Lender or the
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Administrative Agent to maintain such accounts or any error therein shall not
in any manner affect the obligation of the Borrower to repay the Loans in
accordance with the terms of this Agreement.
(f) Promissory Notes. Any Lender may request that Loans made
by it be evidenced by a promissory note. In such event, the Borrower shall
prepare, execute and deliver to such Lender a promissory note payable to the
order of such Lender (or, if requested by such Lender, to such Lender and its
registered assigns) and in a form approved by the Administrative Agent.
Thereafter, the Loans evidenced by such promissory note and interest thereon
shall at all times (including after assignment pursuant to Section 9.04) be
represented by one or more promissory notes in such form payable to the order
of the payee named therein (or, if such promissory note is a registered note,
to such payee and its registered assigns).
SECTION 2.08. Prepayment of Loans.
(a) Optional Prepayments. The Borrower shall have the right
at any time and from time to time to prepay any Borrowing in whole or in part,
subject to the requirements of this Section and provided that each prepayment
pursuant to this Section shall be in an aggregate amount at least equal to
$3,000,000 or a larger multiple of $1,000,000.
(b) Mandatory Prepayments. The Borrower will prepay the
Loans, and/or (in the case of clause (iii) only) the Commitments shall be
subject to automatic reduction, as follows:
(i) Casualty Events. In the event that the Net Available
Proceeds of any Casualty Event affecting any property of the Borrower
or any of its Restricted Subsidiaries (herein, the "Current Casualty
Event"), and of all prior Casualty Events as to which a prepayment
under this paragraph (b) has not been made, shall exceed $5,000,000 in
the aggregate, then, within a period of 90 days following receipt of
the proceeds of the Current Casualty Event, the Borrower shall prepay
the Loans in an aggregate amount, if any, equal to 100% of the amount
of Net Available Proceeds of the Current Casualty Event and of all
such prior Casualty Events in excess of $5,000,000 in the aggregate,
provided that no such prepayment shall be required if the Borrower
uses, or has committed to use, such proceeds to repair, restore or
replace the property affected by such Casualty Event within such
90-day period.
(ii) Excess Cash Flow. Upon the date 30 days after each date
on which the Borrower has delivered its financial statements pursuant
to Section 5.01(a) or 5.01(b), the Borrower shall prepay the Loans in
an aggregate amount equal to 100% of Excess Cash Flow for the fiscal
quarter immediately preceding the date on which such prepayment is
made.
(iii) Asset Sales. Prior to the date which is 365 days after
the receipt of Net Cash Proceeds of any Asset Sale, if all or a
portion of such proceeds constitute Excess Proceeds (as determined
pursuant to Section 6.04), the Borrower shall deliver to the
Administrative Agent a statement, certified by a Financial Officer of
the Borrower, in
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form and detail satisfactory to the Administrative Agent, of the
amount of such Excess Proceeds and the Commitments shall be subject to
automatic reduction on the Business Day immediately following the last
day of such 365-day period in an aggregate amount equal to the
Lenders' Pro Rata Share of such Excess Proceeds (and to the extent
that, after giving effect to such reduction, the total Revolving
Exposures would exceed the Commitments, the Borrower shall prepay
Loans in an aggregate amount equal to such excess).
(iv) Debt Incurrence. Upon any Debt Incurrence, the Borrower
shall prepay the Loans in an aggregate amount equal to 100% of the Net
Available Proceeds of such Debt Incurrence.
(c) Notices, Etc. The Borrower shall notify the
Administrative Agent by telephone (confirmed by telecopy) of any optional
prepayment under paragraph (a) of this Section (i) in the case of prepayment of
a Eurodollar Borrowing, not later than 12:00 noon, New York City time, three
Business Days before the date of prepayment or (ii) in the case of prepayment
of an ABR Borrowing, not later than 12:00 noon, New York City time, one
Business Day before the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date, the principal amount of each
Borrowing or portion thereof to be prepaid and, in the case of a mandatory
prepayment, a reasonably detailed calculation of the amount of such prepayment;
provided that, if a notice of prepayment is given in connection with a
conditional notice of termination of the Commitments as contemplated by Section
2.06, then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.06. Promptly following
receipt of any such notice relating to a Borrowing, the Administrative Agent
shall advise the Lenders of the contents thereof. Each partial prepayment of
any Borrowing shall be in an amount that would be permitted in the case of a
Borrowing of the same Type as provided in Section 2.02, except as necessary to
apply fully the required amount of a mandatory prepayment. Each prepayment of
a Borrowing shall be applied ratably to the Loans included in the prepaid
Borrowing. Prepayments shall be accompanied by accrued interest to the extent
required by Section 2.10 and any amount due under Section 2.13 and shall be
made in the manner specified in Section 2.07(b).
SECTION 2.09. Fees.
(a) Commitment Fee. The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at a rate per annum equal to 1/2 of 1% on the average daily unused
amount of the Commitment of such Lender during the period from and including
the Effective Date to but excluding the earlier of the date such Commitment
terminates and the Maturity Date. Accrued commitment fees shall be payable on
each Quarterly Date and on the earlier of the date the Commitment terminates
and the Maturity Date, commencing on the first such date to occur after the
date hereof. All commitment fees shall be computed on the basis of a year of
365 days (or 366 days in a leap year) and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
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(b) Administrative Agent Fees. The Borrower agrees to pay to
the Administrative Agent, for its own account, fees payable in the amounts and
at the times separately agreed upon between the Borrower and the Administrative
Agent.
(c) Utilization Fee. The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a utilization fee, payable
upon the date of the making of each Loan, in an amount equal to 1/2 of 1% of
the excess (if any) of (i) the aggregate outstanding principal amount of the
Loans then outstanding and held by such Lender (after giving effect to such
Loan) over (ii) the maximum aggregate principal amount of the Loans held by
such Lender that was outstanding at any one time prior to such date (whether or
not all or any portion of such Loans continue to be then outstanding).
(d) Payment of Fees. All fees payable hereunder shall be
paid on the dates due, in immediately available funds, to the Administrative
Agent for distribution, in the case of commitment fees, to the Lenders entitled
thereto. Fees paid shall not be refundable under any circumstances.
SECTION 2.10. Interest.
(a) ABR Loans. The Loans comprising each ABR Borrowing shall
bear interest at a rate per annum equal to the Alternate Base Rate plus the
Applicable Rate.
(b) Eurodollar Loans. The Loans comprising each Eurodollar
Borrowing shall bear interest at a rate per annum equal to the Adjusted LIBO
Rate for the Interest Period in effect for such Borrowing plus the Applicable
Rate.
(c) Default Interest. Notwithstanding the foregoing, (i) if
any principal of or interest on any Loan or any fee or other amount payable by
the Borrower hereunder is not paid when due, whether at stated maturity, upon
acceleration, by mandatory prepayment or otherwise, such overdue amount shall
bear interest, after as well as before judgment, at a rate per annum equal to
(A) in the case of overdue principal of any Loan, 2% plus the rate otherwise
applicable to such Loan as provided above or (B) in the case of any other
amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a)
of this Section, or (ii) if an Event of Default shall have occurred and be
continuing, other than the non-payment of principal or interest on the Loans,
all amounts outstanding under this Agreement shall bear interest, after as well
as before judgment, at a rate per annum equal to 2% plus the rate otherwise
applicable to the Loans then outstanding until such Event of Default is cured
or waived.
(d) Payment of Interest. Accrued interest on each Loan shall
be payable in arrears on each Interest Payment Date for such Loan and upon the
earlier of (x) termination of the Commitments and (y) the Maturity Date;
provided that (i) interest accrued pursuant to paragraph (c) of this Section
shall be payable on demand, (ii) in the event of any repayment or prepayment of
any Loan (other than a prepayment of an ABR Loan prior to the Maturity Date),
accrued interest on the principal amount repaid or prepaid shall be payable on
the date of such repayment or prepayment and (iii) in the event of any
conversion of any Eurodollar Borrowing
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prior to the end of the current Interest Period therefor, accrued interest on
such Borrowing shall be payable on the effective date of such conversion.
(e) Computation. All interest hereunder shall be computed on
the basis of a year of 360 days, except that interest computed by reference to
the Alternate Base Rate at times when the Alternate Base Rate is based on the
Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in
a leap year), and in each case shall be payable for the actual number of days
elapsed (including the first day but excluding the last day). The applicable
Alternate Base Rate or Adjusted LIBO Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent
manifest error.
SECTION 2.11. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and
reasonable means do not exist for ascertaining the Adjusted LIBO Rate
for such Interest Period; or
(b) the Administrative Agent is advised by the Required
Lenders that the Adjusted LIBO Rate for such Interest Period will not
adequately and fairly reflect the cost to such Lenders of making or
maintaining their Loans included in such Borrowing for such Interest
Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
SECTION 2.12. Increased Costs.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Lender (except any such
reserve requirement reflected in the Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market any
other condition affecting this Agreement or Eurodollar Loans made by
such Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lenders of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to
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reduce the amount of any sum received or receivable by such Lender hereunder
(whether of principal, interest or otherwise), then the Borrower will pay to
such Lender such additional amount or amounts as will compensate such Lender
for such additional costs incurred or reduction suffered.
(b) Capital Requirements. If any Lender determines that any
Change in Law regarding capital requirements has or would have the effect of
reducing the rate of return on such Lender's capital or on the capital of such
Lender's holding company, if any, as a consequence of this Agreement or the
Loans made by such Lender to a level below that which such Lender or such
Lender's holding company could have achieved but for such Change in Law (taking
into consideration such Lender's policies and the policies of such Lender's
holding company with respect to capital adequacy), then from time to time the
Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender or such Lender's holding company for any such reduction
suffered.
(c) Certificates from Lenders. A certificate of a Lender
setting forth the amount or amounts necessary to compensate such Lender or its
holding company, as the case may be, as specified in paragraph (a) or (b) of
this Section shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender the amount shown as due on
any such certificate within 10 days after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any
Lender to demand compensation pursuant to this Section shall not constitute a
waiver of such Lender's right to demand such compensation; provided that the
Borrower shall not be required to compensate a Lender pursuant to this Section
for any increased costs or reductions incurred more than six months prior to
the date that such Lender notifies the Borrower of the Change in Law giving
rise to such increased costs or reductions and of such Lender's intention to
claim compensation therefor; provided further that, if the Change in Law giving
rise to such increased costs or reductions is retroactive, then the six-month
period referred to above shall be extended to include the period of retroactive
effect thereof.
SECTION 2.13. Break Funding Payments. In the event of (a)
the payment of any principal of any Eurodollar Loan other than on the last day
of an Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, continue
or prepay any Eurodollar Loan, or the failure to convert any ABR Loan into a
Eurodollar Loan, on the date specified in any notice delivered pursuant hereto
(regardless of whether such notice is permitted to be revocable under Section
2.08(c) and is revoked in accordance herewith), or (d) the assignment of any
Eurodollar Loan other than on the last day of the Interest Period applicable
thereto as a result of a request by the Borrower pursuant to Section 2.16,
then, in any such event, the Borrower shall compensate each Lender for the
loss, cost and expense attributable to such event. The loss to any Lender
attributable to any such event shall be an amount determined by such Lender to
be equal to the excess, if any, of (i) the amount of interest that such Lender
would pay for a deposit equal to the principal amount of such Loan for the
period from the date of such payment, conversion, failure or assignment to the
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last day of the then current Interest Period for such Loan (or, in the case of
a failure to borrow, convert or continue, the duration of the Interest Period
that would have resulted from such borrowing, conversion or continuation) if
the interest rate payable on such deposit were equal to the Adjusted LIBO Rate
for such Interest Period, over (ii) the amount of interest that such Lender
would earn on such principal amount for such period if such Lender were to
invest such principal amount for such period at the interest rate that would be
bid by such Lender (or an affiliate of such Lender) for dollar deposits from
other banks in the eurodollar market at the commencement of such period. A
certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days
after receipt thereof.
SECTION 2.14. Taxes.
(a) Payments Free of Taxes. Any and all payments by or on
account of any obligation of the Borrower hereunder or under any other Loan
Document shall be made free and clear of and without deduction for any
Indemnified Taxes or Other Taxes; provided that if the Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments,
then (i) the sum payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section) the Administrative Agent or Lender (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii)
the Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.
(b) Payment of Other Taxes by the Borrower. In addition, the
Borrower shall pay any Other Taxes to the relevant Governmental Authority in
accordance with applicable law.
(c) Indemnification by the Borrower. The Borrower shall
indemnify the Administrative Agent and each Lender, within 10 days after
written demand therefor, for the full amount of any Indemnified Taxes or Other
Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section) paid by the Administrative
Agent or such Lender, as the case may be, and any penalties, interest and
reasonable expenses arising therefrom or with respect thereto, whether or not
such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. A certificate as to the
amount of such payment or liability delivered to the Borrower by a Lender, or
by the Administrative Agent on its own behalf or on behalf of a Lender, shall
be conclusive absent manifest error.
(d) Evidence of Payments. As soon as practicable after any
payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental
Authority, the Borrower shall deliver to the Administrative Agent the original
or a certified copy of a receipt issued by such Governmental Authority
evidencing such payment, a copy of the return reporting such payment or other
evidence of such payment reasonably satisfactory to the Administrative Agent.
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(e) Foreign Lenders. Any Foreign Lender that is entitled to
an exemption from or reduction of withholding tax under the law of the
jurisdiction in which the Borrower is located, or any treaty to which such
jurisdiction is a party, with respect to payments under this Agreement shall
deliver to the Borrower (with a copy to the Administrative Agent), at the time
or times prescribed by applicable law or reasonably requested by the Borrower,
such properly completed and executed documentation prescribed by applicable law
as will permit such payments to be made without withholding or at a reduced
rate.
SECTION 2.15. Payments Generally; Pro Rata Treatment;
Sharing of Set-offs.
(a) Payments by the Borrower. The Borrower shall make each
payment required to be made by it hereunder (whether of principal, interest or
fees, or under Section 2.12, 2.13 or 2.14, or otherwise) or under any other
Loan Document (except to the extent otherwise provided therein) prior to 12:00
noon, New York City time, on the date when due, in immediately available funds,
without set-off or counterclaim. Any amounts received after such time on any
date may, in the discretion of the Administrative Agent, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon. All such payments shall be made to the Administrative Agent
at its offices at 270 Park Avenue, New York, New York, except as otherwise
expressly provided in the relevant Loan Document, and except that payments
pursuant to Sections 2.12, 2.13, 2.14 and 9.03 shall be made directly to the
persons entitled thereto. The Administrative Agent shall distribute any such
payments received by it for the account of any other person to the appropriate
recipient promptly following receipt thereof. If any payment hereunder shall
be due on a day that is not a Business Day, the date for payment shall be
extended to the next succeeding Business Day and, in the case of any payment
accruing interest, interest thereon shall be payable for the period of such
extension. All payments hereunder or under any other Loan Document (except to
the extent otherwise provided therein) shall be made in dollars.
(b) Application of Insufficient Payments. If at any time
insufficient funds are received by and available to the Administrative Agent to
pay fully all amounts of principal, interest and fees then due hereunder, such
funds shall be applied (i) first, to pay interest and fees then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
interest and fees then due to such parties, and (ii) second, to pay principal
then due hereunder, ratably among the parties entitled thereto in accordance
with the amounts of principal then due to such parties.
(c) Pro Rata Treatment. Except to the extent otherwise
provided herein: (i) each Borrowing shall be made from the Lenders, each
payment of commitment fee under Section 2.09 shall be made for account of the
Lenders, and each termination or reduction of the amount of the Commitments
under Section 2.06 shall be applied to the respective Commitments of the
Lenders, pro rata according to the amounts of their respective Commitments;
(ii) each Borrowing shall be allocated pro rata among the Lenders according to
the amounts of their respective Commitments (in the case of the making of
Loans) or their respective Loans (in the case of conversions and continuations
of Loans); (iii) each payment or prepayment of principal of Loans by the
Borrower shall be made for account of the Lenders pro rata in accordance with
the respective unpaid
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principal amounts of the Loans held by them; and (iv) each payment of interest
on Loans by the Borrower shall be made for account of the Lenders pro rata in
accordance with the amounts of interest on such Loans then due and payable to
the respective Lenders.
(d) Sharing of Payments by Lenders. If any Lender shall, by
exercising any right of set-off or counterclaim or otherwise, obtain payment in
respect of any principal of or interest on any of its Loans resulting in such
Lender receiving payment of a greater proportion of the aggregate amount of its
Loans and accrued interest thereon then due than the proportion received by any
other Lender, then the Lender receiving such greater proportion shall purchase
(for cash at face value) participations in the Loans of other Lenders to the
extent necessary so that the benefit of all such payments shall be shared by
the Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Loans; provided that (i) if any such
participations are purchased and all or any portion of the payment giving rise
thereto is recovered, such participations shall be rescinded and the purchase
price restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment
made by the Borrower pursuant to and in accordance with the express terms of
this Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans to any assignee or
participant, other than to the Borrower or any Subsidiary or Affiliate thereof
(as to which the provisions of this paragraph shall apply). The Borrower
consents to the foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.
(e) Presumptions of Payment. Unless the Administrative Agent
shall have received notice from the Borrower prior to the date on which any
payment is due to the Administrative Agent for the account of the Lenders
hereunder that the Borrower will not make such payment, the Administrative
Agent may assume that the Borrower has made such payment on such date in
accordance herewith and may, in reliance upon such assumption, distribute to
the Lenders the amount due. In such event, if the Borrower has not in fact
made such payment, then each of the Lenders severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender with interest thereon, for each day from and including the date such
amount is distributed to it to but excluding the date of payment to the
Administrative Agent, at the Federal Funds Effective Rate.
(f) Certain Deductions by the Administrative Agent. If any
Lender shall fail to make any payment required to be made by it pursuant to
Section 2.04(b) or 2.15(e), then the Administrative Agent may, in its
discretion (notwithstanding any contrary provision hereof), apply any amounts
thereafter received by the Administrative Agent for the account of such Lender
to satisfy such Lender's obligations under such Sections until all such
unsatisfied obligations are fully paid.
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SECTION 2.16. Mitigation Obligations; Replacement of Lenders.
(a) Designation of a Different Lending Office. If any Lender
requests compensation under Section 2.12, or if the Borrower is required to pay
any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.14, then such Lender shall use
reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder
to another of its offices, branches or affiliates, if, in the judgment of such
Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to Section 2.12 or 2.14, as the case may be, in the future and
(ii) would not subject such Lender to any unreimbursed cost or expense and
would not otherwise be disadvantageous to such Lender. The Borrower hereby
agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
(b) Replacement of Lenders. If any Lender requests
compensation under Section 2.12, or if the Borrower is required to pay any
additional amount to any Lender or any Governmental Authority for the account
of any Lender pursuant to Section 2.14, or if any Lender defaults in its
obligation to fund Loans hereunder, then the Borrower may, at its sole expense
and effort, upon notice to such Lender and the Administrative Agent, require
such Lender to assign and delegate, without recourse (in accordance with and
subject to the restrictions contained in Section 9.04), all its interests,
rights and obligations under this Agreement to an assignee that shall assume
such obligations (which assignee may be another Lender, if a Lender accepts
such assignment); provided that (i) the Borrower shall have received the prior
written consent of the Administrative Agent, which consent shall not
unreasonably be withheld, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or the Borrower (in the case of all other amounts) and (iii) in the case
of any such assignment resulting from a claim for compensation under Section
2.12 or payments required to be made pursuant to Section 2.14, such assignment
will result in a reduction in such compensation or payments. A Lender shall
not be required to make any such assignment and delegation if, prior thereto,
as a result of a waiver by such Lender or otherwise, the circumstances
entitling the Borrower to require such assignment and delegation cease to
apply.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrower
and its Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the
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jurisdiction of its organization, (b) has all requisite power and authority to
carry on its business as now conducted and (c) is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required, except (in the case of clause (c)) where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.
SECTION 3.02. Authorization; Enforceability. The
Transactions are within the Borrower's corporate powers and have been duly
authorized by all necessary corporate and, if required, by all necessary
shareholder action. This Agreement has been duly executed and delivered by the
Borrower and constitutes, and each of the other Loan Documents when executed
and delivered will constitute, a legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or similar laws of general applicability affecting the enforcement
of creditors' rights and (b) the application of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
SECTION 3.03. Governmental Approvals; No Conflicts. The
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except for (i)
such as have been obtained or made and are in full force and effect and (ii)
filings and recordings in respect of the Liens created pursuant to the Security
Documents, (b) will not violate any applicable law or regulation or the
charter, by-laws or other organizational documents of the Borrower or any of
its Subsidiaries or any order of any Governmental Authority, (c) will not
violate or result in a default in any material respect under any indenture,
agreement or other instrument binding upon the Borrower or any of its
Subsidiaries or assets, or give rise to a right thereunder to require any
payment to be made by any such person, and (d) except for the Liens created
pursuant to the Security Documents, will not result in the creation or
imposition of any Lien on any asset of the Borrower or any of its Subsidiaries.
SECTION 3.04. Financial Condition; No Material Adverse
Change.
(a) Financial Condition. The Borrower has heretofore
furnished to the Lenders its consolidated balance sheet and statements of
income, stockholders' equity and cash flows (i) as of and for the fiscal year
ended December 31, 1997, reported on by KPMG Peat Marwick LLP, independent
public accountants. Such financial statements present fairly, in all material
respects, the financial position and results of operations and cash flows of
the Borrower and its Subsidiaries as of such dates and for such periods in
accordance with GAAP.
(b) No Material Adverse Change. Since December 31, 1997,
there has been no material adverse change in the business, assets, operations,
prospects or condition, financial or otherwise, of the Borrower and its
Restricted Subsidiaries, taken as a whole.
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SECTION 3.05. Properties.
(a) Property Generally. Each of the Borrower and its
Subsidiaries has good title to, or valid leasehold interests in, all its real
and personal property material to its business, subject only to Liens permitted
by Section 6.02 and except for minor defects in title that do not interfere
with its ability to conduct its business as currently conducted or to utilize
such properties for their intended purposes.
(b) Intellectual Property. Each of the Borrower and its
Subsidiaries owns, licenses or has a right to use all trademarks, tradenames,
copyrights, patents and other intellectual property material to its business,
and the use thereof by the Borrower and its Subsidiaries does not infringe upon
the rights of any other person, except for any such infringements that,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.
SECTION 3.06. Litigation and Environmental Matters.
(a) Actions, Suits and Proceedings. There are no actions,
suits or proceedings by or before any arbitrator or Governmental Authority now
pending against or, to the best knowledge of the Borrower, threatened against
or affecting the Borrower or any of its Restricted Subsidiaries (i) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect (other than the matters
described in Schedule 3.06) or (ii) that involve this Agreement or the
Transactions.
(b) Environmental Matters. Except as disclosed in Schedule
3.06 and except with respect to any other matters that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to
comply with any Environmental Law or to obtain, maintain or comply with any
permit, license or other approval required under any Environmental Law, (ii)
has become subject to any Environmental Liability, (iii) has received notice of
any claim with respect to any Environmental Liability or (iv) knows of any
basis for any Environmental Liability.
(c) Disclosed Matters. Since the date of this Agreement,
there has been no change in the status of the matters described in Schedule
3.06 that, individually or in the aggregate, has resulted in, or materially
increased the likelihood of, a Material Adverse Effect.
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SECTION 3.07. Compliance with Laws and Agreements. Each of
the Borrower and its Subsidiaries is in compliance with all laws, regulations
and orders of any Governmental Authority applicable to it or its property and
all indentures, agreements and other instruments binding upon it or its
property, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect. No
Default has occurred and is continuing.
SECTION 3.08. Investment Company Status. Neither the
Borrower nor any of its Subsidiaries is an "investment company" as defined in,
or subject to regulation under, the Investment Company Act of 1940.
SECTION 3.09. Taxes. Each of the Borrower and its
Subsidiaries has timely filed or caused to be filed all Tax returns and reports
required to have been filed and has paid or caused to be paid all Taxes
required to have been paid by it, except (a) Taxes that are being contested in
good faith by appropriate proceedings and for which such person has set aside
on its books adequate reserves or (b) to the extent that the failure to do so
could not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such
ERISA Events for which liability is reasonably expected to occur, could
reasonably be expected to result in a Material Adverse Effect. The present
value of all accumulated benefit obligations under each Plan (based on the
assumptions used for purposes of Statement of Financial Accounting Standards
No. 87) did not, as of the date of the most recent financial statements
reflecting such amounts, exceed by more than $2,500,000 the fair market value
of the assets of such Plan, and the present value of all accumulated benefit
obligations of all underfunded Plans (based on the assumptions used for
purposes of Statement of Financial Accounting Standards No. 87) did not, as of
the date of the most recent financial statements reflecting such amounts,
exceed by more than $2,500,000 the fair market value of the assets of all such
underfunded Plans.
SECTION 3.11. Disclosure. The Borrower has disclosed to
the Lenders all agreements, instruments and corporate or other restrictions to
which it or any of its Subsidiaries is subject, and all other matters known to
it, that, individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect. None of the reports, financial
statements, certificates or other information furnished by or on behalf of the
Borrower to the Lender in connection with the negotiation of this Agreement and
the other Loan Documents or delivered hereunder or thereunder (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that, with respect to projected financial
information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time.
SECTION 3.12. Use of Credit. Neither the Borrower nor any
of its Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for
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the purpose, whether immediate, incidental or ultimate, of buying or carrying
Margin Stock, and no part of the proceeds of any Loan hereunder will be used to
buy or carry any Margin Stock.
SECTION 3.13. Indebtedness; Liens.
(a) Indebtedness. Schedule 3.13(a) is a complete and correct
list of each credit agreement, loan agreement, indenture, purchase agreement,
guarantee, letter of credit or other arrangement providing for or otherwise
relating to any Indebtedness of the Borrower or any of its Restricted
Subsidiaries outstanding on March 31, 1998, the aggregate principal or face
amount of which equals or exceeds (or may equal or exceed) $100,000, and the
aggregate principal or face amount outstanding or that may become outstanding
under each such arrangement is correctly described in Schedule 3.13(a);
provided that the aggregate of all such Indebtedness, the principal or face
amount of which is under $100,000 and which is accordingly not so listed does
not exceed $3,000,000.
(b) Liens. Schedule 3.13(b) is a complete and correct list of
each Lien securing Indebtedness of the Borrower or any of its Restricted
Subsidiaries outstanding on March 31, 1998 and described in Schedule 3.13(a),
covering any of their respective property, and the aggregate Indebtedness
secured (or that may be secured) by each such Lien and the property covered by
each such Lien are correctly described in Schedule 3.13(b).
SECTION 3.14. Capitalization. The Borrower has authorized
Capital Stock on the date hereof as follows: (i) 36,133,000 shares of common
stock, par value $0.001 per share, of which 1,279,233 shares are issued and
outstanding, (ii) 6,100,000 shares of Series A Preferred Stock, par value $.001
per share, of which 6,033,333 shares are issued and outstanding, (iii)
10,117,000 shares of Series B Preferred Stock, par value $.001 per share, of
which 10,028,334 shares are issued and outstanding, (iv) 2,500,000 shares of
Series C Preferred Stock, par value $.001 per share, of which 2,500,000 shares
are issued and outstanding, (v) 5,000,000 shares of Series D Preferred Stock,
par value $.001 per share, of which 3,000,000 shares have been further
designated as Series D-1 Preferred Stock, of which 1,591,953 shares are issued
and outstanding and (vi) 5,000,000 shares of undesignated Preferred Stock, none
of which shares are issued and outstanding. All of the outstanding capital
stock of the Borrower and its Subsidiaries has been duly authorized and validly
issued, is fully paid and nonassessable and was not issued in violation of any
preemptive or similar rights.
SECTION 3.15. Subsidiaries and Affiliates. Set forth in
Schedule 3.15 is a complete and correct list, as of March 31, 1998, of all of
the Subsidiaries of the Borrower and each of the Affiliates of the Borrower in
which the Borrower has, directly or indirectly, an ownership interest, together
with, for each such Subsidiary or Affiliate, (i) the jurisdiction of
organization of such Subsidiary or Affiliate, (ii) the nature of the ownership
interests held by the Borrower or any of its Restricted Subsidiaries and the
percentage of ownership and (if different from such ownership percentage)
voting interests of such Subsidiary or Affiliate represented by such ownership
interests. Except as disclosed in Schedule 3.15, each of the Borrower and its
Restricted Subsidiaries owns, free and clear of Liens (other than Liens created
pursuant to the
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Security Documents), and has the unencumbered right to vote, all outstanding
ownership interests in each person shown to be held by it in Schedule 3.15.
SECTION 3.16. Solvency. As of the Closing Date and after
giving effect to the Loans hereunder and to the other transactions contemplated
hereby:
(i) the aggregate value of all properties of the
Borrower and its Subsidiaries at their present fair saleable value
(i.e., the amount that may be realized within a reasonable time,
considered to be six months to one year, either through collection or
sale at the regular market value, conceiving the latter as the amount
that could be obtained for the property in question within such period
by a capable and diligent businessman from an interested buyer who is
willing to purchase under ordinary selling conditions), exceed the
amount of all the debts and liabilities (including contingent,
subordinated, unmatured and unliquidated liabilities) of the Borrower
and its Subsidiaries;
(ii) the Borrower and its Subsidiaries will not, on
a consolidated basis, have an unreasonably small capital with which to
conduct their business operations as heretofore conducted;
(iii) the Borrower and its Subsidiaries are able to
realize upon their property and pay their debts and other liabilities
(including disputed, contingent and unliquidated liabilities) as they
mature in the normal course of business; and
(iv) neither the Borrower nor any of its
Subsidiaries intends to, nor believes that it will, incur debts or
liabilities beyond its ability to pay as such debts and liabilities
mature.
SECTION 3.17. Employee Matters. Except as set forth on
Schedule 3.17, (a) on the date hereof, neither the Borrower nor any of its
Subsidiaries nor any of their respective employees is subject to any collective
bargaining agreement, (b) on the date hereof, no petition for certification or
union election is pending with respect to the employees of the Borrower or any
of its Subsidiaries and no union or collective bargaining unit has sought such
certification or recognition with respect to the employees of any such person
and (c) there are no strikes, slowdowns, work stoppages or controversies
pending or, to the knowledge of the Borrower, threatened between the Borrower
or any of its Subsidiaries and their respective employees, other than employee
grievances that would not reasonably be expected to have, either individually
or in the aggregate, a Material Adverse Effect.
SECTION 3.18. Year 2000 Issues. The Borrower is reviewing
its operations and those of its Subsidiaries with a view to assessing whether
it or its Subsidiaries respective businesses will, in receipt, transmission,
processing, manipulation, storage, retrieval, retransmission, or other
utilization of data, be vulnerable to a Year 2000 Problem. The Borrower has no
reason to believe that a Material Adverse Effect will occur from a Year 2000
Problem. For purposes of this Section 3.18 "Year 2000 Problem" means any
significant risk that computer
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hardware or software used in the Borrower's or its Subsidiaries' businesses or
operations will not be capable of effectively processing data and information,
including dates, on or after January 1, 2000.
ARTICLE IV
CONDITIONS
SECTION 4.01. Closing Date. The obligations of the Lenders
to make the initial Loans hereunder shall be subject to satisfaction of each of
the following conditions precedent on or prior to 3:00 p.m., New York City
time, on April 30, 1998, each of which (and any documents to be delivered
thereunder) shall be satisfactory to the Administrative Agent (and to the
extent specified below, to the Required Lenders) in form and substance (or such
condition shall have been waived in accordance with Section 9.02):
(a) Executed Counterparts. From each party hereto either (i)
a counterpart of this Agreement signed on behalf of such party or (ii)
written evidence satisfactory to the Administrative Agent (which may
include telecopy transmission of a signed signature page of this
Agreement) that such party has signed a counterpart of this Agreement.
(b) Pledge Agreement. The Pledge Agreement, duly executed
and delivered by the Borrower, any Restricted Subsidiaries which as of
the Closing Date directly owns capital stock of any Subsidiaries
and/or Affiliates of the Borrower and the Administrative Agent and the
certificates identified under the name of the respective pledgor in
Annex 1 thereto, in each case accompanied by undated stock powers
executed in blank. In addition, the Borrower and its Subsidiaries
shall have taken such other action (including delivering to the
Administrative Agent, for filing, appropriately completed and duly
executed copies of Uniform Commercial Code financing statements) as
the Administrative Agent shall have requested in order to perfect the
security interests created pursuant to the Pledge Agreement.
(c) Corporate Documents. Such documents and certificates as
the Administrative Agent or its counsel may reasonably request
relating to the organization, existence and good standing of the
Borrower and its Affiliates, the authorization of the Transactions and
any other legal matters relating to the Borrower, this Agreement or
the Transactions, all in form and substance satisfactory to the
Administrative Agent and its counsel.
(d) Officer's Certificate. A certificate, dated the Closing
Date and signed by the President or the chief financial officer of the
Borrower, confirming compliance with the conditions set forth in the
lettered clauses of the first sentence of Section 4.02.
(e) Opinion of Counsel to the Borrower. A favorable written
opinion (addressed to the Administrative Agent and the Lenders and
dated the Closing Date) of Morrison & Foerster LLP, counsel for the
Borrower, in form and substance reasonably satisfactory to
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the Required Lenders (and the Borrower hereby instructs such counsel
to deliver such opinion to the Lenders and the Administrative Agent).
(f) Opinion of Special New York Counsel to Chase. An
opinion, dated the Closing Date, of Milbank, Tweed, Hadley & McCloy,
special New York counsel to Chase, in form and substance reasonably
satisfactory to the Required Lenders (and Chase hereby instructs such
counsel to deliver such opinion to the Lenders).
(g) Other Documents. Such other documents as the
Administrative Agent or any Lender or special New York counsel to
Chase may reasonably request.
The obligation of any Lender to make its initial Loan
hereunder is also subject to the payment by the Borrower of such fees as the
Borrower shall have agreed to pay to any Lender or the Administrative Agent in
connection herewith, including the reasonable fees and expenses of Milbank,
Tweed, Hadley & McCloy, special New York counsel to Chase, in connection with
the negotiation, preparation, execution and delivery of this Agreement and the
other Loan Documents and the Loans hereunder (to the extent that statements for
such fees and expenses have been delivered to the Borrower).
The Administrative Agent shall notify the Borrower and the
Lenders of the Closing Date, and such notice shall be conclusive and binding.
SECTION 4.02. Each Credit Event. The obligation of each
Lender to make a Loan on the occasion of any Borrowing (including the initial
extension of credit hereunder but excluding any continuations or conversions of
Loans) is subject to the satisfaction of the following conditions:
(a) the representations and warranties of the Borrower set
forth in this Agreement and of the Borrower and its Subsidiaries in
the other Loan Documents shall be true and correct on and as of the
date of such Borrowing;
(b) at the time of and immediately after giving effect to
such Borrowing, no Default shall have occurred and be continuing; and
(c) payment by the Borrower of the fee (if any) payable under
Section 2.09(c) with respect to the making of each such Loan.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in the preceding
sentence.
<PAGE> 48
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ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall
have been paid in full, the Borrower covenants and agrees with the Lenders
that:
SECTION 5.01. Financial Statements and Other Information.
The Borrower will furnish to the Administrative Agent and each Lender:
(a) as soon as available and in any event (i) within 135 days
after the end of the fiscal year 1998 of the Borrower and (ii) within
90 days after the end of each fiscal year of the Borrower thereafter,
the audited consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows of the Borrower and
its Subsidiaries as of the end of and for such year, setting forth in
each case in comparative form the figures for the previous fiscal
year, all reported on by KPMG Peat Marwick LLP or other independent
public accountants of recognized national standing (without a "going
concern" or like qualification or exception and without any
qualification or exception as to the scope of such audit) to the
effect that such consolidated financial statements present fairly in
all material respects the financial condition and results of
operations of the Borrower and its Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied;
(b) within 60 days after the end of each of the first three
fiscal quarters of each fiscal year of the Borrower, the consolidated
balance sheet and related statements of operations, stockholders'
equity and cash flows of the Borrower and its Subsidiaries as of the
end of and for such fiscal quarter and the then elapsed portion of the
fiscal year, setting forth in each case in comparative form the
figures for (or, in the case of the balance sheet, as of the end of)
the corresponding period or periods of the previous fiscal year, all
certified by a Financial Officer of the Borrower as presenting fairly
in all material respects the financial condition and results of
operations of the Borrower and its Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied, subject to normal
year-end audit adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements
under clause (a) or (b) of this Section, a certificate of a Financial
Officer of the Borrower (i) certifying as to whether a Default has
occurred and, if a Default has occurred, specifying the details
thereof and any action taken or proposed to be taken with respect
thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Sections 6.01, 6.03 and 6.10 and (iii)
stating whether any change in GAAP or in the application thereof has
occurred since the date of the audited financial statements referred
to in Section 3.04 and, if any such change has occurred, specifying
the effect of such change on the financial statements accompanying
such certificate;
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(d) concurrently with any delivery of financial statements
under clause (a) of this Section, a certificate of the accounting firm
that reported on such financial statements stating whether they
obtained knowledge during the course of their examination of such
financial statements of any Default (which certificate may be limited
to the extent required by accounting rules or guidelines);
(e) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other
materials required to be filed by the Borrower or any of its
Subsidiaries with the Securities and Exchange Commission, or any
Governmental Authority succeeding to any or all of the functions of
said Commission, or with any national securities exchange, or
distributed by the Borrower to its shareholders generally; and
(f) promptly following any request therefor, such other
information regarding the operations, business affairs and financial
condition of the Borrower or any of its Subsidiaries, or compliance
with the terms of this Agreement and the other Loan Documents, as the
Administrative Agent or any Lender may reasonably request.
SECTION 5.02. Notices of Material Events. The Borrower
will furnish to the Administrative Agent and each Lender prompt written notice
of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental Authority
against or affecting the Borrower or any of its Affiliates that, if
adversely determined, could reasonably be expected to result in a
Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together
with any other ERISA Events that have occurred, could reasonably be
expected to result in liability of the Borrower and its Subsidiaries
in an aggregate amount exceeding $1,000,000;
(d) the assertion of any environmental matter by any person
against, or with respect to the activities of, the Borrower or any of
its Subsidiaries and any alleged violation of or non-compliance with
any Environmental Laws or any permits, licenses or authorizations,
other than any environmental matter or alleged violation that, if
adversely determined, would not (either individually or in the
aggregate) have a Material Adverse Effect; and
(e) any other development that results in, or could
reasonably be expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth
the details of the event or
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development requiring such notice and any action taken or proposed to be taken
with respect thereto.
SECTION 5.03. Existence; Conduct of Business. The Borrower
will, and will cause each of its Restricted Subsidiaries to, do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence and the rights, licenses, permits, privileges and
franchises material to the conduct of its business; provided that (a) the
foregoing shall not prohibit any merger, consolidation, liquidation or
dissolution permitted under Section 6.03 and (b) neither the Borrower nor any
of its Restricted Subsidiaries will be required to preserve any such right,
privilege or franchise if the Board shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Borrower
and its Restricted Subsidiaries as a whole and that the loss thereof is not
adverse in any material respect to the Lenders.
SECTION 5.04. Payment of Obligations. The Borrower will,
and will cause each of its Restricted Subsidiaries to, pay its obligations,
including Tax liabilities, that, if not paid, could result in a Material
Adverse Effect before the same shall become delinquent or in default, except
where (a) the validity or amount thereof is being contested in good faith by
appropriate proceedings, (b) the Borrower or such Restricted Subsidiary has set
aside on its books adequate reserves with respect thereto in accordance with
GAAP and (c) the failure to make payment pending such contest could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 5.05. Maintenance of Properties; Insurance. The
Borrower will, and will cause each of its Restricted Subsidiaries to, (a) keep
and maintain all property material to the conduct of its business in good
working order and condition, ordinary wear and tear excepted, provided that
nothing in this Section will prevent the Borrower or any of its Restricted
Subsidiaries from discontinuing the maintenance if any of such property if such
discontinuance is, in the judgment of the Borrower, desirable in the conduct of
its business or the business of the any of its Restricted Subsidiaries and is
not disadvantageous in any material respect to the Lenders, and (b) maintain
with insurers, believed by the Borrower to be financially sound and
responsible, insurance in such amounts and against such risks as are
customarily maintained by companies engaged in the same or similar businesses
operating in the same or similar locations.
SECTION 5.06. Books and Records; Inspection Rights. The
Borrower will, and will cause each of its Restricted Subsidiaries to, keep
proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and
activities. The Borrower will, and will cause each of its Restricted
Subsidiaries to, permit any representatives designated by the Administrative
Agent or any Lender, upon reasonable prior notice, to visit and inspect its
properties, to examine and make extracts from its books and records, and to
discuss its affairs, finances and condition with its officers and independent
accountants, all at such reasonable times and as often as reasonably requested.
SECTION 5.07. Compliance with Laws. The Borrower will, and
will cause each of its Restricted Subsidiaries to, comply with all laws, rules,
regulations and orders of any
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Governmental Authority applicable to it or its property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 5.08. Use of Proceeds. The proceeds of the Loans
will be used (i) to finance Buyouts and other acquisitions in the Internet
Service Business and the payment of fees, commissions and expenses in
connection therewith and (ii) for general corporate purposes of the Borrower
and its Subsidiaries; provided that at least $3,000,000 of the aggregate
Commitments shall at all times be reserved to pay interest on the Loans. No
part of the proceeds of any Loan will be used, whether directly or indirectly,
for any purpose that entails a violation of any of the Regulations of the
Federal Reserve Board, including Regulations U and X.
SECTION 5.09. Additional Collateral.
(a) In the event that, after the execution and delivery of
the Pledge Agreement, (i) the Borrower or any Restricted Subsidiary shall form
or acquire any new Restricted Subsidiary or shall acquire any ownership
interest in any other Person which is an Affiliate (including any Person in
which the Borrower or any of its Restricted Subsidiaries has an Investment on
the date hereof that becomes a Restricted Subsidiary or an Affiliate) or (ii)
additional shares of capital stock or other equity interests shall be issued by
any Restricted Subsidiary or Affiliate to the Borrower or any Restricted
Subsidiary, then at the request of the Administrative Agent, the Borrower
agrees to deliver, and agrees to cause the Restricted Subsidiary (if any)
holding the shares of capital stock or other equity interests of such new
Restricted Subsidiary or Affiliate to become a party as a pledgor to the Pledge
Agreement (if not then a party thereto) and to deliver, to the Administrative
Agent pursuant to the Pledge Agreement the certificates evidencing the shares
of stock or equity interests of such new Restricted Subsidiary or Affiliate or
such additional shares of stock or equity interests, as the case may be, in
each case accompanied by undated stock or transfer powers executed in blank and
to take such other action (including, without limitation, execution and
delivery of an amendment to the Pledge Agreement or any annex thereto in form
and substance satisfactory to the Administrative Agent), as the Administrative
Agent shall request to perfect the security interest created therein pursuant
to the Pledge Agreement.
(b) Within 30 days after the execution and delivery by the
Borrower of the long-haul capacity agreement publicly announced on April 2,
1998 with Qwest Communications International Inc. (but in no event earlier than
the Closing Date), the Borrower shall execute and deliver in favor of the
Administrative Agent a security agreement (or an amendment to the Pledge
Agreement) in form and substance satisfactory to the Administrative Agent
pursuant to which the Borrower will create a first priority perfected security
interest in the Borrower's rights in such agreement for the benefit of the
Lenders, and take such other action (including, without limitation, the filing
of Uniform Commercial Code financing statements and using reasonable efforts to
cause the counterparty to such agreement to execute a consent and
acknowledgment to such security interest in form and substance satisfactory to
the Administrative Agent), as the Administrative Agent shall request to perfect
such security interest.
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ARTICLE VI
NEGATIVE COVENANTS
Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full, the Borrower covenants and agrees with the Lenders that:
SECTION 6.01. Indebtedness.
(a) The Borrower will not permit any of its Restricted
Subsidiaries to create, incur, assume or permit to exist any Indebtedness,
except Permitted Subsidiary Indebtedness.
(b) The Borrower will not create, incur, assume or suffer to
exist any Indebtedness for borrowed money (other than the Loans and the Senior
Notes), except (i) any such Indebtedness that constitutes Permitted Equipment
Financing, (ii) any such Indebtedness that is unsecured and contains covenants
and events of default which are no more restrictive than the provisions of this
Agreement and does not require any scheduled or mandatory payment of principal
prior to a date six months after the Maturity Date, (iii) any such Indebtedness
existing on the date hereof listed in Schedule 3.13(a) or, if the principal or
face amount of such Indebtedness is under $100,000, not so listed (provided
that the aggregate of all such Indebtedness, the principal or face amount of
which is under $100,000 and which is accordingly not so listed does not exceed
$3,000,000) or (iv) other such Indebtedness not exceeding $250,000 in the
aggregate at any time outstanding.
SECTION 6.02. Liens. The Borrower will not, nor will it
permit any of its Restricted Subsidiaries to, create, incur, assume or permit
to exist any Lien on any property or asset now owned or hereafter acquired by
it, or assign or sell any income or revenues (including accounts receivable) or
rights in respect of any thereof, except Permitted Liens.
SECTION 6.03. Mergers and Consolidations. The Borrower
will not (i) consolidate or combine with or merge with or into or, directly or
indirectly, sell, assign, convey, lease, transfer or otherwise dispose of all
or substantially all of its properties and assets to any person or persons in a
single transaction or through a series of transactions, or (ii) permit any of
the Restricted Subsidiaries to enter into any such transaction or series of
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transactions if it would result in the disposition of all or substantially all
of the properties or assets of the Borrower and the Restricted Subsidiaries on
a consolidated basis, unless, in the case of either clause (i) or (ii), (a) the
Borrower shall be the continuing person or, if the Borrower is not the
continuing person, the resulting, surviving or transferee person (the
"surviving entity") shall be a company organized and existing under the laws of
the United States or any State or territory thereof; (b) the surviving entity
shall expressly assume all of the obligations of the Borrower hereunder and
under the other Loan Documents, and shall, if required by law to effectuate
such assumption, execute an instrument to effect such assumption which
instrument shall be delivered to the Administrative Agent and shall be in form
and substance reasonably satisfactory to the Administrative Agent; (c)
immediately after giving effect to such transaction or series of transactions
on a pro forma basis (including, without limitation, any Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), the Borrower or the surviving entity
(assuming such surviving entity's assumption of the Borrower's obligations
under this Agreement), as the case may be, would be in compliance with the
covenants in Section 6.10; (d) immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
no Default shall have occurred and be continuing; and (e) the Borrower or the
surviving entity, as the case may be, shall have delivered to the
Administrative Agent certificate of a senior financial officer of the Borrower
stating that such transaction or series of transactions complies with this
covenant and that all conditions precedent in this Agreement relating to the
transaction or series of transactions have been satisfied.
Upon any consolidation or merger or any sale, assignment,
conveyance, lease, transfer or other disposition of all or substantially all of
the assets of the Borrower in accordance with the foregoing in which the
Borrower or the Restricted Subsidiary, as the case may be, is not the
continuing corporation, the successor corporation formed by such a
consolidation or into which the Borrower or such Restricted Subsidiary is
merged or to which such transfer is made will succeed to, and be substituted
or, and may exercise every right and power of, the Borrower or such Restricted
Subsidiary, as the case may be, under this Agreement and the other Loan
Document to which the Borrower or such Restricted Subsidiary is a party, as the
case may be, with the same effect as if such successor corporation had been
named as the Borrower or such Restricted Subsidiary therein; and thereafter,
except in the case of (i) any lease or (ii) any sale, assignment, conveyance,
transfer, lease or other disposition to a Restricted Subsidiary of the
Borrower, the Borrower shall be discharged from all obligations and covenants
under this Agreement.
For all purposes of this Agreement, Subsidiaries of any
surviving entity will, upon such transaction or series of related transactions,
become Restricted Subsidiaries or Unrestricted Subsidiaries as provided
pursuant to Section 6.11 and all Indebtedness, and all Liens on property or
assets, of the Borrower and the Restricted Subsidiaries in existence
immediately prior to such transaction or series of related transactions will be
deemed to have been incurred upon such transaction or series of related
transactions.
SECTION 6.04. Asset Sales. The Borrower will not, nor
will it permit any of its Restricted Subsidiaries to, make any Asset Sale
unless (a) the Borrower or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value of the shares or assets sold or otherwise disposed of and (b)
at least 75% of such consideration consists of cash or Cash Equivalents;
provided that the following shall be treated as cash for purposes of this
Section: (x) the amount of any liabilities (other than Subordinated
Indebtedness or Indebtedness of a Restricted Subsidiary that would not
constitute Restricted Subsidiary Indebtedness) that are assumed by the
transferee of any such assets pursuant to an agreement that unconditionally
releases the Borrower or such Restricted Subsidiary from further liability
("assumed liabilities") and (y) the amount of any notes or other obligations
that within 30 days of receipt, are converted into cash (to the extent of the
cash
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received). The Borrower or the applicable Restricted Subsidiary, as the case
may be, may apply the Net Cash Proceeds from such Asset Sale to either (i)
repay any Restricted Subsidiary Indebtedness and elect to permanently reduce
the commitments thereunder by the amount of the Indebtedness so repaid or (ii)
within 365 days thereof to an investment in properties and assets that will be
used in an Internet Service Business (or in Capital Stock and other securities
of any person that will become a Restricted Subsidiary as a result of such
investment to the extent such person owns properties and assets that will be
used in an Internet Service Business) of the Borrower or any Restricted
Subsidiary ("Replacement Assets"). Any Net Cash Proceeds from any Asset Sale
that are neither used to repay, and permanently reduce the commitments under,
any Restricted Subsidiary Indebtedness as set forth in clause (i) above or
invested in Replacement Assets as set forth in clause (ii) above shall
constitute "Excess Proceeds" of such Asset Sale and shall be applied to prepay
the Loans and/or reduce the Commitments to the extent required by Section
2.08(b)(iii).
SECTION 6.05. Asset Acquisitions. The Borrower will not,
nor will it permit any of its Restricted Subsidiaries to, acquire any business
or property from, or capital stock of, or be a party to any acquisition of, any
person, other than the purchase of property or assets by any Restricted
Subsidiary so long as, at the time of such acquisition and after giving effect
thereto, no Event of Default shall have occurred and be continuing.
SECTION 6.06. Limitation on Restricted Payments. The
Borrower will not, and will not permit any of the Restricted Subsidiaries to,
make, directly or indirectly, any Restricted Payment unless:
(i) no Default shall have occurred and be continuing at the
time of or upon giving effect to such Restricted Payment; and
(ii) immediately after giving effect to such Restricted
Payment, the aggregate amount of all Restricted Payments declared or
made on or after the Effective Date and all Designation Amounts does
not exceed an amount equal to the sum of, without duplication, (a) 50%
of the Consolidated Net Income of the Borrower accrued on a cumulative
basis during the period beginning on January 1, 1998 and ending on the
last day of the fiscal quarter of the Borrower immediately preceding
the date of such proposed Restricted Payment (or, if such cumulative
Consolidated Net Income of the Borrower for such period is a deficit,
minus 100% of such deficit), plus(b) the aggregate net cash proceeds
received by the Borrower either (x) as capital contributions to the
Borrower after the Effective Date or (y) from the issue and sale
(other than to a Restricted Subsidiary of the Borrower) of its Capital
Stock (other than Disqualified Stock) on or after the Effective Date
(including upon exercise of warrants, options or rights), plus (c) the
aggregate net proceeds received by the Borrower from the issuance
(other than to a Restricted Subsidiary of the Borrower) on or after
the Effective Date of its Capital Stock (other than Disqualified
Stock) upon the conversion of, or in exchange for, Indebtedness of the
Borrower, plus(d) in the case of the disposition or repayment (in
whole or in part) of any Investment constituting a Restricted Payment
made after the Effective Date (except for Investments made (1)
pursuant to clause (vii) of the second following para-
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graph that are not subject to clause (e) or (f) of this paragraph
below, and (2) pursuant to clauses (viii) or (ix)(2) of the second
following paragraph), an amount equal to the lesser of the return of
capital with respect to the applicable portion of such Investment and
the cost of the applicable portion of such Investment, in either case,
less the cost of the disposition of such Investment, plus (e) in the
case of any Revocation with respect to a Subsidiary of the Borrower
that was made subject to a Designation after the Effective Date, an
amount equal to the lesser of the Designation Amount with respect to
such Subsidiary or the Fair Market Value of the Investment of the
Borrower and the Restricted Subsidiaries in such Subsidiary at the
time of Revocation, plus(f) an amount equal to the amount of any
Investment constituting a Restricted Payment made after the Effective
Date in an ISP which has been included as a Restricted Payment under
this clause (ii) pursuant to the penultimate paragraph of this Section
to the extent such ISP thereafter (1) becomes a Wholly Owned
Restricted Subsidiary or is merged with the Borrower or (2) is a New
ISP that becomes a Restricted Subsidiary or is merged with the
Borrower, less, in either such case, any amounts credited pursuant to
the preceding clause (d) in respect of any such Investment, minus (g)
50% of the principal amount of any Indebtedness incurred pursuant to
clause (g) of the definition of "Permitted Indebtedness" under the
1998 Senior Notes Indenture. For purposes of the preceding clauses
(b)(y) and (c), as applicable, the value of the aggregate net proceeds
received by the Borrower upon the issuance of Capital Stock either
upon the conversion of convertible Indebtedness or in exchange for
outstanding Indebtedness or upon the exercise of options, warrants or
rights will be the net cash proceeds received upon the issuance of
such Indebtedness, options, warrants or rights plus the incremental
amount received, if any, by the Borrower upon the conversion, exchange
or exercise thereof.
For purposes of determining the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount thereof and
property other than cash shall be valued at its Fair Market Value.
The provisions of the first paragraph of this Section shall
not prohibit the following (each of which shall be given independent effect):
(i) the payment of any dividend or other distribution
within 60 days after the date of declaration thereof if at such date
of declaration such payment would be permitted by this Section;
(ii) the purchase, redemption, retirement or other
acquisition of any shares of Capital Stock of the Borrower in exchange
for, or out of the net cash proceeds of the substantially concurrent
issue and sale (other than to a Restricted Subsidiary of the Borrower)
of, shares of Capital Stock of the Borrower (other than Disqualified
Stock); provided that any such net cash proceeds are excluded from
clause (ii)(b) of the second preceding paragraph;
(iii) so long as no Default shall have occurred and be
continuing, the purchase, redemption, retirement, defeasance or other
acquisition of Subordinated
<PAGE> 56
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Indebtedness made by exchange for, or out of the net cash proceeds of,
a substantially concurrent issue and sale (other than to a Restricted
Subsidiary of the Borrower) of (x) Capital Stock (other than
Disqualified Stock) of the Borrower or (y) other Subordinated
Indebtedness to the extent that its stated maturity for the payment of
principal thereof is not prior to the 180th day after the Maturity
Date; provided that any such net cash proceeds are excluded from
clause (ii)(b) of the second preceding paragraph;
(iv) (a) so long as no Default shall have occurred and be
continuing, Investments constituting Restricted Payments by the
Borrower or any Restricted Subsidiary in a New ISP or a person that
becomes a New ISP as a result of such Investment and (b) so long as no
Default shall have occurred and be continuing, Investments
constituting Restricted Payments by the Borrower or any Restricted
Subsidiary in an Existing ISP (x) made out of the net cash proceeds of
a substantially concurrent sale of Capital Stock (other than
Disqualified Stock) of the Borrower (provided that any such proceeds
are excluded from clause (ii)(b) of the second preceding paragraph) or
(y) such that the aggregate amount of all Investments in Existing ISPs
that are made after the Effective Date pursuant to this subclause
(b)(y) would not exceed $25,000,000 in aggregate;
(v) bonds, notes, debentures or other securities received
as a result of Asset Sales pursuant to and in compliance with Section
6.04;
(vi) so long as no Default shall have occurred and be
continuing, purchases or redemptions of Capital Stock (including cash
settlements of stock options) held by employees, officers or directors
upon or following termination of their employment with the Borrower or
one of its Subsidiaries; provided that payments shall not exceed
$2,000,000 in any fiscal year in the aggregate or $4,000,000 in the
aggregate during the term of this Agreement;
(vii) so long as no Default shall have occurred and be
continuing, Investments in Unrestricted Subsidiaries to the extent
reasonably promptly made with the proceeds of a substantially
concurrent (1) capital contribution to the Borrower or (2) issue or
sale of Capital Stock (other than Disqualified Stock) of the Borrower
(other than to a Restricted Subsidiary of the Borrower); provided that
any such proceeds are excluded from clause (ii)(b) of the second
preceding paragraph;
(viii) loans or advances to employees of the Borrower or any
Restricted Subsidiary made in the ordinary course of business,
including to fund the purchase of Capital Stock of the Borrower
(provided that any proceeds from such purchase are excluded from
clause (ii)(b) of the second preceding paragraph to the extent such
loan or advance is not reimbursed) in an amount not to exceed
$2,000,000 at any time outstanding;
(ix) so long as no Default shall have occurred and be
continuing, Investments constituting Restricted Payments in (1) joint
ventures formed to provide services in
<PAGE> 57
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furtherance of an Internet Service Business of the Borrower and the
ISPs or (2) other persons engaged principally in an Internet Service
Business in an aggregate amount not to exceed $30,000,000 outstanding
at any time, provided that, following the first Public Equity Offering
resulting in aggregate gross cash proceeds of $50,000,000 or more to
the Borrower, the aggregate amount of Investments permitted pursuant
to this clause (ix)(2) shall be increased to an aggregate amount not
to exceed $50,000,000 outstanding at any time; and
(x) cash payments in lieu of fractional shares pursuant
to any warrant, option or other similar agreement.
In determining whether or not the net cash proceeds of a sale
of Capital Stock is "substantially concurrent" for purposes of clause
(iv)(b)(x) of the preceding paragraph, if such net cash proceeds are deposited
in escrow with a third party, free and clear of any Lien (other than the Lien
of the escrow agent), to be applied for purposes directed by the Borrower and
such net cash proceeds are excluded from clause (ii)(b) of the first paragraph
above, then the application of such net cash proceeds as set forth in such
clause (iv)(b)(x) shall be deemed "substantially concurrent" if they are
subsequently released for immediate application as contemplated by such clause
(iv)(b)(x). In no event shall a Restricted Payment made on the basis of
consolidated financial statements prepared in good faith in accordance with
GAAP be subject to rescission or constitute a Default by reason of any
requisite subsequent restatement of such financial statements which would have
made such Restricted Payment prohibited at the time that it was made.
In determining the amount of Restricted Payments permissible
under this Section, amounts expended pursuant to clauses (i), (iv)(a),
(iv)(b)(y), (v), (vi) and (ix) (to the extent remaining outstanding) above
shall be included, without duplication, as Restricted Payments.
Notwithstanding anything in this Section to the contrary, the
Borrower shall not be permitted to make any Restricted Payments in cash of the
type referred to in clauses (a), (b), (c) and (d) of the definition of
"Restricted Payments" other than as set forth in clauses (vi) and (x) above.
SECTION 6.07. Transactions with Affiliates. The Borrower
will not, and will not permit, cause or suffer any Restricted Subsidiary to,
conduct any business or enter into any transaction (or series of related
transactions which are similar or part of a common plan) with or for the
benefit of any of their respective Affiliates (other than Affiliates that are
not also Affiliates of the Borrower or any Wholly Owned Restricted Subsidiary)
or any beneficial holder of 10% or more of the Common Stock of the Borrower or
any officer or director of the Borrower (each, an "Affiliate Transaction"),
unless the terms of the Affiliate Transaction are set forth in writing, and are
fair and reasonable to the Borrower or such Restricted Subsidiary, as the case
may be. Each Affiliate Transaction involving aggregate payments or other Fair
Market Value in excess of $1,000,000 shall be approved by a majority of the
Board, such approval to be evidenced by a Board Resolution stating that the
Board has determined that such transaction or transactions comply with the
foregoing provisions. In addition to the foregoing, each Affiliate
<PAGE> 58
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Transaction involving aggregate consideration of $5,000,000 or more shall be
approved by a majority of the Disinterested Directors; provided that, in lieu
of such approval by the Disinterested Directors, the Borrower may obtain a
written opinion from an Independent Financial Advisor stating that the terms of
such Affiliate Transaction to the Borrower or the Restricted Subsidiary, as the
case may be, are fair from a financial point of view. For purposes of this
Section, any Affiliate Transaction approved by a majority of the Disinterested
Directors or as to which a written opinion has been obtained from an
Independent Financial Advisor, on the basis set forth in the preceding
sentence, shall be deemed to be on terms that are fair and reasonable to the
Borrower or the Restricted Subsidiaries, as the case may be, and, therefore,
shall be permitted under this Section.
Notwithstanding the foregoing, the restrictions set forth in
this covenant shall not apply to (i) transactions with or among, or solely for
the benefit of, the Borrower and/or any of the Restricted Subsidiaries, (ii)
transactions pursuant to, or as contemplated by, the agreements and
arrangements existing on the Effective Date and listed in Schedule 6.07, (iii)
transactions related to the provision of internet services in the ordinary
course of business, provided that (x) such transactions are entered into on an
arm's length basis and are fair and reasonable to the Borrower or such
Restricted Subsidiary, as the case may be, and (y) in the good faith judgment
of the Borrower or the applicable Restricted Subsidiary, the Fair Market Value
of the consideration received by the Borrower or such Restricted Subsidiary, as
the case may be, reasonably approximates the Fair Market Value of the services
provided by the Borrower or such Restricted Subsidiary, as the case may be,
(iv) dividends paid by the Borrower pursuant to and in compliance with Section
6.06, (v) customary directors' fees, indemnification and similar arrangements,
consulting fees, employee salaries, bonuses, employment agreements and
arrangements, compensation or employee benefit arrangements or legal fees, (vi)
grants of customary registration rights with respect to securities of the
Borrower and (vii) any agreement entered into by the Borrower or any Restricted
Subsidiary after the Effective Date in respect of a Buyout, provided that
either the terms of such agreement shall not be materially more onerous to the
Borrower than the comparable provisions of the agreements specified in Section
6.07 or such agreement shall otherwise be permitted under this Section.
The Borrower will be required to use, or to cause each
Restricted Subsidiary to use, its commercially reasonable best efforts to
ensure that each person in which the Borrower or a Restricted Subsidiary makes
an Investment that is an ISP at the time of the Investment at all times
thereafter continues to meet the conditions and requirements of the definition
of "ISP" in all material respects.
<PAGE> 59
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SECTION 6.08. Limitation on Issuances and Sales of Preferred
Stock by Restricted Subsidiaries. The Borrower (a) will not permit any
Restricted Subsidiary to issue any Preferred Stock (other than to the Borrower
or a Restricted Subsidiary) and (b) will not permit any person (other than the
Borrower or a Restricted Subsidiary) to own any Preferred Stock of any
Restricted Subsidiary.
SECTION 6.09. Limitation on Business. The Borrower will
not, and will not permit any of the Restricted Subsidiaries to, engage in a
business which is not substantially an Internet Service Business.
SECTION 6.10. Financial Covenants and Performance Tests.
(a) Leverage to Value Test. The Borrower will not permit,
at the last day of any fiscal quarter, the ratio of (i) the sum of aggregate
principal amount of Indebtedness of the Borrower and its Restricted
Subsidiaries (other than Indebtedness of the type referred to in clause (i)(D)
of the definition of "Indebtedness") minus the aggregate amount of Cash
Investments as of such day to (ii) the sum of Annualized Combined Case Revenues
for such fiscal quarter times two, to be greater than 2.35 to 1.
(b) Dedicated Customers. The Borrower will not permit the
number of Dedicated Customers to be less than 7,000 at the end of any fiscal
quarter.
(c) Combined Case Revenues. The Borrower will not permit
the sum of (i) Combined Case Revenues for any fiscal quarter ending on the
respective dates set forth below minus (ii) the aggregate amount of Excluded
Fees for such quarter to be less than the following respective amounts for such
quarter:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
March 31, 1998 $17,000,000
June 30, 1998 $20,000,000
September 30, 1998 $22,000,000
December 31, 1998 $26,000,000
March 30, 1999 $29,000,000
June 30, 1999 $32,000,000
September 30, 1999
and thereafter $36,000,000
</TABLE>
<PAGE> 60
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SECTION 6.11. Limitation on Designations of Unrestricted
Subsidiaries. The Borrower will not designate any Subsidiary of the Borrower
(other than a newly created Subsidiary in which no Investment has previously
been made) as an "Unrestricted Subsidiary" under this Agreement (a
"Designation") unless:
(a) no Default shall have occurred and be continuing at the
time of or after giving effect to such Designation; and
(b) the Borrower would not be prohibited under this Agreement
from making an Investment at the time of Designation (assuming the
effectiveness of such Designation) in an amount (the "Designation
Amount") equal to the Fair Market Value of the net Investment of the
Borrower or any other Restricted Subsidiary in such Restricted
Subsidiary on such date.
In the event of any such Designation, the Borrower shall be
deemed to have made an Investment constituting a Restricted Payment pursuant to
Section 6.06 for all purposes of this Agreement in the Designation Amount.
Neither the Borrower nor any Restricted Subsidiary shall at any time (x)
provide a Guarantee of, or similar credit support to, any Indebtedness of any
Unrestricted Subsidiary (including of any undertaking, agreement or instrument
evidencing such Indebtedness); provided that the Borrower may pledge Capital
Stock or Indebtedness of any Unrestricted Subsidiary on a nonrecourse basis
such that the pledgee has no claim whatsoever against the Borrower other than
to obtain such pledged property, (y) be directly or indirectly liable for any
Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly
liable for any other Indebtedness which provides that the holder thereof may
(upon notice, lapse of time or both) declare a default thereon (or cause the
payment thereof to be accelerated or payable prior to its final scheduled
maturity) upon the occurrence of a default with respect to any other
Indebtedness that is Indebtedness of an Unrestricted Subsidiary (including any
corresponding right to take enforcement action against such Unrestricted
Subsidiary), except in the case of clause (x) or (y) to the extent permitted
under Section 6.06 or 6.07.
The Borrower will not revoke any Designation of a Subsidiary
as an Unrestricted Subsidiary (a "Revocation") unless:
(i) no Default shall have occurred and be continuing at the
time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such Revocation would, if
incurred at such time, have been permitted to be incurred for all
purposes of this Agreement.
All Designations and Revocations must be evidenced by Board
Resolutions delivered to the Administrative Agent certifying compliance with
the foregoing provisions.
SECTION 6.12. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries. The Borrower will not, and
will not permit any Restricted
<PAGE> 61
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Subsidiary to, directly or indirectly create or otherwise enter into or cause
to become effective any consensual encumbrance or consensual restriction of any
kind on the ability of any Restricted Subsidiary to (a) pay dividends, in cash
or otherwise, or make any other distributions on its Capital Stock or any other
interest or participation in, or measured by, its profits to the extent owned
by the Borrower or any Restricted Subsidiary, (b) pay any Indebtedness owed to
the Borrower or any Restricted Subsidiary, (c) make any Investment in the
Borrower or any other Restricted Subsidiary or (d) transfer any of its
properties or assets to the Borrower or to any Restricted Subsidiary, except
for (in each case except as otherwise noted in the following clause (ii)) (i)
any encumbrance or restriction contained in this Agreement or in existence on
the Effective Date, (ii) any encumbrance or restriction existing under
agreements relating to an Investment in an ISP (which in the case of clauses
(a) and (b) shall not be permitted in the case of ISPs that are Restricted
Subsidiaries) to the extent consistent with past practice, (iii) customary
non-assignment provisions, (iv) any encumbrances or restriction pertaining to
an asset subject to a Lien to the extent set forth in the security
documentation governing such Lien, (v) any encumbrance or restriction
applicable to a Restricted Subsidiary at the time that it becomes a Restricted
Subsidiary that is not created in contemplation thereof, (vi) any encumbrance
or restriction existing under any agreement that refinances or replaces an
agreement containing a restriction permitted by clause (v) above; provided that
the terms and conditions of any such encumbrance or restriction are not
materially less favorable to the Lenders than those under or pursuant to the
agreement being replaced or the agreement evidencing the Indebtedness
refinanced and (vii) any encumbrance or restriction imposed upon a Restricted
Subsidiary pursuant to an agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Restricted Subsidiary or any Asset Sale to the extent limited to the Capital
Stock or assets in question.
SECTION 6.13. Modifications of Certain Documents.
(a) The Borrower will not, and will not permit any of its
Restricted Subsidiaries, to change, amend, supplement or otherwise modify any
provision of its charter or by-laws, in each case without the prior consent of
the Required Lenders, if such change, amendment, supplement or modification
could be reasonably expected to adversely affect the interests of the Lenders
in the collateral covered by the Security Documents or the rights or remedies
thereunder.
(b) The Borrower will not change, amend, supplement or
otherwise modify any provision of the covenants, events of default or payment
or pricing terms of any of the 1997 Senior Notes Indenture or the 1997 Senior
Notes in any manner that would cause such provision to be more restrictive
than the corresponding provision of the 1998 Senior Notes Indenture or the
1998 Senior Notes, respectively, in each case without the prior consent of the
Required Lenders.
<PAGE> 62
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ARTICLE VII
EVENTS OF DEFAULT
If any of the following events ("Events of Default") shall
occur:
(a) the Borrower shall fail to pay any principal of any Loan
when and as the same shall become due and payable, whether at the due
date thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan
or any fee or any other amount (other than an amount referred to in
clause (a) of this Article) payable under this Agreement or under any
other Loan Document, when and as the same shall become due and
payable, and such failure shall continue unremedied for a period of
five or more Business Days;
(c) any representation or warranty made or deemed made by or
on behalf of the Borrower or any of its Restricted Subsidiaries in or
in connection with this Agreement or any other Loan Document or any
amendment or modification hereof or thereof, or in any report,
certificate, financial statement or other document furnished pursuant
to or in connection with this Agreement or any other Loan Document or
any amendment or modification hereof or thereof, shall prove to have
been incorrect when made or deemed made that could reasonably be
expected to result in a Material Adverse Effect;
(d) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.02, 5.03 (with
respect to the Borrower's existence), 5.08 or 5.09 or in Article VI or
the Borrower shall default in the performance of any of its
obligations contained in Section 5.02 of the Pledge Agreement;
(e) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement (other
than those specified in clause (a), (b) or (d) of this Article) or any
other Loan Document and such failure shall continue unremedied for a
period of 30 or more days after notice thereof from the Administrative
Agent (given at the request of any Lender) to the Borrower;
(f) the Borrower or any of its Restricted Subsidiaries shall
fail to make any payment (whether of principal or interest and
regardless of amount) in respect of any Indebtedness for borrowed
money (other than the Loans) in an aggregate principal amount
exceeding $5,000,000, when and as the same shall become due and
payable, or any event or condition occurs that results in any such
Indebtedness becoming due prior to its scheduled maturity or that
enables or permits (with or without the giving of notice, the lapse of
time or both) the holder or holders of any such Indebtedness or any
trustee or agent on its or their behalf to cause any such Indebtedness
to become due, or to require
<PAGE> 63
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the prepayment, repurchase, redemption or defeasance thereof, prior to
its scheduled maturity; provided that this clause (f) shall not apply
to secured Indebtedness that becomes due as a result of the voluntary
sale or transfer of the property or assets securing such Indebtedness;
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Borrower or any of
its Material Restricted Subsidiaries or its debts, or of a substantial
part of its assets, under any Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in effect or
(ii) the appointment of a receiver, trustee, custodian sequestrator,
conservator or similar official for the Borrower or any of its
Material Restricted Subsidiaries or for a substantial part of its
assets, and, in any such case, such proceeding or petition shall
continue undismissed for a period of 60 or more days or an order or
decree approving or ordering any of the foregoing shall be entered;
(h) the Borrower or any of its Material Restricted
Subsidiaries shall (i) voluntarily commence any proceeding or file any
petition seeking liquidation, reorganization or other relief under any
Federal, state or foreign bankruptcy, insolvency, receivership or
similar law now or hereafter in effect, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner,
any proceeding or petition described in clause (g) of this Article,
(iii) apply for or consent to the appointment of a receiver, trustee,
custodian sequestrator, conservator or similar official for the
Borrower or any of its Material Restricted Subsidiaries or for a
substantial part of its assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of creditors
or (vi) take any action for the purpose of effecting any of the
foregoing;
(i) the Borrower or any of its Material Restricted
Subsidiaries shall admit in writing its inability or fail to pay its
debts generally as they become due;
(j) one or more judgments for the payment of money in an
amount of $10,000,000 or more, either individually or in the
aggregate, shall be rendered against the Borrower or any of its
Material Restricted Subsidiaries or any combination thereof and the
same shall remain undischarged for a period of 30 consecutive days
during which execution shall not be effectively stayed, or any action
shall be legally taken by a judgment creditor to attach or levy upon
any assets of the Borrower or any of its Subsidiaries to enforce any
such judgment;
(k) an ERISA Event shall have occurred that, in the opinion
of the Required Lenders, when taken together with all other ERISA
Events that have occurred, could reasonably be expected to result in
liability of the Borrower and its Subsidiaries in an aggregate amount
exceeding (i) $5,000,000 in any year or (ii) $10,000,000 for all
periods;
<PAGE> 64
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(l) a Change in Control shall occur; or
(m) the Liens created by the Security Documents shall at any
time not constitute a valid and perfected Lien on the collateral
intended to be covered thereby (to the extent perfection by filing,
registration, recordation or possession is required herein or therein)
in favor of the Administrative Agent, free and clear of all other
Liens (other than Liens permitted under Section 6.02 or under the
respective Security Documents and the release of any such Lien
permitted or approved hereunder or thereunder), or, except for
expiration in accordance with its terms, any of the Security Documents
shall for whatever reason be terminated or cease to be in full force
and effect, or the enforceability thereof shall be contested by the
Borrower;
then, and in every such event (other than an event with respect to the Borrower
described in clause (g) or (h) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent, at the request
of the Lenders having Revolving Exposures and unused Commitments representing
more than 50% of the sum of the total Revolving Exposures and unused
Commitments at such time shall, by notice to the Borrower, take either or both
of the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and
(ii) declare the Loans then outstanding to be due and payable in whole (or in
part, in which case any principal not so declared to be due and payable may
thereafter be declared to be due and payable), and thereupon the principal of
the Loans so declared to be due and payable, together with accrued interest
thereon and all fees and other obligations of the Borrower accrued hereunder,
shall become due and payable immediately, without presentment, demand, protest
or other notice of any kind, all of which are hereby waived by the Borrower;
and in case of any event with respect to the Borrower described in clause (g)
or (h) of this Article, the Commitments shall automatically terminate and the
principal of the Loans then outstanding, together with accrued interest thereon
and all fees and other obligations of the Borrower accrued hereunder, shall
automatically become due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower.
ARTICLE VIII
THE ADMINISTRATIVE AGENT
Each of the Lenders hereby irrevocably appoints the
Administrative Agent as its agent hereunder and under the other Loan Documents
and authorizes the Administrative Agent to take such actions on its behalf and
to exercise such powers as are delegated to the Administrative Agent by the
terms hereof or thereof, together with such actions and powers as are
reasonably incidental thereto.
The person serving as the Administrative Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not the Administrative Agent, and
such person and its Affiliates may accept
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deposits from, lend money to and generally engage in any kind of business with
the Borrower or any Subsidiary or other Affiliate thereof as if it were not the
Administrative Agent hereunder.
The Administrative Agent shall not have any duties or
obligations except those expressly set forth herein and in the other Loan
Documents. Without limiting the generality of the foregoing, (a) the
Administrative Agent shall not be subject to any fiduciary or other implied
duties, regardless of whether a Default has occurred and is continuing, (b) the
Administrative Agent shall not have any duty to take any discretionary action
or exercise any discretionary powers, except discretionary rights and powers
expressly contemplated hereby or by the other Loan Documents that the
Administrative Agent is required to exercise in writing by the Required
Lenders, and (c) except as expressly set forth herein and in the other Loan
Documents, the Administrative Agent shall not have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to
the Borrower or any of its Subsidiaries that is communicated to or obtained by
the bank serving as Administrative Agent or any of its Affiliates in any
capacity. The Administrative Agent shall not be liable for any action taken or
not taken by it with the consent or at the request of the Required Lenders or
in the absence of its own gross negligence or willful misconduct. The
Administrative Agent shall be deemed not to have knowledge of any Default
unless and until written notice thereof is given to the Administrative Agent by
the Borrower or a Lender, and the Administrative Agent shall not be responsible
for or have any duty to ascertain or inquire into (i) any statement, warranty
or representation made in or in connection with this Agreement or any other
Loan Document, (ii) the contents of any certificate, report or other document
delivered hereunder or thereunder or in connection herewith or therewith, (iii)
the performance or observance of any of the covenants, agreements or other
terms or conditions set forth herein or therein, (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement, any other Loan
Document or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article IV or elsewhere herein or
therein, other than to confirm receipt of items expressly required to be
delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper person, and shall not
incur any liability for relying thereon. The Administrative Agent may consult
with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.
The Administrative Agent may perform any and all its duties
and exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of the Administrative Agent and any such sub-agent, and shall apply to
their respective
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activities in connection with the syndication of the credit facilities provided
for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent
may resign at any time by notifying the Lenders and the Borrower. Upon any
such resignation, the Required Lenders shall have the right, in consultation
with the Borrower, to appoint a successor. If no successor shall have been so
appointed by the Required Lenders and shall have accepted such appointment
within 30 days after the retiring Administrative Agent gives notice of its
resignation, then the retiring Administrative Agent may, on behalf of the
Lenders, appoint a successor Administrative Agent which shall be a bank with an
office in New York, New York, or an Affiliate of any such bank. Upon the
acceptance of its appointment as Administrative Agent hereunder by a successor,
such successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. The fees payable by the Borrower to a successor Administrative
Agent shall be the same as those payable to its predecessor unless otherwise
agreed between the Borrower and such successor. After the Administrative
Agent's resignation hereunder, the provisions of this Article and Section 9.03
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make
its own decisions in taking or not taking action under or based upon this
Agreement, any other Loan Document or any related agreement or any document
furnished hereunder or thereunder.
Except as otherwise provided in Section 9.02(b) with respect
to this Agreement, the Administrative Agent may, with the prior consent of the
Required Lenders (but not otherwise), consent to any modification, supplement
or waiver under any of the Loan Documents, provided that, without the prior
consent of each Lender, the Administrative Agent shall not (except as provided
herein or in the Security Documents) release any collateral or otherwise
terminate any Lien under any Security Document providing for collateral
security, agree to additional obligations being secured by such collateral
security (unless the Lien for such additional obligations shall be junior to
the Lien in favor of the other obligations secured by such Security Document,
in which event the Administrative Agent may consent to such junior Lien
provided that it obtains the consent of the Required Lenders thereto), alter
the relative priorities of the obligations entitled to the benefits of the
Liens created under the Security Documents or release any guarantee, except
that no such consent shall be required, and the Administrative Agent is hereby
authorized, to release any Lien covering property that is the subject of either
a disposition or merger not prohibited hereunder or a disposition to which the
Required Lenders have consented.
<PAGE> 67
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ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. Except in the case of notices and
other communications expressly permitted to be given by telephone, all notices
and other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at Verio Inc., 8005 South
Chester Street, Suite 200, Englewood, CO 80112, Attention of Peter
Fritzinger (Telecopy No. 303-708-2494);
(b) if to the Administrative Agent, to The Chase Manhattan
Bank, 1 Chase Manhattan Plaza, 8th Floor, New York, New York 10081,
Attention Loan and Agency Services Group (Telecopy No. (212)
552-5658), with a copy to The Chase Manhattan Bank, 270 Park Avenue,
New York, New York 10017, Attention of Mitchell J. Gervis (Telecopy
No. (212) 270-4584); and
(c) if to a Lender, to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other parties hereto (or, in
the case of any such change by a Lender, by notice to the Borrower and the
Administrative Agent). All notices and other communications given to any party
hereto in accordance with the provisions of this Agreement shall be deemed to
have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments.
(a) No Deemed Waivers; Remedies Cumulative. No failure or
delay by the Administrative Agent or any Lender in exercising any right or
power hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Administrative Agent and the Lenders hereunder are
cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provision of this Agreement or consent to any
departure by the Borrower therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) of this Section, and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given. Without limiting the generality of the foregoing, the making
of a Loan shall not be construed as a waiver of any Default, regardless of
whether the Administrative Agent or any Lender may have had notice or knowledge
of such Default at the time.
<PAGE> 68
- 64 -
(b) Amendments. Neither this Agreement nor any provision
hereof may be waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by the Borrower and the Required Lenders or
by the Borrower and the Administrative Agent with the consent of the Required
Lenders; provided that no such agreement shall (i) increase the Commitment of
any Lender without the written consent of such Lender, (ii) reduce the
principal amount of any Loan or reduce the rate of interest thereon, or reduce
any fees payable hereunder, without the written consent of the Lender to which
such Loan is due, (iii) postpone the scheduled date of payment of the principal
amount of any Loan, or any interest thereon, or any fees payable hereunder, or
reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of any Commitment, without the written consent of
each Lender affected thereby, (iv) alter the manner in which payments or
prepayments of principal, interest or other amounts hereunder shall be applied
as between the Lenders or Types of Loans, without the written consent of the
Lender to which such Loan or other obligation is due or which is holding such
Commitment, or (v) change any of the provisions of this Section or the
definition of the term "Required Lenders" or any other provision hereof
specifying the number or percentage of Lenders required to waive, amend or
modify any rights hereunder or make any determination or grant any consent
hereunder, without the written consent of each Lender; and provided further
that no such agreement shall amend, modify or otherwise affect the rights or
duties of the Administrative Agent hereunder without the prior written consent
of the Administrative Agent.
SECTION 9.03. Expenses; Indemnity; Damage Waiver.
(a) Costs and Expenses. The Borrower shall pay (i) all
reasonable out-of-pocket expenses incurred by the Administrative Agent and its
Affiliates, including the reasonable fees, charges and disbursements of counsel
for the Administrative Agent, in connection with the syndication of the credit
facilities provided for herein, the preparation and administration of this
Agreement and the other Loan Documents or any amendments, modifications or
waivers of the provisions hereof or thereof (whether or not the transactions
contemplated hereby or thereby shall be consummated), (ii) all out-of-pocket
expenses incurred by the Administrative Agent or any Lender, including the
fees, charges and disbursements of any counsel for the Administrative Agent, or
any Lender, in connection with the enforcement or protection of its rights in
connection with this Agreement and the other Loan Documents, including its
rights under this Section, or in connection with the Loans made hereunder,
including in connection with any workout, restructuring or negotiations in
respect thereof and (iii) and all costs, expenses, taxes, assessments and other
charges incurred in connection with any filing, registration, recording or
perfection of any security interest contemplated by any Security Document or
any other document referred to therein.
(b) Indemnification by the Borrower. The Borrower shall
indemnify the Administrative Agent and each Lender, and each Related Party of
any of the foregoing persons (each such person being called an "Indemnitee")
against, and to hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted
against any Indemnitee arising out of, in connection with, or as a result of
(i) the execution or delivery of
<PAGE> 69
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this Agreement or any agreement or instrument contemplated hereby, the
performance by the parties hereto of their respective obligations hereunder or
the consummation of the Transactions or any other transactions contemplated
hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or
alleged presence or release of Hazardous Materials on or from any property
owned or operated by the Borrower or any of its Subsidiaries, or any
Environmental Liability related in any way to the Borrower or any of its
Subsidiaries, or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is
a party thereto; provided that such indemnity shall not, as to any Indemnitee,
be available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a court of competent jurisdiction by final
and nonappealable judgment to have resulted from the gross negligence or
willful misconduct of such Indemnitee.
(c) Reimbursement by Lenders. To the extent that the
Borrower fails to pay any amount required to be paid by it to the
Administrative Agent under paragraph (a) or (b) of this Section, each Lender
severally agrees to pay to the Administrative Agent such Lender's Applicable
Percentage (determined as of the time that the applicable unreimbursed expense
or indemnity payment is sought) of such unpaid amount; provided that the
unreimbursed expense or indemnified loss, claim, damage, liability or related
expense, as the case may be, was incurred by or asserted against the
Administrative Agent in its capacity as such.
(d) Waiver of Consequential Damages, Etc. To the extent
permitted by applicable law, the Borrower shall not assert, and hereby waives,
any claim against any Indemnitee, on any theory of liability, for special,
indirect, consequential or punitive damages (as opposed to direct or actual
damages) arising out of, in connection with, or as a result of, this Agreement
or any agreement or instrument contemplated hereby, the Transactions, any Loan
or the use of the proceeds thereof.
(e) Payments. All amounts due under this Section shall be
payable promptly after written demand therefor.
SECTION 9.04. Successors and Assigns.
(a) Assignments Generally. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby, except that the Borrower
may not assign or otherwise transfer any of its rights or obligations hereunder
without the prior written consent of each Lender (and any attempted assignment
or transfer by the Borrower without such consent shall be null and void).
Nothing in this Agreement, expressed or implied, shall be construed to confer
upon any person (other than the parties hereto, their respective successors and
assigns permitted hereby and, to the extent expressly contemplated hereby, the
Related Parties of each of the Administrative Agent and the Lenders) any legal
or equitable right, remedy or claim under or by reason of this Agreement.
(b) Assignments by Lenders. Any Lender may assign to one or
more assignees all or a portion of its rights and obligations under this
Agreement (including all or a portion of its
<PAGE> 70
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Commitment and the Loans at the time owing to it); provided that (i) except in
the case of an assignment to a Lender or an Affiliate of a Lender, each of the
Borrower and the Administrative Agent must give their prior written consent to
such assignment (which consent shall not be unreasonably withheld), (ii) except
in the case of an assignment to a Lender or an Affiliate of a Lender or an
assignment of the entire remaining amount of the assigning Lender's Commitment,
the amount of the Commitment of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall not
be less than $5,000,000 and, after giving effect to each such partial
assignment, the amount of the Commitment held by such assigning Lender shall
not be less than $5,000,000, unless in either case each of the Borrower and the
Administrative Agent otherwise consent, (iii) each partial assignment shall be
made as an assignment of a proportionate part of all the assigning Lender's
rights and obligations under this Agreement, (iv) the parties to each
assignment shall execute and deliver to the Administrative Agent an Assignment
and Acceptance, together with a processing and recordation fee of $3,500, and
(v) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire; provided further that any
consent of the Borrower otherwise required under this paragraph shall not be
required if an Event of Default has occurred and is continuing. Upon
acceptance and recording pursuant to paragraph (d) of this Section, from and
after the effective date specified in each Assignment and Acceptance, the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of
a Lender under this Agreement, and the assigning Lender thereunder shall, to
the extent of the interest assigned by such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all of the assigning Lender's rights and
obligations under this Agreement, such Lender shall cease to be a party hereto
but shall continue to be entitled to the benefits of Sections 2.12, 2.13, 2.14
and 9.03). Any assignment or transfer by a Lender of rights or obligations
under this Agreement that does not comply with this paragraph shall be treated
for purposes of this Agreement as a sale by such Lender of a participation in
such rights and obligations in accordance with paragraph (e) of this Section.
(c) Maintenance of Register by the Administrative Agent. The
Administrative Agent, acting for this purpose as an agent of the Borrower,
shall maintain at one of its offices in The City of New York a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of
the names and addresses of the Lenders, and the Commitment of, and principal
amount of the Loans owing to, each Lender pursuant to the terms hereof from
time to time (the "Register"). The entries in the Register shall be
conclusive, and the Borrower, the Administrative Agent and the Lenders may
treat each person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for
inspection by the Borrower and any Lender, at any reasonable time and from time
to time upon reasonable prior notice.
(d) Effectiveness of Assignments. Upon its receipt of a duly
completed Assignment and Acceptance executed by an assigning Lender and an
assignee, the assignee's completed Administrative Questionnaire (unless the
assignee shall already be a Lender
<PAGE> 71
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hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Participations. Any Lender may, without the consent of
the Borrower or the Administrative Agent, sell participations to one or more
banks or other entities (a "Participant") in all or a portion of such Lender's
rights and obligations under this Agreement and the other Loan Documents
(including all or a portion of its Commitment and the Loans owing to it);
provided that (i) the amount of each such participation shall not be less than
$3,000,000, (ii) such Lender's obligations under this Agreement and the other
Loan Documents shall remain unchanged, (iii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (iv) the Borrower, the Administrative Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and the other Loan
Documents. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and the other Loan Documents and to approve any
amendment, modification or waiver of any provision of this Agreement or any
other Loan Document; provided that such agreement or instrument may provide
that such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the first proviso to Section
9.02(b) that affects such Participant. Subject to paragraph (f) of this
Section, the Borrower agrees that each Participant shall be entitled to the
benefits of Sections 2.12, 2.13 and 2.14 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this Section.
(f) Limitations on Rights of Participants. A Participant
shall not be entitled to receive any greater payment under Section 2.12 or 2.14
than the applicable Lender would have been entitled to receive with respect to
the participation sold to such Participant, unless the sale of the
participation to such Participant is made with the Borrower's prior written
consent. A Participant that would be a Foreign Lender if it were a Lender
shall not be entitled to the benefits of Section 2.14 unless the Borrower is
notified of the participation sold to such Participant and such Participant
agrees, for the benefit of the Borrower, to comply with Section 2.14(e) as
though it were a Lender.
(g) Pledges. Any Lender may at any time pledge or assign a
security interest in all or any portion of its rights under this Agreement to
secure obligations of such Lender, including any such pledge or assignment to a
Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment
of a security interest shall release a Lender from any of its obligations
hereunder or substitute any such assignee for such Lender as a party hereto.
(h) No Assignments to the Borrower or Affiliates. Anything
in this Section to the contrary notwithstanding, no Lender may assign or
participate any interest in any Loan held by it
<PAGE> 72
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hereunder to the Borrower or any of its Affiliates or Subsidiaries without the
prior consent of each Lender.
SECTION 9.05. Survival. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement shall be considered to have been relied upon by the other
parties hereto and shall survive the execution and delivery of this Agreement
and the making of any Loans, regardless of any investigation made by any such
other party or on its behalf and notwithstanding that the Administrative Agent
or any Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid and so long as the Commitments have not
expired or terminated. The provisions of Sections 2.12, 2.13, 2.14 and 9.03
and Article VIII shall survive and remain in full force and effect regardless
of the consummation of the transactions contemplated hereby, the repayment of
the Loans, the expiration or termination of the Commitments or the termination
of this Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness.
This Agreement may be executed in counterparts (and by different parties hereto
on different counterparts), each of which shall constitute an original, but all
of which when taken together shall constitute a single contract. This
Agreement and any separate letter agreements with respect to fees payable to
the Administrative Agent constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. This Agreement shall become effective when (a) this Agreement shall
have been executed by the Administrative Agent and when the Administrative
Agent shall have received counterparts hereof which, when taken together, bear
the signatures of each of the other parties hereto and (b) the Borrower shall
have paid to each Lender or the Administrative Agent, as the case may be, the
fees which the Borrower shall have agreed to pay in connection herewith, and
thereafter this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. Delivery of an
executed counterpart of a signature page of this Agreement by telecopy shall be
effective as delivery of a manually executed counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this
Agreement held to be invalid, illegal or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
invalidity, illegality or unenforceability without affecting the validity,
legality and enforceability of the remaining provisions hereof; and the
invalidity of a particular provision in a particular jurisdiction shall not
invalidate such provision in any other jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default
shall have occurred and be continuing, each Lender is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Lender to or for the credit or the account of the Borrower against any of and
all the obligations of
<PAGE> 73
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the Borrower now or hereafter existing under this Agreement held by such
Lender, irrespective of whether or not such Lender shall have made any demand
under this Agreement and although such obligations may be unmatured. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Etc.
(a) Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of New York.
(b) Submission to Jurisdiction. The Borrower hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of the Supreme Court of the State of New York sitting
in New York County and of the United States District Court of the Southern
District of New York, and any appellate court from any thereof, in any action
or proceeding arising out of or relating to this Agreement, or for recognition
or enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State or, to
the extent permitted by law, in such Federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Agreement shall affect
any right that the Administrative Agent or any Lender may otherwise have to
bring any action or proceeding relating to this Agreement against the Borrower
or its properties in the courts of any jurisdiction.
(c) Waiver of Venue. The Borrower hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement in
any court referred to in paragraph (b) of this Section. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Service of Process. Each party to this Agreement
irrevocably consents to service of process in the manner provided for notices
in Section 9.01. Nothing in this Agreement will affect the right of any party
to this Agreement to serve process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY
HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER
<PAGE> 74
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AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and
the Table of Contents used herein are for convenience of reference only, are
not part of this Agreement and shall not affect the construction of, or be
taken into consideration in interpreting, this Agreement.
SECTION 9.12. Treatment of Certain Information;
Confidentiality.
(a) Treatment of Certain Information. The Borrower
acknowledges that from time to time financial advisory, investment banking and
other services may be offered or provided to the Borrower or one or more of its
Subsidiaries (in connection with this Agreement or otherwise) by any Lender or
by one or more subsidiaries or affiliates of such Lender and the Borrower
hereby authorizes each Lender to share any information delivered to such Lender
by the Borrower and its Subsidiaries pursuant to this Agreement, or in
connection with the decision of such Lender to enter into this Agreement, to
any such subsidiary or affiliate, it being understood that any such subsidiary
or affiliate receiving such information shall be bound by the provisions of
paragraph (b) of this Section as if it were a Lender hereunder. Such
authorization shall survive the repayment of the Loans, the expiration or
termination of the Commitments or the termination of this Agreement or any
provision hereof.
(b) Confidentiality. Each of the Administrative Agent and
the Lenders agrees to maintain the confidentiality of the Information (as
defined below), except that Information may be disclosed (i) to its and its
Affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (ii) to the
extent requested by any regulatory authority, (iii) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process,
(iv) to any other party to this Agreement, (v) in connection with the exercise
of any remedies hereunder or under any other Loan Document or any suit, action
or proceeding relating to this Agreement or any other Loan Document or the
enforcement of rights hereunder or thereunder, (vi) subject to an agreement
containing provisions substantially the same as those of this paragraph, to any
assignee of or Participant in, or any prospective assignee of or Participant
in, any of its rights or obligations under this Agreement, (vii) with the
consent of the Borrower or (viii) to the extent such Information (A) becomes
publicly available other than as a result of a breach of this paragraph or (B)
becomes available to the Administrative Agent or any Lender on a
nonconfidential basis from a source other than the Borrower. For the purposes
of this paragraph, "Information" means all information received from the
Borrower relating to the Borrower or its business, other than any such
information that is available to the Administrative Agent or any Lender on a
nonconfidential basis prior to disclosure by the Borrower; provided that, in
the case of information received from the Borrower after the date hereof, such
information is clearly identified at the time of delivery as confidential. Any
person required to maintain the confidentiality of Information as provided in
this Section shall be considered to have complied with its obligation to do so
if such person has exercised the same degree of care to
<PAGE> 75
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maintain the confidentiality of such Information as such person would accord to
its own confidential information.
<PAGE> 76
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
VERIO INC.
By /s/ PETER B. FRITZINGER
-----------------------------------
Name: Peter B. Fritzinger
Title: Chief Financial Officer
<PAGE> 77
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THE CHASE MANHATTAN BANK,
individually and as Administrative
Agent
By /s/ MITCHELL J. GERVIS
-----------------------------------
Name: Mitchell J. Gervis
Title: Vice President
<PAGE> 78
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FLEET NATIONAL BANK
By /s/ PAULA H. LONG
-----------------------------------
Name: Paula H. Long
Title: Senior Vice President
<PAGE> 79
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BANKBOSTON, N.A.
By /s/ ROBERT F. MILORDI
-----------------------------------
Name: Robert F. Milordi
Title: Managing Director
<PAGE> 80
SCHEDULE 1.01
Commitments
<TABLE>
<CAPTION>
Commitment
--------------
<S> <C>
The Chase Manhattan Bank $25,000,000.00
Fleet National Bank $22,500,000.00
BankBoston, N.A. $10,000,000.00
</TABLE>
<PAGE> 1
EXHIBIT 10.27
================================================================================
VERIO INC.
STOCK PURCHASE AND
MASTER STRATEGIC RELATIONSHIP AGREEMENT
APRIL 7, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. AGREEMENT TO SELL AND PURCHASE SHARES.......................................1
1.1 Sale and Purchase of Shares........................................1
1.2 Closing............................................................2
1.3 Legend; Stop Transfer Order........................................3
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................3
2.1 Organization, Good Standing and Qualification......................3
2.2 Authority; Binding Nature of Agreements............................3
2.3 Non-Contravention; Consents........................................4
2.4 Fully Paid and Nonassessable.......................................4
2.5 Private Placement Memorandum; Financial Statements; Taxes..........4
2.6 Absence of Changes.................................................5
2.7 Litigation.........................................................5
2.8 Intellectual Property Rights.......................................6
2.9 Compliance with Law; Governmental Approvals........................6
2.10 Capitalization.....................................................6
2.11 Brokers, etc.......................................................6
2.12 No Other Ventures..................................................7
2.13 Investment Company Act.............................................7
2.14 Insurance..........................................................7
2.15 Labor Matters......................................................7
2.16 Certain Compensation Plans.........................................7
2.17 Environmental Protection...........................................8
2.18 Properties.........................................................8
</TABLE>
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<TABLE>
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<S> <C>
2.19 Liabilities........................................................8
2.20 Transactions with Principals.......................................8
2.21 Registration Rights................................................9
2.22 Contracts and Other Commitments....................................9
2.23 Regulation by the FCC..............................................9
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.............................9
3.1 Organization and Good Standing.....................................9
3.2 Authority; Binding Nature of Agreements............................9
3.3 Non-Contravention; Consents.......................................10
3.4 Litigation........................................................10
3.5 Brokers, etc......................................................10
3.6 Investment Representations........................................11
3.7 Company Disclosure Documents......................................12
4. CONDITIONS TO CLOSING......................................................12
4.1 Conditions to the Purchaser's Obligations.........................12
4.2 Conditions to the Company's Obligations...........................13
5. COVENANTS OF THE PARTIES...................................................15
5.1 Filings and Consents..............................................15
5.2 Covenant to Satisfy Conditions....................................15
5.3 Reservation of Shares.............................................15
5.4 Further Assurances................................................15
6. TERMINATION................................................................16
6.1 Termination.......................................................16
6.2 Effect of Termination.............................................16
7. SUCCESSORS AND ASSIGNS.....................................................16
</TABLE>
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<TABLE>
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<S> <C>
7.1 Successors and Assigns............................................16
7.2 Novation..........................................................16
7.3 Guarantee.........................................................17
7.4 Certain Waivers and Authorizations................................19
8. MISCELLANEOUS..............................................................20
8.1 Press Releases and Announcements..................................20
8.2 Interpretation....................................................20
8.3 Fees and Expenses.................................................21
8.4 Governing Law; Jurisdiction and Venue; Waiver of Jury Trial.......21
8.5 Specific Enforcement..............................................22
8.6 Survival..........................................................22
8.7 No Third Party Beneficiaries......................................23
8.8 Entire Agreement..................................................23
8.9 Severability......................................................23
8.10 Amendment and Waiver..............................................23
8.11 Relationship of the Parties.......................................23
8.12 Notices...........................................................24
8.13 Counterparts......................................................25
8.14 Attorney's Fees...................................................25
</TABLE>
iii
<PAGE> 5
ATTACHMENTS
Disclosure Schedule
Exhibit A Definitions
Exhibit B Certificate of Designation of Series X Junior Preferred Stock
Exhibit C Private Placement Memorandum
Exhibit D Form of Legal Opinion of Company Counsel
Exhibit E Form of Legal Opinion of Purchaser (and/or Assignee
and Purchaser Party Affiliate) Counsel
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<PAGE> 6
STOCK PURCHASE AND MASTER STRATEGIC RELATIONSHIP AGREEMENT
This Stock Purchase and Master Strategic Relationship Agreement (this
"Agreement") is entered into as of April 7, 1998, by and between VERIO INC., a
Delaware corporation (the "Company"), and NIPPON TELEGRAPH AND TELEPHONE
CORPORATION, a Japanese corporation (the "Purchaser"). Capitalized terms used in
this Agreement and not otherwise defined are defined in Exhibit A.
WHEREAS, the Purchaser wishes to purchase from the Company, and the
Company wishes to issue and sell to the Purchaser, certain shares of the
Company's Common Stock, par value $0.001 per share (the "Common Stock");
WHEREAS, such sale and purchase of Common Stock is to occur
concurrently with the IPO;
WHEREAS, the parties hereto have entered into an Investment Agreement
dated of even date herewith (the "Investment Agreement") providing for certain
rights and obligations of such parties with respect to the Common Stock and
other matters; and
WHEREAS, the Company and an Affiliate of the Purchaser have entered
into an Outside Service Provider Agreement dated of even date herewith (the
"Outside Service Provider Agreement") providing for certain matters;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein, the parties hereto, intending to be legally bound, agree as follows:
1. AGREEMENT TO SELL AND PURCHASE SHARES
1.1 SALE AND PURCHASE OF SHARES.
(a) Subject to the terms and conditions hereof, at the Closing,
the Company will issue and sell to the Purchaser, and the Purchaser will
purchase from the Company, shares of Common Stock equal in number to the lesser
of (i) 12.5% of the Diluted Common Stock (calculated as of the Closing Date and
giving effect to the sale of shares of Common Stock on the Closing Date pursuant
to this Agreement and in the IPO), or (ii) the quotient of (A) $100 million
divided by (B) the Per Share Price.
(b) Notwithstanding the provisions of paragraph (a) above, in the
event that the applicable waiting period, including any extension thereof, under
the HSR Act with respect to the purchase and sale of Common Stock contemplated
hereby shall not have been subject to early termination or expired prior to the
consummation of the IPO, then, at the Closing, in lieu of Common Stock, the
Purchaser shall purchase from the Company, and the Company shall issue and sell
to the Purchaser, shares of the Company's Series X Junior Preferred Stock (the
"Junior Preferred Stock"). The number of shares of Junior Preferred Stock to be
so purchased shall be such number that is equal to the quotient of (i) the
number of shares of Common Stock that the Purchase otherwise would have
purchased pursuant to paragraph (a) above, divided by (ii) five
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<PAGE> 7
hundred (500), so that, upon a conversion immediately following the Closing of
all such shares of Junior Preferred Stock into shares of Common Stock as
provided in the Company's Certificate of Designation with respect to the Junior
Preferred Stock (the "Certificate of Designation"), the number of shares of
Common Stock resulting from such conversion would equal the number of shares of
Common Stock that the Purchaser otherwise would have purchased pursuant to
paragraph (a) above. The purchase price per share of Junior Preferred Stock
shall be equal to the product of (i) the Per Share Price, multiplied by (ii)
five hundred (500), so that the aggregate purchase price for the Junior
Preferred Stock to be purchased at the Closing shall be the aggregate purchase
price that would have been payable for the shares of Common Stock that the
Purchaser otherwise would have purchased pursuant to paragraph (a) above. The
Purchaser acknowledges and agrees that if Junior Preferred Stock is purchased by
it pursuant hereto, the Purchaser shall not be entitled to convert such Junior
Preferred Stock into Common Stock, but the Junior Preferred Stock shall be
converted into Common Stock pursuant to the terms of the Certificate of
Designation automatically upon the expiration or early termination of the
applicable waiting period, including any extension thereof, under the HSR Act. A
copy of the Certificate of Designation is attached hereto as Exhibit B and
incorporated herein by reference.
(c) The price per share of the Common Stock to be purchased
pursuant to this Agreement (the "Per Share Price") shall be the product of (i)
the IPO Price multiplied by (ii) 96.75%, provided, that if prior to the Closing
Date the Company shall sell shares of Common Stock (other than (i) in connection
with a merger, buyout or acquisition, (ii) a sale, grant or other issuance to
any employee, consultant or director of the Company or any of its Affiliates,
(iii) pursuant to any pre-existing commitment of the Company and (iv) any other
nonmaterial sales of Common Stock not exceeding $1,000,000 in value per sale) at
a price per share less than the Per Share Price as so determined, then the Per
Share Price shall be such lower price per share of Common Stock.
(d) At the Closing, the Purchaser shall pay the purchase price
for the shares of Common Stock or Junior Preferred Stock purchased hereunder
(the "Purchased Shares") by wire transfer of immediately available funds in U.S.
dollars to the account specified in writing by the Company.
(e) No fractional shares shall be issued upon the sale of any
Common Stock to the Purchaser pursuant to this Agreement, and the number of
shares of Common Stock to be issued to the Purchaser shall be rounded to the
nearest whole share. Fractional shares of Junior Preferred Stock may be issued
upon the sale of Junior Preferred Stock pursuant to this Agreement, if
applicable, provided, that no fractional shares of Common Stock shall be issued
upon any conversion of such Junior Preferred Stock into Common Stock, and the
number of shares of Common Stock to be then issued to the Purchaser shall be
rounded to the nearest whole share.
1.2 CLOSING.
The closing of the purchase and sale contemplated by this Agreement
(the "Closing") shall take place at the offices of Morrison & Foerster LLP, 425
Market Street, San Francisco, California, 94105, at 10:00 a.m. (California time)
on the date of and concurrently with the
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<PAGE> 8
consummation of the IPO, or on such other date or at such other place or time as
the Company and the Purchaser may mutually agree (such date, the "Closing
Date").
1.3 LEGEND; STOP TRANSFER ORDER.
All certificates representing the Purchased Shares shall bear legends
and be subject to stop transfer orders as specified in the Investment Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specifically set forth in the disclosure schedule attached
hereto (the "Disclosure Schedule") or in the Private Placement Memorandum of the
Company dated as of March 19, 1998 (the "Private Placement Memorandum"), a copy
of which is attached hereto as Exhibit C and the text of which is incorporated
herein by reference, the Company hereby represents and warrants to the Purchaser
as follows:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Company is
duly qualified to conduct business in each jurisdiction in which the nature of
its business or the ownership of its properties requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on the condition (financial or otherwise), properties or business operations of
the Company and its subsidiaries, taken as a whole (a "Material Adverse
Effect"). The Company has all requisite corporate power and authority to carry
on its business as presently conducted.
(b) The Company, as of the date of the Private Placement
Memorandum, has no subsidiaries that constitute "significant subsidiaries"
within the meaning of Regulation S-X under the Securities Act, provided, that
the Purchaser acknowledges that the Company is engaged in a program of buyouts
and acquisitions of other Entities, and that in connection with such program the
Company may purchase shares or other securities of other Entities prior to the
Closing or increase its ownership of Entities less than wholly-owned by the
Company as of the date of the Private Placement Memorandum.
(c) The Company has delivered to the Purchaser accurate and
complete copies of the Company's certificate of incorporation and bylaws,
including all amendments thereto and the amendments thereto that are to be
effective upon consummation of the IPO.
2.2 AUTHORITY; BINDING NATURE OF AGREEMENTS.
The Company has the requisite corporate power and authority to enter
into and to perform its obligations under this Agreement and all other
Transactional Agreements. The execution, delivery and performance by the Company
of this Agreement and such other Transactional Agreements, and the consummation
or performance of the Transactions, have been duly authorized by all necessary
corporate action on the part of the Company, other than the filing of the
Certificate of Designation with the Secretary of State of the State of Delaware.
Each of this Agreement and such other Transactional Agreements constitutes, or
upon execution and delivery will constitute, the legal, valid and binding
obligation of the Company, enforceable
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<PAGE> 9
against the Company in accordance with its terms, except as limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, and (ii) laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies.
2.3 NON-CONTRAVENTION; CONSENTS.
(a) Neither the execution and delivery by the Company of this
Agreement or any other Transactional Agreement, nor the consummation or
performance by the Company of any of the Transactions to be consummated or
performed by it, will directly or indirectly (with or without notice or lapse of
time): (i) violate any provision of the Company's certificate of incorporation
or bylaws; (ii) constitute or result in a breach or default by the Company, or
give rise to a right of termination on the part of any other party, or result in
the creation or imposition of any lien, claim or encumbrance on any Company
assets, under any agreement or instrument to which the Company is a party or by
which it is bound; or (iii) constitute a violation by the Company of any
Requirement of Law, except in each case for any such violation, breach, default
or termination or any such lien, claim or encumbrance which would not have a
Material Adverse Effect.
(b) Except for compliance with the terms of the HSR Act, no
consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any Governmental Authority on the part
of the Company is required in connection with the consummation of the
Transactions, except for such consents, approvals, authorizations or orders the
absence of which, either individually or in the aggregate, would not have a
Material Adverse Effect.
2.4 FULLY PAID AND NONASSESSABLE.
The Purchased Shares, when issued, sold and delivered in accordance
with the terms of this Agreement for the consideration expressed herein, will be
duly and validly issued, fully paid, and nonassessable, and not subject to
preemptive or any other similar rights of the stockholders of the Company or
others.
2.5 PRIVATE PLACEMENT MEMORANDUM; FINANCIAL STATEMENTS; TAXES.
(a) The Private Placement Memorandum, as of the date thereof, did
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(b) The financial statements of the Company included in the
Private Placement Memorandum have been prepared in accordance with U.S.
generally accepted accounting principles ("U.S. GAAP") applied on a consistent
basis during the periods involved, except (i) as may be otherwise indicated in
such financial statements or the notes thereto, (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements, or (iii) as otherwise indicated in the
Disclosure Schedule. Such financial statements fairly present in all material
respects the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of
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<PAGE> 10
their operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
(c) The Company has (or, in the case of returns becoming due
after the date hereof and on or before the Closing Date, will have prior to the
Closing Date) duly filed all Company Tax Returns required to be filed by the
Company on or before the Closing Date with respect to all applicable Taxes. No
penalties or other charges are or will become due with respect to any of the
Company Tax Returns as the result of the late filing thereof in an amount which
would have a Material Adverse Effect. All of the Company Tax Returns are (or, in
the case of returns becoming due after the date hereof and on or before the
Closing Date, will be) true and complete in all material respects. The Company
either (i) has paid all Taxes due or claimed to be due by any Taxing authority
in connection with any of the Company Tax Returns or otherwise required to be
filed or paid prior to the date hereof, or (ii) to the extent such Taxes were
due prior to the date of the financial statements contained in the Private
Placement Memorandum (the "Financial Statements Date") has established in the
financial statements set forth in the Private Placement Memorandum adequate
reserves (in conformity with U.S. GAAP consistently applied) for the payment of
such Taxes, or, to the extent such Taxes were not due prior to the Financial
Statements Date, has established adequate reserves for the payment of such Taxes
in the ordinary course of business and in accordance with good business
practices; except in any of the cases described in the preceding clauses (i) and
(ii) for such Taxes the nonpayment of which would not have a Material Adverse
Effect. The amounts set up as reserves for Taxes on the financial statements set
forth in the Private Placement Memorandum are sufficient for the payment of all
unpaid Taxes, whether or not such Taxes are disputed or are yet due and payable,
for or with respect to the period through the Financial Statements Date, and for
which the Company may be liable in its own right (including, without limitation,
by reason of being a member of the same affiliated group) or as a transferee of
the assets of, or successor to, any Entity, other than any such Taxes as would
not have a Material Adverse Effect. The Company, either in its own right
(including, without limitation, by reason of being a member of the same
affiliated group) or as a transferee, does not have and on the Closing Date will
not have any liability for Taxes payable for or with respect to any periods
prior to and including the Closing Date materially in excess of the amounts
actually paid prior to the Closing Date or reserved for in financial statements
set forth in the Private Placement Memorandum, except for amounts payable for or
with respect to any periods following the Financial Statements Date.
2.6 ABSENCE OF CHANGES.
As of the date of this Agreement, there has been no change in the
Company's business or operations from the information presented in the Private
Placement Memorandum that would have a Material Adverse Effect.
2.7 LITIGATION.
As of the date hereof, there are no suits, proceedings or
investigations pending or, to the Knowledge of the Company, threatened against
the Company, which in any such case would have a Material Adverse Effect, or
which would materially adversely affect the Company's ability to perform its
obligations under this Agreement or any of the other Transactional Agreements.
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<PAGE> 11
2.8 INTELLECTUAL PROPERTY RIGHTS.
(a) The patents, trademarks, service marks, trade names,
copyrights and rights or licenses to use the same, and any and all applications
therefor, as well as the trade secrets and similar proprietary information,
owned or held by the Company are all that are required to enable the Company to
conduct its business as now conducted, except for such failures to own or hold
as, in the aggregate, would not have a Material Adverse Effect. To the Company's
Knowledge, the Company's operations do not infringe rights under patents,
trademarks, service marks, trade names, trade secrets, copyrights or licenses or
any other proprietary rights of others, except for any such infringement as
would not have a Material Adverse Effect.
(b) The Company has the right and authority to utilize the
processes, systems and techniques presently employed by it in the design,
development and manufacture of its present products and all rights to any
material processes, systems and techniques developed by any employee or
consultant of the Company have been and will be duly and validly assigned to the
Company, except to the extent the failure to have such right or authority or to
obtain such assignment, in the aggregate, would not have a Material Adverse
Effect.
2.9 COMPLIANCE WITH LAW; GOVERNMENTAL APPROVALS.
(a) The Company is in compliance with all applicable Requirements
of Law, except for such non-compliance as in the aggregate would not have a
Material Adverse Effect.
(b) The Company has all governmental approvals, authorizations,
consents, licenses and permits required from each Governmental Authority with
jurisdiction over the Company or its properties to conduct its business as it is
currently being conducted, except for such approvals, authorizations, consents,
licenses or permits, the failure of which to obtain, in the aggregate, would not
have a Material Adverse Effect.
2.10 CAPITALIZATION.
As of the date of the Private Placement Memorandum, the information
regarding the actual capitalization of the Company set forth under the caption
"Capitalization" in the Private Placement Memorandum is true, correct and
complete, and all of the outstanding capital stock of the Company as therein
described was duly authorized, validly issued, fully paid and nonassessable as
of the date specified in the Private Placement Memorandum.
2.11 BROKERS, ETC.
The Company has not dealt with any broker, finder, or other similar
person in connection with the offer or sale of the Common Stock or Junior
Preferred Stock pursuant to this Agreement such that it will be under any
obligation to pay any broker's fee, finder's fee or commission in connection
with such offer and sale.
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<PAGE> 12
2.12 NO OTHER VENTURES.
As of the date of the Private Placement Memorandum, the Company was not
engaged in any material partnership or joint venture with any other Person.
2.13 INVESTMENT COMPANY ACT.
The Company is not an "investment company" or a company "controlled by"
an "investment company," as such terms are defined in the Investment Company Act
of 1940, as amended, and the rules and regulations thereunder.
2.14 INSURANCE.
The Company has insurance in such amounts and covering such risks as
are in accordance with normal industry practice.
2.15 LABOR MATTERS.
(a) There are no strikes, work stoppages, slowdowns or lockouts
existing or, to the Knowledge of the Company, threatened against the Company
that would have a Material Adverse Effect.
(b) To the Company's Knowledge, no key employee of the Company is
in violation of any judgment, decree or order, or any term of any employment
contract, patent disclosure agreement, other proprietary information agreement,
non-competition agreement or other contract or agreement relating to the
relationship of any such employee to any former employers, the Company or any
other party, because of the nature of the business conducted by the Company or
to the utilization by the employee of his or her best efforts with respect to
such business in his or her assigned duties at the Company, in any case which
violation would have a Material Adverse Effect.
(c) The consummation of the Transactions will not cause the
Company to incur or suffer any liability relating to, or obligation to pay,
material severance or termination amounts to any person or entity.
2.16 CERTAIN COMPENSATION PLANS.
(a) The Company does not have any material profit sharing,
deferred compensation, stock option, stock purchase, phantom stock or similar
plan that evidence rights to purchase securities of or to share in the profits
of the Company.
(b) The Company has not incurred any liability for any prohibited
transaction or funding deficiency or any complete or partial withdrawal
liability with respect to any pension, profit sharing or other plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), to which the Company makes or ever has made a contribution and in
which any employee of the Company is or has ever been a participant which,
individually or in the aggregate, would result in a Material Adverse Effect.
With respect to such plans, the Company is in compliance in all respects with
all applicable provisions of ERISA and the
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<PAGE> 13
Internal Revenue Code of 1986, as amended, except where the failure to so comply
would not, individually or in the aggregate, have a Material Adverse Effect.
2.17 ENVIRONMENTAL PROTECTION.
(a) Except as would not, individually or in the aggregate, have a
Material Adverse Effect, (i) the Company is in compliance with and not subject
to any known liability under applicable Environmental Law (as defined below),
and (ii) there is no civil, criminal or administrative action or investigation,
notice or demand letter or request for information pending or, to the Company's
Knowledge, threatened against the Company under any Environmental Law.
(b) For purposes of this Agreement, "Environmental Law" shall
mean all applicable federal, state and local laws or regulations relating to the
protection of the environment or human health, including, without limitation,
laws relating to omissions, discharges, releases or threatened releases of
"hazardous substances," as defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
2.18 PROPERTIES.
The Company has good and marketable title to all real and personal
property described in the Private Placement Memorandum as being owned by it and
good and marketable title to a leasehold estate in the real and personal
property described in the Private Placement Memorandum as being leased by it,
free and clear of all liens, charges, encumbrances and restrictions, except to
the extent the failure to have such title or the existence of such liens,
charges, encumbrances or restrictions would not result in a Material Adverse
Effect.
2.19 LIABILITIES.
The Company did not have, at the Financial Statements Date, any
liabilities which in the aggregate exceeded five million dollars ($5,000,000),
which were not reflected in the balance sheet at such date included as part of
the financial statements included in the Private Placement Memorandum, nor did
it, at such date, have any contingent liabilities which in the aggregate
exceeded five million dollars ($5,000,000), which were not so reflected, in each
such case which liabilities or contingent liabilities were required by U.S. GAAP
to be reflected in such balance sheet. Since the Financial Statements Date, and
prior to the date hereof, the Company has not, other than in the ordinary course
of business, or in connection with the acquisition of other businesses and other
companies, incurred any material liabilities.
2.20 TRANSACTIONS WITH PRINCIPALS.
No present or former employee, shareholder, or officer or director of
the Company or their spouses, children or affiliates (as that term is defined in
Rule 405 under the Securities Act) is indebted to the Company in an amount in
excess of $100,000 nor is the Company indebted to any of them in such amount or,
directly or indirectly, interested in any transaction with the Company which is
material to the Company, including, without limitation, any agreement providing
for the employment of, furnishing of services by, rental of assets from or to,
or
8
<PAGE> 14
otherwise requiring payments to, any such employee, officer, director,
shareholder, family member or affiliate.
2.21 REGISTRATION RIGHTS.
Except as set forth in the Transactional Agreements, the Company is not
under any obligation to register any of its presently outstanding securities or
any of its securities which may hereafter be issued.
2.22 CONTRACTS AND OTHER COMMITMENTS.
Each material agreement and contract to which the Company is a party or
by which the Company is bound is in full force and effect and constitutes a
legal, valid and binding obligation of, and is legally enforceable against, the
Company and, to the Company's Knowledge, the other parties thereto, except where
the failure of the same to be in full force and effect and to be valid, binding
and enforceable would not have a Material Adverse Effect. The Company is not in
default, and, to the Company's Knowledge, the other party(ies) are not in
default, under any of such agreements or contracts, and there has not occurred
any event which to the Company's Knowledge (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute such a default, which default, or the occurrence of which default,
would result in a Material Adverse Effect.
2.23 REGULATION BY THE FCC.
At the date hereof, neither the Company nor any Affiliate of the
Company controlled by the Company is required to obtain from the Federal
Communications Commission any license or other authorization.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
3.1 ORGANIZATION AND GOOD STANDING.
The Purchaser is a corporation duly organized and validly existing
under the laws of Japan. Any Affiliate of the Purchaser that is a party to any
of the Transactional Agreements (a "Purchaser Party Affiliate") is a corporation
duly organized and validly existing under the laws of its state or other
jurisdiction of incorporation and, if such Affiliate is incorporated in the
United States, such Affiliate is in good standing under the laws of its state of
incorporation.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENTS.
Each of the Purchaser and each Purchaser Party Affiliate has the
requisite corporate power and authority to enter into and to perform its
obligations under this Agreement and all other Transactional Agreements to which
it is a party. The execution, delivery and performance by the Purchaser and each
Purchaser Party Affiliate of this Agreement and such other Transactional
Agreements to which they are parties, and the consummation or performance of the
Transactions, have been duly authorized by all necessary corporate action on the
part of the
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Purchaser and each Purchaser Party Affiliate which is a party thereto. Each of
this Agreement and such other Transactional Agreements constitutes, or upon
execution and delivery will constitute, the legal, valid and binding obligation
of the Purchaser and each Purchaser Party Affiliate which is a party thereto,
enforceable against the Purchaser and each Purchaser Party Affiliate, as the
case may be, in accordance with its terms, except as limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, and (ii) laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
3.3 NON-CONTRAVENTION; CONSENTS.
(a) Neither the execution and delivery by the Purchaser or any
Purchaser Party Affiliate of this Agreement or any other Transactional Agreement
to which such Entity is a party, nor the consummation or performance by the
Purchaser or any Purchaser Party Affiliate of any of the Transactions to be
consummated or performed by them, will directly or indirectly (with or without
notice or lapse of time): (i) violate any provision of the Purchaser's or any
Purchaser Party Affiliate's certificate or articles of incorporation or bylaws
or other charter documents; (ii) constitute or result in a breach or default by
the Purchaser or any Purchaser Party Affiliate, or give rise to a right of
termination on the part of any other party, or result in the creation or
imposition of any lien, claim or encumbrance on any Purchaser or any Purchaser
Party Affiliate assets, under any agreement or instrument to which the Purchaser
or any Purchaser Party Affiliate is a party or by which the Purchaser or any
Purchaser Party Affiliate is bound; or (iii) constitute a violation by the
Purchaser or any Purchaser Party Affiliate of any Requirement of Law.
(b) Except for compliance with the terms of the HSR Act and
Sections 13 and 16 of the Exchange Act, no consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Authority on the part of the Purchaser or any
Purchaser Party Affiliate is required in connection with the consummation of the
Transactions.
3.4 LITIGATION.
As of the date hereof, there are no suits, proceedings or
investigations pending or, to the Knowledge of the Purchaser and any Purchaser
Party Affiliate, threatened against the Purchaser or any Purchaser Party
Affiliate, which in any such case would materially adversely affect the
Purchaser's or any Purchaser Party Affiliate's ability to perform its
obligations under this Agreement or any of the other Transactional Agreements.
3.5 BROKERS, ETC.
Neither the Purchaser nor any Purchaser Party Affiliate has granted or
become obligated to pay, or has taken any action that likely would result in any
Person claiming to be entitled to receive from the Company, any brokerage
commission, finder's fee or similar commission or fee in connection with any of
the Transactions, except for the investment banking fee of Deutsche Morgan
Grenfell, Inc., which shall be paid by the Purchaser.
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3.6 INVESTMENT REPRESENTATIONS.
(a) The Purchaser understands that none of the Purchased Shares
has been registered under the Securities Act. The Purchaser also understands
that the Purchased Shares are being offered and sold pursuant to an exemption
from registration contained in the Securities Act based in part upon the
Purchaser's representations contained in this Agreement, and that the Company is
relying upon the truth and accuracy of the Purchaser's representations,
warranties, acknowledgements and understandings set forth herein.
(b) The Purchaser is acquiring the Purchased Shares for the
Purchaser's own account for investment only, and not with the current intention
of making a public distribution thereof.
(c) The Purchaser has substantial experience in evaluating and
investing in private placement transactions of securities in companies similar
to the Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests. The
Purchaser, by reason of its business or financial experience, has the capacity
to protect its own interests in connection with the Transactions. The Purchaser
is an "accredited investor" as that term is defined in Rule 501(a) of Regulation
D under the Securities Act.
(d) The Purchaser acknowledges that the Purchased Shares must be
held indefinitely and that the Purchaser must bear the economic risk of this
investment indefinitely unless the Purchased Shares are subsequently registered
under the Securities Act or an exemption from such registration is available.
Without limiting the obligations of the Company under the Investment Agreement,
the Purchaser understands that the Company has no present intention of
registering the Purchased Shares. The Purchaser also understands that there is
no assurance that any exemption from registration under the Securities Act will
be available and that, even if available, such exemption may not allow the
Purchaser to transfer all or any portion of the Purchased Shares under the
circumstances, in the amounts or at the times the Purchaser might propose.
(e) The Purchaser has been advised or is aware of the provisions
of Rule 144 under the Securities Act ("Rule 144"), which permit limited resale
of shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things: (i) the availability of
certain current public information about the Company, (ii) the resale occurring
not less than one year after a party has purchased and paid for the security to
be sold, (iii) the sale being through an unsolicited "broker's transaction" or
in transactions directly with a market maker (as said term is defined under the
Exchange Act) and (iv) the number of shares being sold during any three-month
period not exceeding specified limitations.
(f) The Purchaser initiated discussions with the Company relating
to the purchase and sale contemplated by this Agreement on an unsolicited basis
prior to February 27, 1998. The Purchaser did not receive any information
regarding such purchase and sale through any general solicitation or general
advertising within the meaning of Rule 502(c) under the Securities Act.
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3.7 COMPANY DISCLOSURE DOCUMENTS.
(a) The Purchaser has received and reviewed a copy of the Private
Placement Memorandum, including, without limitation, the language therein under
the caption "Risk Factors."
(b) The Purchaser has been furnished with materials relating to
the Company and its proposed activities, including, without limitation, the
Private Placement Memorandum. Without limiting the Company's obligations with
respect to any representations or warranties made by the Company in this
Agreement, the Purchaser has been afforded the opportunity to obtain any
additional information deemed necessary by the Purchaser to verify the accuracy
of any representations made or information conveyed to the Purchaser. The
Purchaser confirms that all documents, records and books pertaining to its
investment in Common Stock or Junior Preferred Stock and requested by the
Purchaser have been made available or delivered to the Purchaser. The Purchaser
has had an opportunity to ask questions of and receive answers from the Company,
or from a person or persons acting on the Company's behalf, concerning the terms
and conditions of this investment. The Purchaser has relied upon, and is making
its investment decision solely upon, the Private Placement Memorandum provided
to the Purchaser by or on behalf of the Company.
4. CONDITIONS TO CLOSING
4.1 CONDITIONS TO THE PURCHASER'S OBLIGATIONS.
The Purchaser's obligations to purchase the Purchased Shares and to
take the other actions required to be taken by it at the Closing is subject to
the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by the Purchaser, in whole or in part):
(a) The representations and warranties of the Company contained
in this Agreement shall be true on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of the
Closing Date, except to the extent any such representations and warranties are
stated to be made as of a specific date, in which case they shall be true as of
such date, except in each case for any inaccuracies in such representations and
warranties as would not have a Material Adverse Effect. In addition, the Company
shall have performed in all material respects all obligations required pursuant
to the terms of this Agreement or any of the other Transactional Agreements to
be performed or observed by it on or prior to the Closing.
(b) The Company shall have delivered to the Purchaser a
certificate, executed by an executive officer of the Company, dated the date of
the Closing, setting forth the Company's representation that the conditions set
forth in Section 4.1(a) above shall have been satisfied.
(c) The Purchaser Board Designee (as defined in the Investment
Agreement) shall have been appointed to a term on the Board of Directors of the
Company as provided in the Investment Agreement.
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(d) The Company shall have obtained any and all consents,
permits, waivers and approvals necessary or appropriate for consummation of the
Transactions (except for such as may be properly obtained subsequent to the
Closing), provided, that, notwithstanding anything to the contrary, the
expiration or early termination of the applicable waiting period under the HSR
Act shall not be a condition to the Purchaser's obligations hereunder.
(e) The Company shall have executed and delivered to the
Purchaser or a Purchaser Party Affiliate, as applicable, each of (i) the
Investment Agreement and (ii) the Outside Service Provider Agreement.
(f) There shall be no injunction, writ, preliminary restraining
order or other order in effect of any nature issued by a court or governmental
agency of competent jurisdiction directing that the Transactions not be
consummated in the manner provided for in this Agreement and the other
Transactional Agreements. No action or proceeding shall have been instituted and
remain pending before a court or other governmental body of competent
jurisdiction to restrain, prohibit or otherwise challenge any of the
Transactions (or seeking material damages from the Purchaser, the Company or any
Purchaser Party Affiliate as a result thereof), other than any such action or
proceeding which would not have a Material Adverse Effect or prevent the Company
or the Purchaser from performing their respective obligations hereunder or under
any of the other Transactional Agreements.
(g) The Company shall have delivered to the Purchaser a legal
opinion from counsel to the Company, in form and substance reasonably
satisfactory to the Purchaser and its counsel and addressing the matters listed
in Exhibit D hereto.
(h) On or prior to the Closing Date, the Purchaser shall have
received a certificate of the Secretary of State of the State of Delaware, dated
as of a recent date, as to the good standing of the Company.
(i) The IPO shall have been consummated or shall be consummated
concurrently with the Closing.
(j) If the Purchaser is purchasing shares of Junior Preferred
Stock pursuant to the terms hereof, the Certificate of Designation shall have
been filed with the Secretary of State of the State of Delaware.
4.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Company's obligations to sell the Purchased Shares and to take the
other actions required to be taken by the Company at the Closing is subject to
the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by the Company, in whole or in part):
(a) The representations and warranties of the Purchaser contained
in this Agreement shall be true in all material respects on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing Date, except to the extent any such
representations and warranties are stated to be made as of a specific date, in
which case they shall be true in all material respects as of such date, and the
Purchaser and any
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Purchaser Party Affiliate shall have performed in all material
respects all obligations required pursuant to the terms of this Agreement or any
of the other Transactional Agreements to be performed or observed by either of
them on or prior to the Closing.
(b) The Purchaser shall have delivered to the Company a
certificate, executed by an executive officer of the Purchaser, dated the date
of the Closing, setting forth the Purchaser's representation that the conditions
set forth in Section 4.2(a) above shall have been satisfied.
(c) The Purchaser and any Purchaser Purchaser Party Affiliate
shall have obtained any and all consents, permits, waivers and approvals
necessary or appropriate for consummation of the Transactions (except for such
as may be properly obtained subsequent to the Closing), provided, that,
notwithstanding anything to the contrary, the expiration or early termination of
the applicable waiting period under the HSR Act shall not be a condition to the
Company's obligations hereunder.
(d) The Purchaser or a Purchaser Party Affiliate shall have
executed and delivered to the Company each of (i) the Investment Agreement and
(ii) the Outside Service Provider Agreement.
(e) There shall be no injunction, writ, preliminary restraining
order or other order in effect of any nature issued by a court or governmental
agency of competent jurisdiction directing that the Transactions not be
consummated in the manner provided for in this Agreement and the other
Transactional Agreements. No action or proceeding shall have been instituted and
remain pending before a court or other governmental body of competent
jurisdiction to restrain, prohibit or otherwise challenge any of the
Transactions (or seeking material damages from the Purchaser, any Purchaser
Party Affiliate or the Company as a result thereof), other than any such action
or proceeding which would not have a Material Adverse Effect or prevent the
Company, the Purchaser or any Purchaser Party Affiliate from performing their
respective obligations hereunder or under any of the other Transactional
Agreements.
(f) The Purchaser shall have delivered to the Company a legal
opinion from counsel to the Purchaser and any Purchaser Party Affiliate, in form
and substance reasonably satisfactory to the Company and its counsel and
addressing the matters described in Exhibit E hereto.
(g) On or prior to the Closing Date, if the Purchaser or any
Purchaser Party Affiliate is organized in the United States, the Company shall
have received a certificate of the Secretary of State (or equivalent agency) of
the state of the Purchaser's or the Purchaser Party Affiliate's organization, as
to the good standing of such party.
(h) The IPO shall have been consummated or shall be consummated
concurrently with the Closing.
(i) Concurrently with such sale, the Purchaser shall have paid to
the Company the purchase price for the Purchased Shares.
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5. COVENANTS OF THE PARTIES
5.1 FILINGS AND CONSENTS.
Concurrently with execution and delivery of this Agreement, the
Purchaser and the Company shall make all filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), relating to the Transactions. In addition, the Purchaser will promptly
furnish all information as may be required by the Japanese Ministry of Finance
in order for the requisite approvals for the purchase and sale of the Purchased
Shares, and the consummation of the Transactions, to be obtained, and the
Company and the Purchaser will each promptly furnish all information as may be
required by the Federal Trade Commission and the Department of Justice under the
HSR Act in order for the requisite approvals for the purchase and sale of the
Purchased Shares, and the consummation of the Transactions, to be obtained or
any applicable waiting periods to be terminated or expire. Each party hereto
will cooperate with each other with respect to obtaining, as promptly as
practicable, and in any event prior to consummation of the IPO, all necessary
consents, approvals, authorizations and agreements of, and the giving of all
notices and making of all other filings with, any third parties, including
Governmental Authorities, necessary to authorize, approve or permit the
consummation of the Transactions. Each party hereto shall pay fifty percent
(50%) of the filing fee required in connection with the initial application
under the HSR Act with respect to the Transactions.
5.2 COVENANT TO SATISFY CONDITIONS.
Each party agrees to use all reasonable efforts to insure that the
conditions to the other party's obligations hereunder set forth in Section 4,
insofar as such matters are within the control of such party, are satisfied as
promptly as practicable, and in any event prior to consummation of the IPO,
provided, that notwithstanding anything herein to the contrary, the Company
shall have the sole and absolute discretion as to when, and whether, to
consummate the IPO, and may choose to cease pursuit of the IPO or to postpone
the IPO until after the termination of this Agreement, all without any liability
or obligation whatsoever to the Purchaser.
5.3 RESERVATION OF SHARES.
If the Purchaser purchases shares of Junior Preferred Stock at the
Closing pursuant to Section 1.1 hereof, then prior to or promptly following the
Closing the Company shall reserve for issuance upon any conversion of such
shares of Junior Preferred Stock such number of shares of Common Stock as would
be issued upon the conversion of all such shares of Junior Preferred Stock.
5.4 FURTHER ASSURANCES.
Each party shall execute and deliver such additional instruments,
documents or other writings as may be reasonably requested by any other party,
before or after the Closing, in order to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement and the other Transactional
Agreements.
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6. TERMINATION
6.1 TERMINATION.
(a) This Agreement may be terminated at any time prior to the
Closing:
(i) by the written agreement of the Purchaser and
the Company;
(ii) by the Company or the Purchaser, if the Closing
shall not have occurred by July 31, 1998, provided, that the failure to
consummate the Closing by such date is not a result of the Company, in
the case the Company is so electing to terminate this Agreement, or of
the Purchaser or any Purchaser Party Affiliate, in the case the
Purchaser is so electing to terminate this Agreement, failing to
perform any of its obligations or breaching any of its representations
and warranties hereunder or under any of the other Transactional
Agreements; and
(iii) by the Company or the Purchaser in the event
any court or governmental agency of competent jurisdiction shall have
issued an order, decree or ruling or taken any other action
restricting, enjoining or otherwise prohibiting the Transactions and
such order, decree, ruling or other action shall have become final and
unappealable, and the parties hereto hereby agree to use all
reasonable efforts to prevent any such order, decree, ruling or other
action from becoming final and unappealable.
6.2 EFFECT OF TERMINATION.
Except for the obligations of Section 8 hereof and this Section 6.2, if
this Agreement shall be terminated pursuant to the preceding Section 6.1, all
obligations, representations and warranties of the parties hereto under this
Agreement shall terminate and there shall be no liability hereunder of any party
hereto to any other party hereto, provided, that nothing in this Section 6 shall
relieve any party of liability for breach of any warranty, covenant or agreement
herein or in any other Transactional Agreement.
7. SUCCESSORS AND ASSIGNS
7.1 SUCCESSORS AND ASSIGNS.
Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the parties hereto. Except as otherwise
expressly provided herein, neither party may assign any of its rights or
obligations hereunder without the written consent of the other party hereto.
7.2 NOVATION.
(a) From and after the date of this Agreement, the Purchaser
shall have the right, with or without the consent of the Company, to assign all
of its rights and obligations under this Agreement (other than its obligations
pursuant to this Section 7, except in the circumstances and subject to the
conditions described in Section 7.2(b)), effecting a novation of such rights and
obligations, to a direct or indirect wholly-owned subsidiary of the Purchaser
(the "Assignee"),
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provided, that any such assignment shall only be made in conjunction with an
assignment by the Purchaser to the same transferee of its rights and obligations
under the Investment Agreement, pursuant to Section 10 of the Investment
Agreement. Such assignment shall become effective immediately upon notification
by the Purchaser to the Company of such assignment.
(b) In the event of a transfer of the rights and obligations of
the Purchaser under this Agreement pursuant to a statutory reorganization of the
Purchaser prescribed in the Supplementary Provisions to the Law Concerning
Partial Amendment to the Nippon Telegraph and Telephone Corporation Law (Law No.
98 of 1997) (the "Amendment"), the Purchaser shall ensure that all the rights
and obligations of the Purchaser under this Agreement and the ownership of the
Purchased Shares are transferred to the said successor entity without any
dilution or adverse effect on the enforceability of such obligations. Subject to
the aforesaid, the Company: (i) agrees that such a reorganization by itself
shall not constitute a default by the Purchaser or any successor entity of the
Purchaser under this Agreement and shall not constitute grounds for termination
of this Agreement by any of such parties; (ii) anything to the contrary herein
or elsewhere notwithstanding, consents to the transfer of all the rights and
obligations of the Purchaser under this Agreement (including, without
limitation, its obligations pursuant to Sections 7.3 and 7.4 hereof) to a
successor entity as part of such reorganization; (iii) consents to the transfer
of the Purchaser Shares to a successor entity as part of such reorganization;
and (iv) anything to the contrary herein or elsewhere notwithstanding, agrees to
absolutely and irrevocably release the Purchaser from its obligations under this
Agreement and the other Transactional Agreements upon such reorganization,
provided, in each case, that the successor entity shall be subject to the terms
and conditions of this Agreement and the other Transactional Agreements,
including, without limitation, the representations and warranties of the
Purchaser herein and in the other Transactional Agreements, and shall deliver to
the Company a written agreement to such effect, in form and substance reasonably
satisfactory to the Company, and provided, further, in each case, that the
successor entity is either one of the Regional Companies or the Long Distance
Company currently contemplated in the Amendment.
7.3 GUARANTEE.
(a) The Purchaser hereby absolutely, unconditionally and
irrevocably guarantees (i) the full and complete performance by each Assignee
and each Purchaser Party Affiliate of all covenants and obligations to be
performed by it under this Agreement, the Investment Agreement and all other
Transactional Agreements, and (ii) the payment of any and all damages, losses,
claims, demands, recoveries, deficiencies, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) which the Company
or any of its successors, assigns or Affiliates may suffer or incur in
connection with, resulting from or arising out of any breach by any Assignee or
any Purchaser Party Affiliate of any such covenants and obligations, which
guarantee shall be effective from and after the date hereof or, in the case of
any Assignee, automatically upon the effectiveness of the related assignment
pursuant to Section 7.2(a).
(b) Without limiting the generality of the preceding paragraph
(a), the Purchaser agrees that, in the event that any Assignee or any Purchaser
Party Affiliate fails to perform any of its duties and obligations under this
Agreement or any of the other Transactional Agreements, and monetary claims by
the Company or any of its successors, assigns or Affiliates arising out of or
with respect to such failure to perform have been determined (by any judgment of
a court, by
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an arbitral award, by execution of a settlement agreement or by final resolution
under the terms of the relevant Transactional Agreement) to be payable to the
Company or any such successor, assign or Affiliate ("Payment Determination"),
then the Purchaser shall promptly pay over to the Company or such successor,
assign or Affiliate all of the amounts so determined to be due to it within
thirty (30) days after such Payment Determination, if and to the extent that the
Assignee or the Purchaser Party Affiliate, as applicable, shall have failed to
pay such amounts within such time period. The Purchaser agrees that it will pay
and perform all obligations of the Assignee or the Purchaser Party Affiliate, as
applicable, established through any Payment Determination made as a result of
any litigation, arbitration or other proceeding, even though such litigation,
arbitration or any other proceeding may be appealed or is appealable by the
Purchaser, the Assignee or the Purchaser Party Affiliate.
(c) In addition to all other amounts to which it may be entitled
hereunder, in the event that the Company or any of its successors, assigns or
Affiliates recovers any amounts from the Purchaser or any Affiliate of the
Purchaser pursuant to this Section 7 or otherwise in connection with the matters
giving rise to the Purchaser's guarantee obligation hereunder, the Company or
any such successor, assign or Affiliate shall be entitled to recover from the
Purchaser all costs and expenses (including, without limitation, court costs and
reasonable attorneys' fees and expenses) incurred by the Company or any such
successor, assign or Affiliate in connection with the enforcement of this
Section 7 against the Purchaser and all actions or proceedings, in any way,
manner or respect arising out of or relating to the enforcement by the Company
of its rights under this Section 7 against the Purchaser. In the event that the
Company or any of its successors, assigns or Affiliates seeks to enforce this
Section 7 against the Purchaser and is finally judicially determined not to be
entitled to any recovery with respect to the matter for which the Purchaser's
guarantee hereunder was sought to be enforced, the Purchaser shall be entitled
to recover from the Company all costs and expenses (including, without
limitation, court costs and reasonable attorneys' fees and expenses) incurred by
the Purchaser in connection with the Purchaser's defending such enforcement
action.
(d) In the event that the Purchaser assigns its rights and
obligations under this Agreement pursuant to Section 7.2(a) above, (i) the
Purchaser and the Assignee shall be deemed to have made, jointly and severally,
the representations and warranties contained in Section 3 hereof, each with
respect to itself as if it were the "Purchaser" for purposes of such
representations and warranties, provided, that, with respect to the
representation and warranties in Section 3.1 hereof, the Assignee shall be
deemed to have represented and warranted that it is a corporation duly organized
and validly existing under the laws of its state or other jurisdiction of
incorporation and, if the Assignee is incorporated in the United States, that it
is in good standing under the laws of its state of incorporation; and (ii) each
of the conditions to the Company's obligations described in Section 4.2 shall be
deemed to include references to both the Purchaser and the Assignee, with
respect to each as if it were the "Purchaser." Without limiting the generality
of the foregoing, in the event of any such assignment, it shall be a condition
to the obligation of the Company to sell the Purchased Shares and to take the
other actions required to be taken by it at the Closing that each of the
Purchaser and the Assignee shall have delivered an opinion from their respective
counsel, in form and substance reasonably satisfactory to the Company and its
counsel and addressing the matters listed in Exhibit E hereto, with respect to
itself.
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7.4 CERTAIN WAIVERS AND AUTHORIZATIONS.
In connection with any assignment by the Purchaser pursuant to
Section 7.2(a) above and the guarantee by the Purchaser pursuant to Section 7.3
above:
(a) The Purchaser hereby irrevocably waives, to the fullest
extent permitted by law: (i) all statutes of limitations defenses; (ii) any
defense based upon any legal disability or any discharge or limitation of the
liability of any Assignee or any Purchaser Party Affiliate, whether consensual
or arising by operation of law or by any bankruptcy, reorganization,
receivership, insolvency or similar debtor-relief proceeding, or from any other
cause; (iii) presentment, demand, protest and notice of any kind, including,
without limitation, notices of nonperformance, protest and dishonor; and (iv)
any right to require the Company to proceed against any Assignee, any Purchaser
Party Affiliate or any other party or to pursue any other remedy in the
Company's power whatsoever.
(b) The Purchaser's obligations under Section 7.3 shall be
primary obligations and are independent of those of any Assignee or any
Purchaser Party Affiliate. The Company may bring a separate action against the
Purchaser, without first proceeding against any Assignee, any Purchaser Party
Affiliate or any other Person and without pursuing any other remedy. The
Company's rights hereunder shall not be exhausted by any action of the Company
until all obligations of all Assignees and all Purchaser Party Affiliates have
been performed and there shall be no outstanding default thereunder, and all
obligations of the Purchaser otherwise shall have been performed.
(c) To the fullest extent permitted by law, the Company may at
any time and from time to time, without the consent of or notice to the
Purchaser, without incurring any responsibility to the Purchaser, and without
impairing or releasing the obligations of the Purchaser hereunder, upon or
without any terms or conditions and in whole or in part:
(i) exercise or refrain from exercising any rights
against any Assignee or any Purchaser Party Affiliate or others or
otherwise act or refrain from acting;
(ii) subordinate, release, settle or compromise any of the
obligations of any Assignee or any Purchaser Party Affiliate;
(iii) consent to or waive any breach of, or any act,
omission or default under, this Agreement, the Investment Agreement or any
other Transactional Agreements, or otherwise agree with any Assignee or any
Purchaser Party Affiliate to amend, modify or supplement any such
Agreements or any other instrument or agreement; or
(iv) substitute, add or release any one or more
guarantors.
(d) The obligations of the Purchaser hereunder shall continue to
be effective if any obligations of any Assignee or any Purchaser Party Affiliate
are rescinded or nullified, or any payment made thereby must otherwise be
restored or returned to such party, or any trustee, receiver, custodian,
liquidator or other similar officer thereof (and is so returned) upon the
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bankruptcy of such party or upon or as a result of the appointment of a
custodian, receiver, trustee or other officer with similar powers with respect
to such party.
(e) The obligations of the Purchaser hereunder shall continue to
be effective notwithstanding any other provision hereof or any amendment or
modification of this Agreement or any of the other Transactional Agreements, or
any assignment or any rejection thereof which may occur in any bankruptcy or
proceeding concerning any Assignee or any Purchaser Party Affiliate, whether
permanent or temporary, and whether or not assented to by any of the parties to
this Agreement or any of the other Transactional Agreements.
(f) Without notice to or further assent from the Purchaser, any
of the terms and conditions respecting the duties and obligations of any
Assignee or any Purchaser Party Affiliate under this Agreement and the other
Transactional Agreements may be waived or modified by any of such parties and
the Company, and the time of payment of any amount due or the time of
performance of any obligation of such parties may be compromised, settled or
extended in writing by such parties and the Company. The obligations of the
Purchaser hereunder shall not be discharged or impaired or otherwise affected by
(i) any extension or renewal of this Agreement or any of the other Transactional
Agreements or any obligations of any Assignee or any Purchaser Party Affiliate
thereunder, without notice or further assent from the Purchaser; (ii) any
rescission, waiver, amendment or modification of any of the terms or provisions
of this Agreement or any of the other Transactional Agreements; (iii) any
permitted assignment or delegation by the Company, or any of its successors and
assigns, of its rights and obligations under this Agreement or any of the other
Transactional Agreements; or (iv) any other act or thing which may or might in
any manner or to any extent vary the risk of the Purchaser or which would
otherwise operate as a discharge of the Purchaser as a matter of law.
8. MISCELLANEOUS
8.1 PRESS RELEASES AND ANNOUNCEMENTS.
All press releases and announcements concerning the investment
contemplated by this Agreement and the other Transactions shall be mutually
agreed to by the Company and the Purchaser, except for any such disclosure
required by law which, in the case of such disclosure by the Company, shall, to
the extent practicable under the circumstances, be first discussed with the
Purchaser and, in the case of such disclosure by the Purchaser, shall, to the
extent practicable under the circumstances, be first discussed with the Company.
The foregoing provisions of this Section 8.1 shall not prohibit or restrict in
any way disclosure by the Company with respect to this Agreement and the other
Transactional Agreements in connection with any financing, strategic
transaction, acquisition or disposition involving the Company or any of its
Affiliates, provided, that such disclosure shall be first discussed to the
extent reasonably practicable with the Purchaser.
8.2 INTERPRETATION.
(a) The various section headings are inserted for purposes of
reference only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
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(b) Each party hereto acknowledges that it has been represented
by competent counsel and participated in the drafting of this Agreement and the
other Transactional Agreements, and agrees that any applicable rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in connection with the construction or
interpretation of this Agreement and the other Transactional Agreements.
(c) The original and controlling version of this Agreement and
the other Transactional Agreements shall be the version using the English
language. All translations of this Agreement or any of the other Transactional
Agreements into other languages shall be for the convenience of the parties
only, and shall not control the meaning or application of this Agreement or any
of the other Transactional Agreements. All notices and other communications
required or permitted by this Agreement or any other Transactional Agreement
must be in English, and the interpretation and application of such notices and
other communications shall be based solely upon the English language version
thereof.
(d) When a reference is made in this Agreement or any other
Transactional Agreement to a Section, Exhibit or Schedule, such reference shall
be to a Section of, Exhibit to or Schedule to this Agreement or such other
Transactional Agreement, unless otherwise indicated.
8.3 FEES AND EXPENSES.
Each party hereto shall be solely responsible for the payment of the
fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
Transactional Agreements, except to the extent expressly set forth in this
Agreement and the other Transactional Agreements. Without limiting the
generality of the foregoing, the Purchaser shall pay all stamp and other taxes,
if any, which may be payable in respect of the issuance, sale and delivery to
the Purchaser or any Assignee of Common Stock or Junior Preferred Stock pursuant
to the terms of this Agreement, or upon any conversion of any Common Stock, and
shall save the Company harmless against any loss or liability resulting from
nonpayment or delay in the payment of any such tax.
8.4 GOVERNING LAW; JURISDICTION AND VENUE; WAIVER OF JURY TRIAL.
(a) This Agreement is to be construed in accordance with and
governed by the internal laws of the State of New York (as permitted by Section
5-1401 of the New York General Obligations Law (or any similar successor
provision)) without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of New York to the rights and duties of the parties.
(b) Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement may be brought
or otherwise commenced in any state or federal court located in the County of
Denver, Colorado. Each party to this Agreement:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the County of
Denver, Colorado (and each
21
<PAGE> 27
appellate court located in the State of Colorado) in connection with any
such legal proceeding, including to enforce any settlement, order or award;
(ii) agrees that each state and federal court located in
the County of Denver, Colorado shall be deemed to be a convenient forum;
and
(iii) waives and agrees not to assert (by way of motion, as
a defense or otherwise), in any such legal proceeding commenced in any
state or federal court located in the County of Denver, Colorado, any
claim that such party is not subject personally to the jurisdiction of
such court, that such legal proceeding has been brought in an inconvenient
forum, that the venue of such proceeding is improper or that this
Agreement or the subject matter of this Agreement may not be enforced in
or by such court.
(c) Each party hereto agrees to the entry of an order to enforce
any resolution, settlement, order or award made pursuant to this Section by the
state and federal courts located in the County of Denver, Colorado and in
connection therewith hereby waives, and agrees not to assert by way of motion,
as a defense, or otherwise, any claim that such resolution, settlement, order or
award is inconsistent with or violative of the laws or public policy of the laws
of the State of New York or any other jurisdiction.
(d) The Purchaser has irrevocably designated Corporation Service
Company, of One Civic Center Plaza, 1560 Broadway, Denver, Colorado 80202, as
agent for service of process hereunder and the above named is authorized and
directed to accept service of process on behalf of the Purchaser in any suit
regarding the Transactions or otherwise related to this Agreement or the other
Transactional Agreements.
(e) Each party to this Agreement hereby knowingly, voluntarily,
and intentionally waives the right to a trial by jury in respect of any
litigation arising out of, under or in connection with this Agreement, this
waiver being a material inducement for each such party to enter into this
Agreement.
8.5 SPECIFIC ENFORCEMENT.
The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific intent or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which they may be entitled by law or equity.
8.6 SURVIVAL.
The representations and warranties of the parties hereunder shall
survive the Closing for one (1) year, and thereafter shall terminate and be of
no force or effect.
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<PAGE> 28
8.7 NO THIRD PARTY BENEFICIARIES.
This Agreement is intended for the benefit of the parties hereto and
their respective permitted successors and assigns and are not for the benefit
of, nor may any provision hereof be enforced by, any other Person.
8.8 ENTIRE AGREEMENT.
This Agreement, the other Transactional Agreements and the other
documents delivered expressly hereby, constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein. Without limiting the generality of the foregoing, by
execution of this Agreement and the Investment Agreement, each party hereto
hereby terminates the Mutual Nondisclosure/Non-Solicitation Agreement dated as
of February 12, 1998 between the Company and the Purchaser, and such
Nondisclosure Agreement is hereby terminated.
8.9 SEVERABILITY.
The provisions of this Agreement shall be severable, and any
invalidity, unenforceability or illegality of any provision or provisions of
this Agreement shall not affect any other provision or provisions of this
Agreement, and each term and provision of this Agreement shall be construed to
be valid and enforceable to the full extent permitted by law.
8.10 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
mutual written consent of the Company and the Purchaser.
(b) No failure to exercise and no delay in exercising any right,
power or privilege granted under this Agreement shall operate as a waiver of
such right, power or privilege. No single or partial exercise of any right,
power or privilege granted under this Agreement shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies provided in this Agreement are cumulative and are not
exclusive of any rights or remedies provided by law.
8.11 RELATIONSHIP OF THE PARTIES.
For all purposes of this Agreement and the other Transactional
Agreements, each of the parties hereto and their respective Affiliates shall be
deemed to be independent entities and, anything in this Agreement or the other
Transactional Agreements to the contrary notwithstanding, nothing herein shall
be deemed to constitute the parties hereto or any of their respective Affiliates
as partners, joint venturers, co-owners, an association or any entity separate
and apart from each party itself, nor shall this Agreement or any other
Transactional Agreement make any party hereto an employee or agent, legal or
otherwise, of the other parties for any purposes whatsoever. This Agreement does
not create or constitute, and shall not be construed as creating or
constituting, a voting trust agreement under the Delaware General Corporation
Law or any other applicable corporation law. None of the parties to this
Agreement or any other
23
<PAGE> 29
Transactional Agreement is authorized to make any statements or representations
on behalf of any other party or in any way to obligate any other party, except
as expressly authorized in writing by the other parties. Anything in this
Agreement or any other Transactional Agreement to the contrary notwithstanding,
no party hereto or thereto shall assume nor shall be liable for any liabilities
or obligations of the other parties, whether past, present or future.
8.12 NOTICES.
All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given: (i) upon personal delivery to the party to be
notified; (ii) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient, if not, then on the next business day; (iii)
five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iv) two (2) days after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the parties
hereto at the respective addresses set forth below, or as notified by such party
from time to time at least ten (10) days prior to the effectiveness of such
notice:
if to the Purchaser: Nippon Telegraph and Telephone Corporation
Global Communications Headquarters
Tokyo Opera City Tower
20-2 Nishi-shinjuku 3-chome
Shinjuku-ku
Tokyo 163-14 Japan
Attention: Tatsuo Kawasaki
Facsimile: 81-3-5353-5753
with a copy to: NTT America, Inc.
101 Park Avenue, 41st Floor
New York, NY 10178
Attention: Richard Nohe
Facsimile: (212) 661-1078
and a copy to: Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Anthony S. Harrington
Facsimile: (202) 637-5910
if to the Company: Verio Inc.
8005 South Chester Street
Suite 200
Englewood, CO 80112
Attention: Carla Hamre Donelson
Facsimile: (303) 708-2494
24
<PAGE> 30
with a copy to: Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
Attention: Gavin B. Grover
Facsimile: (415) 268-7522
8.13 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
8.14 ATTORNEY'S FEES.
If any action at law or in equity is necessary to enforce or interpret
the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
25
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
By: /s/ JUN-ICHIRO MIYAZU
----------------------------------------
Name: Jun-Ichiro Miyazu
Title: President
VERIO INC.
By: /s/ JUSTIN JASCHKE
----------------------------------------
Justin Jaschke
Chief Executive Officer
26
<PAGE> 32
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
AFFILIATE. "Affiliate" shall mean, with respect to any specified
Person, a Person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under the common control with,
the Person specified.
AMENDMENT. "Amendment" shall have the meaning specified in Section 7.2
of the Agreement.
ASSIGNEE. "Assignee" shall have the meaning specified in Section 7.2 of
the Agreement.
BUSINESS DAY. "Business Day" shall mean any day other than a Saturday
or Sunday or other day on which commercial banks in California are authorized or
required by law to close.
CERTIFICATE OF DESIGNATION. "Certificate of Designation" shall have the
meaning specified in Section 1.1 of the Agreement.
CLOSING. "Closing" shall have the meaning specified in Section 1.2 of
the Agreement.
CLOSING DATE. "Closing Date" shall have the meaning specified in
Section 1.2 of the Agreement.
COMMON STOCK. "Common Stock" shall have the meaning specified in the
Recitals to the Agreement.
COMPANY TAX RETURNS. "Company Tax Returns" shall mean all federal,
state, local, foreign and other applicable tax returns and declarations of
estimated tax reports required to be filed by the Company (without regard to
extensions of time permitted by law or otherwise).
DILUTED COMMON STOCK. "Diluted Common Stock" shall mean the sum of (i)
the number of shares of Common Stock outstanding at the time the determination
is made plus (ii) the number of shares of Common Stock issuable upon the
exercise or conversion of all then outstanding rights, warrants, options,
convertible securities or indebtedness, exchangeable securities or indebtedness,
or other rights, exercisable for or convertible or exchangeable into, directly
or indirectly, Common Stock, whether at the time of issue or upon the passage of
time or the occurrence of some future event.
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall have the meaning
specified in Section 2 of the Agreement.
DOLLARS OR $. "Dollars" or "$" shall mean United States Dollars.
A-1
<PAGE> 33
ENTITY. "Entity" shall mean any corporation (including any non profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
ENVIRONMENTAL LAW. "Environmental Law" shall have the meaning specified
in Section 2.17 of the Agreement.
ERISA. "ERISA" shall have the meaning specified in Section 2.16 of the
Agreement.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
FINANCIAL STATEMENTS DATE. "Financial Statements Date" shall have the
meaning specified in Section 2.5 of the Agreement.
GOVERNMENTAL AUTHORITY. "Governmental Authority" means any nation or
government, any state or other political subdivision thereof and any Entity
properly exercising executive, legislative, judicial, regulatory or
administrative functions of government.
HSR ACT. "HSR Act" shall have the meaning specified in Section 5.1 of
the Agreement.
INVESTMENT AGREEMENT. "Investment Agreement" shall have the meaning
specified in the Recitals to the Agreement.
IPO. "IPO" shall mean an underwritten initial public offering of Common
Stock pursuant to an effective registration statement filed by the Company under
the Securities Act.
IPO PRICE. "IPO Price" shall mean the "Price to the Public" or other
per share offering price for Common Stock stated on the face of the final
prospectus relating to the IPO.
JUNIOR PREFERRED STOCK. "Junior Preferred Stock" shall have the meaning
specified in Section 1.1 of the Agreement.
KNOWLEDGE. "Knowledge" means (i) with respect to the Company, the
actual knowledge of the Chief Executive Officer and the Chief Financial Officer,
and (ii) with respect to the Purchaser and any Purchaser Party Affiliate or
assignee of the Purchaser, the actual knowledge of the president of NTT America,
Inc. and Toru Takama, Director of Business Strategy of the Purchaser.
MATERIAL ADVERSE EFFECT. "Material Adverse Effect" shall have the
meaning specified in Section 2.1 of the Agreement.
OUTSIDE SERVICE PROVIDER AGREEMENT. "Outside Service Provider
Agreement" shall have the meaning specified in the Recitals to the Agreement.
PER SHARE PRICE. "Per Share Price" shall have the meaning specified in
Section 1.1 of the Agreement.
A-2
<PAGE> 34
PERSON. "Person" shall mean any individual, Entity or Governmental
Authority.
PRIVATE PLACEMENT MEMORANDUM. "Private Placement Memorandum" shall have
the meaning specified in Section 2 of the Agreement. References in the Agreement
to the Private Placement Memorandum shall include the financial statements and
notes thereto included in the Private Placement Memorandum.
PURCHASED SHARES. "Purchased Shares" shall have the meaning specified
in Section 1.1 of the Agreement.
PURCHASER PARTY AFFILIATE. "Purchaser Party Affiliate" shall have the
meaning specified in Section 3.1 of the Agreement.
REQUIREMENTS OF LAW. "Requirements of Law" shall mean, as to any
Person, the certificate of incorporation and bylaws or other organizational or
governing documents of such Person, and all federal, state, local and foreign
laws, rules and regulations, including, without limitation, securities,
antitrust, communications, licensing, health, safety, labor and trade laws,
rules and regulations, and all orders, judgments, decrees and other
determinations of any Governmental Authority or arbitrator, applicable to or
binding upon such Person or any of its property or to which such Person or any
of its property is subject.
RULE 144. "Rule 144" shall have the meaning specified in Section 3.6 of
the Agreement.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
TAXES. "Taxes" shall mean all federal, state, local and foreign taxes
(including, without limitation, income, profit, franchise, sales, use, real
property, personal property, ad valorem, excise, employment, social security and
wage withholding taxes) and installments of estimated taxes, assessments,
deficiencies, levies, imports, duties, license fees, registration fees,
withholdings, or other similar charges of every kind, character or description
imposed by any governmental or quasi-governmental authorities, and any interest,
penalties or additions to tax imposed thereon or in connection therewith.
TRANSACTIONAL AGREEMENTS. "Transactional Agreements" shall mean (i) the
Agreement, (ii) the Investment Agreement and (iii) the Outside Service Provider
Agreement.
TRANSACTIONS. "Transactions" shall mean all of the transactions
contemplated by the respective Transactional Agreements, including, without
limitation, the issuance of the Purchased Shares by the Company to the Purchaser
in accordance with the Agreement.
U.S. GAAP. "U.S. GAAP" shall have the meaning specified in Section 2.5
of the Agreement.
A-3
<PAGE> 1
EXHIBIT 10.28
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
===============================================================================
VERIO INC.
INVESTMENT AGREEMENT
APRIL 7, 1998
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. COMPANY BOARD OF DIRECTORS; OBSERVERS...............................1
1.1 Board Designee.............................................1
1.2 Nomination to Company Board................................2
1.3 Observer Rights............................................2
1.4 Committee Rights...........................................2
1.5 Eligible Individuals; Confidentiality......................3
1.6 Vacancies..................................................3
2. STANDSTILL COVENANT; VOTING OF SECURITIES...........................4
2.1 Standstill Agreement.......................................4
2.2 Exceptions.................................................7
2.3 Notice of Acquisition; Compliance..........................8
2.4 Voting.....................................................9
2.5 Consultation...............................................9
3. TRANSFER RESTRICTIONS...............................................9
3.1 Prohibited Transfers.......................................9
3.2 Compliance with Law.......................................11
3.3 Right of First Offer and Right of First Refusal...........12
4. REGISTRATION RIGHTS................................................15
4.1 Certain Definitions.......................................15
4.2 Demand Registration Rights................................15
4.3 Piggyback Registration....................................18
4.4 Obligations of the Company................................20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.5 Certain Holder Obligations................................23
4.6 Expenses of Registration..................................24
4.7 Delay of Registration.....................................24
4.8 Indemnification...........................................24
4.9 Assignment of Registration Rights.........................27
4.10 Termination of Registration Rights........................27
4.11 Rule 144..................................................28
4.12 No Conflicting Agreements.................................28
4.13 Remedies..................................................28
5. DESIGNATED EMPLOYEES...............................................28
5.1 Right to Designate........................................28
5.2 Access to Information; Confidentiality....................29
5.3 Status of Designated Employees; Expenses..................29
5.4 Purpose of Designated Employees...........................29
6. RESTRICTIVE LEGEND.................................................30
6.1 Legend....................................................30
6.2 Stop Transfer Order.......................................30
6.3 Removal of Legends........................................30
7. CONFIDENTIAL TREATMENT OF CONFIDENTIAL INFORMATION.................31
7.1 Protection of Confidential Information....................31
7.2 Return of Confidential Information........................32
7.3 Equitable Remedies........................................32
8. OTHER AGREEMENTS...................................................32
8.1 Nonsolicitation...........................................32
8.2 Further Assurances........................................32
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
9. TERMINATION........................................................33
9.1 Termination...............................................33
9.2 Effect of Termination.....................................33
10. SUCCESSORS AND ASSIGNS.............................................33
10.1 Successors and Assigns....................................33
10.2 Novation..................................................33
10.3 Guarantee.................................................34
10.4 Certain Waivers and Authorizations........................35
11. MISCELLANEOUS......................................................37
11.1 Interpretation............................................37
11.2 Fees and Expenses.........................................38
11.3 Governing Law; Jurisdiction and Venue; Waiver of Jury
Trial.....................................................38
11.4 Specific Enforcement......................................39
11.5 No Third Party Beneficiaries..............................39
11.6 Entire Agreement..........................................39
11.7 Severability..............................................39
11.8 Amendment and Waiver......................................39
11.9 Relationship of the Parties...............................40
11.10 Notices...................................................40
11.11 Counterparts..............................................41
11.12 Attorneys' Fees...........................................41
</TABLE>
iii
<PAGE> 5
EXHIBIT 10.28
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
INVESTMENT AGREEMENT
This Investment Agreement (this "Agreement") is entered into as of
April 7, 1998, by and between VERIO INC., a Delaware corporation (the
"Company"), and NIPPON TELEGRAPH AND TELEPHONE CORPORATION, a Japanese
corporation (the "Purchaser").
WHEREAS, pursuant to a Stock Purchase and Master Strategic Relationship
Agreement dated of even date herewith between the Company and the Purchaser (the
"Master Agreement"), the Purchaser has agreed to purchase, and the Company has
agreed to sell to the Purchaser, shares of the Common Stock of the Company, par
value $0.001 per share (the "Common Stock"), such purchase and sale to take
place concurrently with the Company's initial public offering;
WHEREAS, the parties hereto desire to set forth certain terms and
conditions applicable to, among other things, the acquisition, ownership and
disposition of Common Stock and securities (including, without limitation,
options, warrants, convertible or exchangeable securities or indebtedness, and
other rights) convertible into, exchangeable for or exercisable for, directly or
indirectly, Common Stock (whether at the time of issue or upon the passage of
time or the occurrence of some future event) (collectively, "Company
Securities"); and
WHEREAS, terms used herein without definition shall have the respective
meanings given them in the Master Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein, the parties hereto, intending to be legally bound, agree as follows:
1. COMPANY BOARD OF DIRECTORS; OBSERVERS.
1.1 BOARD DESIGNEE.
(a) The Company shall take all corporate action necessary to appoint
to the Board of Directors of the Company (the "Company Board"), promptly upon
the closing of the purchase and sale to the Purchaser of Company Securities
pursuant to the Master Agreement (the "Closing"), an individual designated by
the Purchaser (such person, the "Purchaser Board Designee"). The Purchaser Board
Designee shall have an initial term on the Company Board ending at the third
annual stockholder meeting following the Closing (a "Class III Director"), and
thereafter shall be subject to election by the Company's stockholders.
(b) The Purchaser Board Designee shall be entitled to serve as a
member of the Company Board through the expiration of the initial term specified
in the preceding paragraph (a) so long as the Purchaser and its Affiliates
collectively shall own beneficially either (i) at least (*) percent ((*)%) of
the aggregate Company Securities purchased by the Purchaser at the time of the
IPO pursuant to the Master Agreement (including shares of Common Stock issuable
upon the conversion of any shares of Junior
1
<PAGE> 6
Preferred Stock purchased by the Purchaser pursuant to the Master Agreement, and
adjusted as appropriate for any subsequent stock split or reverse stock split or
other similar action) or (ii) at least five percent (5%) of the Diluted Common
Stock (the amount in clause (i) or (ii) above, the "Ownership Threshold"). If at
any time during such initial term the Purchaser and its Affiliates collectively
shall cease to own beneficially Company Securities at least equal to the
Ownership Threshold, the Purchaser shall, upon the request of the Company, cause
the Purchaser Board Designee to resign from the Company Board.
1.2 NOMINATION TO COMPANY BOARD.
Following the expiration of the initial term of the Purchaser Board
Designee as provided in Section 1.1(a) above, until such time as the Purchaser
and its Affiliates collectively no longer beneficially own Company Securities at
least equal to the Ownership Threshold, the Company shall take all corporate
action necessary to nominate for election to the Company Board as a Class III
Director an individual appointed by the Purchaser (the "Purchaser Board
Nominee"), and to recommend to the Company stockholders the Purchaser Board
Nominee's election to the Company Board as a Class III Director.
1.3 OBSERVER RIGHTS.
From and after the Closing, until such time as the Purchaser and its
Affiliates collectively no longer beneficially own Company Securities at least
equal to the Ownership Threshold, the Purchaser shall have the right to appoint
an observer (the "Purchaser Board Observer"), who shall have observer rights at
meetings of the Company Board, provided, that the Company Board shall have the
right to keep confidential from the Purchaser Board Observer for such period of
time as the Company Board deems reasonable any information and copies of written
materials the Company is required by law or agreement with a third party to keep
confidential.
1.4 COMMITTEE RIGHTS.
(a) From and after the Closing, until such time as the Purchaser and
its Affiliates collectively no longer beneficially own Company Securities at
least equal to the Ownership Threshold, the Company shall, at the request of the
Purchaser, cause to be appointed to the executive committee of the Company Board
(the "Executive Committee") the Purchaser Board Designee or any Purchaser Board
Nominee elected to the Company Board pursuant to Section 1.2 above, provided,
that, notwithstanding the foregoing, the Company shall not be required to cause
such appointment unless and until, and then only for so long as, (i) the
Executive Committee is delegated by the Company Board final decision-making
authority (which, for the purpose of clarification, shall not include any
decisions which require subsequent ratification by the Company Board) with
respect to material matters affecting the Company (other than matters listed on
Schedule 1 hereto), or (ii) the Company appoints and there continues to be as a
member
2
<PAGE> 7
of the Executive Committee more than a single individual who is not an employee
of the Company or the Chairman of the Company Board.
(b) From and after the Closing, during any period during which the
Purchaser would be entitled to appoint an individual to the Executive Committee
but for the operation of the proviso in paragraph (a) above, the Purchaser shall
have the right to appoint an observer (the "Purchaser Executive Committee
Observer"), who shall have observer rights at meetings of the Executive
Committee, provided, that the Executive Committee shall have the right to keep
confidential from the Purchaser Executive Committee Observer for such period of
time as the Executive Committee deems reasonable any information and copies of
written materials the Company is required by law or agreement with a third party
to keep confidential.
1.5 ELIGIBLE INDIVIDUALS; CONFIDENTIALITY.
The Purchaser Board Designee, the Purchaser Board Nominee, the Purchaser
Board Observer and the Purchaser Executive Committee Observer shall not be
employees of the Company, provided, that the Purchaser Executive Committee
Observer may be the Designated Employee with the rank of Assistant Vice
President. Each such individual, as a condition to his or her appointment or
nomination, or prior to attending any meeting of the Company Board or any
committee thereof, shall execute a confidentiality agreement in form and
substance satisfactory to the Company that is generally executed by other
similarly situated members of the Company Board or, if there are no such other
members, a confidentiality agreement in form and substance reasonably
satisfactory to the Company. In addition, each such individual shall be subject
to the procedures for the protection of certain information of the Company, as
set forth in Exhibit B hereto, provided, that such procedures are generally
applicable to other similarly situated members of the Company Board. For
purposes of this Section 1.5, a "similarly situated" member of the Board shall
be a member that (i) is not an employee of the Company and (ii) was appointed or
elected to the Company Board as the designee of a holder of at least five
percent (5%) of the Diluted Common Stock that maintains a strategic relationship
with the Company.
1.6 VACANCIES.
In the event that the Purchaser Board Designee or any Purchaser Board
Nominee ceases to serve as a member of the Company Board during such
individual's term of office for any reason and at such time the Purchaser would
have the right to a designation hereunder if an election for the resulting
vacancy were to be held, the director to fill such vacancy shall be designated
by the Purchaser, subject to the requirements provided herein for any such
designee.
3
<PAGE> 8
2. STANDSTILL COVENANT; VOTING OF SECURITIES.
2.1 STANDSTILL AGREEMENT.
(a) During the period commencing on the date hereof and ending on the
fifth anniversary of the Closing Date (the "Standstill Period"), except as (i)
specifically permitted by this Agreement or (ii) specifically requested in
writing in advance by the Company upon the approval of the Company Board
(without any prior solicitation or request (or other act encouraging the
delivery of such a writing) having been made to the Company or the Company Board
or otherwise having been publicly made), the Purchaser shall not, and shall
ensure that its Affiliates do not, in any manner, directly or indirectly:
(i) acquire, or offer or agree to acquire, or make any
proposal or indicate any interest with respect to the acquisition of,
directly or indirectly, by purchase or otherwise, any material amount of
the assets or property of, any amounts of the Voting Securities of, or any
material amounts of the securities (other than Voting Securities) of the
Company or any of its successors or Controlled Affiliates, except, if
applicable, for any shares of Common Stock that may be issuable upon the
conversion of any shares of Junior Preferred Stock purchased by the
Purchaser pursuant to the Master Agreement or otherwise as permitted
pursuant to this Agreement, provided, that the foregoing limitation shall
not prohibit the acquisition of securities of the Company or any of its
successors or Controlled Affiliates issued as dividends or as a result of
stock splits and similar reclassifications of shares held by the Purchaser
or any of its Affiliates at the time of such dividend, split or
reclassification;
(ii) solicit proxies or consents or become a "participant" in
a "solicitation" (as such terms are defined or used in Regulation 14A under
the Exchange Act) of proxies or consents with respect to any Voting
Securities of the Company or any of its successors or Controlled
Affiliates, or initiate or become a participant in any stockholder proposal
or "election contest" (as such term is defined or used in Rule 14a-11 under
the Exchange Act) with respect to the Company or any of its successors or
Controlled Affiliates or induce others to initiate the same, or otherwise
seek to advise or influence any Person with respect to the voting of any
Voting Securities of the Company or any of its successors or Controlled
Affiliates;
(iii) take any action for the purpose of calling a
stockholders' meeting of the Company or any of its successors or Controlled
Affiliates;
(iv) make any proposal or any public announcement relating to,
or submit to the Company or any of its directors, officers,
representatives, trustees, employees, attorneys, advisors, agents or
Affiliates any proposal for, a tender or exchange offer for Voting
Securities of the Company or any of its successors or Controlled
Affiliates, the acquisition of Voting Securities of the Company that would
result in the Purchaser (together with its Affiliates)
4
<PAGE> 9
exceeding the Percentage Limitation or a merger, business combination, sale
of assets, liquidation, restructuring, recapitalization or other
extraordinary corporate transaction relating to the Company or any of its
successors or Controlled Affiliates (other than with respect to joint
ventures, licenses, transactions contemplated by the Outside Service
Provider Agreement or other transactions in the ordinary course of
business) or take any action that might require the Company or any of its
successors or Controlled Affiliates to make any public announcement
regarding any of the foregoing, provided that nothing set forth in this
Section 2.1(a)(iv) shall prohibit or restrict the Purchaser or any of its
Affiliates from soliciting, offering, seeking to effect and negotiating
with any Person with respect to Transfers of Company Securities otherwise
permitted by this Agreement, and provided, further, that in so doing, the
Purchaser may, and may permit its Affiliates to, make any statement
required by applicable law, including without limitation, the amendment of
any statement on Schedule 13D under the Exchange Act;
(v) deposit Voting Securities of the Company or any of its
successors or Controlled Affiliates held by it into a voting trust or
subject any such securities to voting agreements (except for this Agreement
and except for any such agreement among the Purchaser and any or all of its
Affiliates who may hold such securities), or grant any proxy with respect
to any such securities to any person not designated by the Company;
(vi) except to the extent contemplated by this Agreement,
form, join or in any way participate in a "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) (except an arrangement solely among
the Purchaser and any or all of its Affiliates who may hold Voting
Securities of the Company or any of its successors or Controlled
Affiliates) for the purpose of acquiring, holding, voting or disposing of
Voting Securities of the Company or any of its successors or Controlled
Affiliates or taking any other actions restricted or prohibited under
clauses (i) through (v) above;
(vii) disclose to any Person any intention, plan or
arrangement inconsistent with the foregoing;
(viii) advise, assist or encourage any other Person in
connection with any of the foregoing;
(ix) enter into any discussions, negotiations, arrangements or
understandings with any other Person with respect to, or aid, abet or
encourage any action prohibited by, any of the foregoing;
(x) make (publicly or to the Company or any of its directors,
officers, representatives, trustees, employees, attorneys, advisors,
agents, Affiliates or security holders, directly or indirectly) any request
or proposal to
5
<PAGE> 10
amend, waive or terminate any provision of this Section 2 or any inquiry
or statement relating thereto; or
(xi) act, alone or in concert with others, to seek to control
or influence in any material respect the management or policies of the
Company (beyond the actions of the Purchaser Board Designee or any
Purchaser Board Nominee in his or her role as such and while serving as a
member of the Company Board or the actions of the Designated Employees in
their roles as such and while serving in such capacity).
References in this Section 2.1 to the "acquisition" of securities, or any
derivation of such term, shall include, without limitation, any acquisitions
deemed to be purchases for purposes of Section 16 of the Securities Act.
(b) Notwithstanding the provisions of Section 2.1(a), from and after
the date six months following the Closing, the Purchaser or its Affiliates may
acquire Voting Securities of the Company through open market and privately
negotiated purchases or otherwise if, and only to the extent that, after the
acquisition thereof the Purchaser and its Affiliates collectively would
beneficially own in the aggregate no more than seventeen and one-half percent
(17.5%) of the Diluted Common Stock (such percentage limitation being the
"Percentage Limitation"). For purposes of clarification, the parties agree that
under no circumstances shall the Purchaser or any of its Affiliates, prior to
the date six months following the Closing, acquire any securities of the Company
in any manner, other than the Company Securities purchased pursuant to the
Master Agreement.
(c) The Percentage Limitation shall not be exceeded in violation of
Section 2.1(b) or any other provision of this Agreement if the percentage of
Diluted Common Stock beneficially owned by the Purchaser and its Affiliates
collectively is increased as a result of corporate action taken solely by the
Company and not caused by any action taken by the Purchaser or any of its
Affiliates, provided, that neither the Purchaser nor any of its Affiliates shall
thereafter acquire beneficial ownership of any additional Company Securities
unless such acquisition would not result in the Purchaser and its Affiliates
beneficially owning Company Securities in excess of the Percentage Limitation.
(d) Nothing contained in this Section 2 shall be deemed to (i)
restrict the manner in which the Purchaser Board Designee or any Purchaser Board
Nominee elected to the Company Board may participate in deliberations or
discussions of the Company Board or individual consultations with the Chairman
of the Board or any other members of the Company Board, so long as such actions
do not otherwise violate any provision of Section 2.1(a), (ii) prohibit or
restrict the Purchaser or any of its Affiliates from soliciting, offering,
seeking to effect and negotiating with any Person with respect to Transfers of
Company Securities otherwise permitted by this Agreement, (iii) prohibit or
restrict the Purchaser or any of its Affiliates from exercising any registration
rights pursuant to Section 4 of this Agreement or (iv) prohibit or restrict any
Designated Employees from acquiring securities of the Company or any of its
Controlled Affiliates
6
<PAGE> 11
pursuant to stock plans or other employee benefit plans of the Company or any of
its Controlled Affiliates (which securities shall not be deemed to be acquired
by Affiliates of the Company).
2.2 EXCEPTIONS.
Notwithstanding anything in Section 2.1 to the contrary:
(a) In the event (i) the Company publicly announces or invites any
Person other than the Purchaser to make a proposal, or elects to enter into
negotiations, with respect to, or (ii) the Company Board adopts a plan or
program regarding (whether or not publicly announced), any merger, consolidation
or other business combination, liquidation or recapitalization of the Company,
or any sale or transfer of all or substantially all of the assets of the Company
or any sale or transfer of Voting Securities of the Company that, if
consummated, would constitute a Change of Control, then the Purchaser and its
Affiliates shall be permitted to participate in any such process on terms that
are substantially comparable to those made available to any other participant in
such process.
(b) In the event of any agreement between the Company and any other
Person or group pursuant to which, if consummated, a Change of Control would
occur (any such event being an "Acquisition Event"), the restrictions of Section
2.1 shall lapse and have no further force and effect, provided, that in the
event that the transactions contemplated in connection with the Acquisition
Event are not completed, all restrictions contained in Section 2.1 shall be
reinstated upon two (2) Business Days' written notice to the Purchaser and shall
remain effective until subsequently terminated pursuant to this Agreement. The
Purchaser and its Affiliates shall be entitled to retain any Company Securities
purchased by them following such termination but prior to such reinstatement,
provided, that such Company Securities shall be subject to all of the provisions
of this Agreement, and provided, further, that all subsequent acquisitions of
Company Securities by the Purchaser or any of its Affiliates must be in complete
compliance with all provisions of this Agreement, including, without limitation,
Section 2.1(b) hereof.
(c) In the event any Person or group shall commence a tender offer or
exchange offer which, if successful, would result in a Change of Control (a
"Third Party Offer"), and the bidder has financing or financial commitments from
responsible financial institutions sufficient to finance the cash portion of
such Third Party Offer, then the restrictions of Section 2.1 shall lapse and
have no further force and effect so long as such Third Party Offer remains in
effect, provided, that in the event the Third Party Offer is not completed, all
restrictions contained in Section 2.1 shall be reinstated upon two (2) Business
Days' written notice to the Purchaser and shall remain effective until
subsequently terminated pursuant to this Agreement. The Purchaser and its
Affiliates shall be entitled to retain any Company Securities purchased by them
following such termination but prior to such reinstatement, provided, that such
Company Securities shall be subject to all of the provisions of this Agreement,
and provided, further, that all subsequent acquisitions of Company Securities by
the Purchaser or any of its Affiliates
7
<PAGE> 12
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
must be in complete compliance with all provisions of this Agreement, including
without limitation, Section 2.1(b) hereof.
(d) For purposes of this Section 2, a "Change of Control" shall be
deemed to have occurred with respect to the Company if:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, a Controlled Affiliate
of the Company, any trustee or other fiduciary holding securities under any
compensatory benefit plan of the Company or an Affiliate of the Company, or
any entity owned directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company), is or becomes the beneficial owner, directly or indirectly, of
Voting Securities representing more than (*) percent ((*)%) of the
Company's then outstanding Voting Securities;
(ii) a merger or consolidation of the Company with any other
corporation which is not a Controlled Affiliate of the Company is
consummated, other than a merger that would result in the Voting Securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than (*) percent ((*)%) of
the combined voting power of the Voting Securities of the Company (or the
comparable voting securities of such surviving entity) outstanding
immediately after such merger or consolidation, provided, that a merger or
consolidation effected to implement a recapitalization of the Company or
such Affiliate (or similar transaction) in which no person acquires more
than (*) percent ((*)%) of the combined voting power of the Company's
then outstanding Voting Securities shall not constitute a "Change of
Control" of the Company; or
(iii) the sale or disposition by the Company of all or
substantially all of the Company's assets, other than to a Controlled
Affiliate of the Company, is consummated.
(e) Nothing in this Section 2 shall prohibit or restrict the
Purchaser from purchasing Company Securities from the Company on the Closing
Date as contemplated by Section 1.1 of the Master Agreement.
2.3 NOTICE OF ACQUISITION; COMPLIANCE.
(a) At all times prior to the termination of the restrictions of
Section 2.1 above, prior to any time that the Purchaser or any of its Affiliates
wishes to purchase additional Company Securities, the Purchaser will give the
Company written notice of such intention at least two (2) Business Days prior to
the date the Purchaser or any such Affiliate purchases or agrees to purchase any
such securities.
8
<PAGE> 13
(b) The Purchaser shall not, and shall ensure that its Affiliates do
not, make any purchase or other acquisition of Company Securities other than in
compliance with all Requirements of Law.
2.4 VOTING.
At all times prior to the termination or lapsing of the restrictions of
Section 2.1 above, the Purchaser shall take all action as may be required so
that all Voting Securities of the Company owned by the Purchaser and its
Affiliates are voted (i) with respect to elections of members of the Board of
Directors, for the Company Board's nominees to the Company Board, and (ii) with
respect to all other matters to be voted on by stockholders, either (A) in
accordance with the recommendations of the Company Board, or (B) for or against
any such matter in the same proportion as the shares owned by all other
stockholders (excluding the Purchaser and each of its Affiliates that is a
stockholder of the Company) are voted with respect to such matters. The
Purchaser and all Affiliates of the Purchaser owning any such securities shall
be present, in person or by proxy, at all meetings of stockholders of the
Company so that all such securities owned by the Purchaser and any such
Affiliate may be counted for the purposes of determining the presence of a
quorum at such meeting.
2.5 CONSULTATION.
Notwithstanding anything in this Agreement to the contrary, (i) legal
counsel for the Purchaser at all times shall have the right to confer with legal
counsel for the Company regarding the application of the provisions of this
Section 2, and (ii) the Purchaser Board Designee, the Purchaser Board Nominee,
the Purchaser Board Observer and the Purchaser Executive Committee Observer
(while serving in such positions) and any member of the Board of Directors or
executive officer of the Purchaser may from time to time consult with the Chief
Executive Officer of the Company regarding the ownership of Company Securities
and other matters regarding the obligations of the Purchaser and its Affiliates
under this Section 2, provided, that such consultations pursuant to clauses (i)
and (ii) above shall not include any proposal regarding the acquisition of
control of the Company, any proposal for any other action prohibited by this
Section 2 or any proposal for the amendment of this Section 2 in contemplation
of any such acquisition or other action.
3. TRANSFER RESTRICTIONS.
3.1 PROHIBITED TRANSFERS.
(a) In the case of the IPO and, if requested by any underwriter of
the Common Stock, in the case of any other offering of securities of the Company
registered under the Securities Act, the Purchaser shall not, and shall ensure
that its Affiliates do not, directly or indirectly, sell, offer, pledge,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, warrant or right to purchase, or
otherwise dispose of or transfer, or enter into any swap or other agreement
9
<PAGE> 14
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
or any arrangement that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership in, any Company Securities held by it or
them, during the period following the effective date of a registration statement
of the Company filed under the Securities Act equal to (i) in the case of the
IPO, six (6) months, or (ii) in the case of any other offering of securities of
the Company registered under the Securities Act, ninety (90) days, except in
either case for Company Securities included in such registration, provided that
if directors and officers of the Company holding Common Stock generally are
subject to hold-back restrictions of shorter duration, such shorter periods
shall apply to the Purchaser and its Affiliates. If requested, the Purchaser
shall enter, and shall ensure that all Affiliates of the Purchaser holding
securities of the Company enter, into a lock-up agreement with the applicable
underwriters that is consistent with the agreement in the preceding sentence.
(b) Notwithstanding anything herein to the contrary, the Purchaser
shall not, and shall ensure that its Affiliates do not, directly or indirectly,
sell, pledge or otherwise dispose of (any such action, a "Transfer") any Company
Securities to any of the following:
(i) except in accordance with Section 3.3 below, any Person
specified in Schedule 2 attached hereto, or any Affiliate of any such
Person, provided, that Schedule 2 may be revised or updated from time to
time by the Company upon notice to the Purchaser to include additional
Persons that are, or that the Company reasonably believes (based on the
publicly announced intent or plan of such Person) are likely to become,
competitors of the Company in the business of providing access to the
Internet for business customers in the U.S., provided, that such Schedule
2 shall be updated or revised no more than semi-annually and shall not
include at any time more than (*) ((*)) Persons; and
(ii) except in accordance with Section 3.3 below, any Person
that following such Transfer would (alone or collectively with all
Affiliates of such Person) beneficially own more than (*) percent ((*)%)
of the outstanding Common Stock.
(c) The Purchaser shall not, and shall ensure that its Affiliates do
not, Transfer any Company Securities while there is pending, or otherwise
Transfer any Company Securities in contemplation of, any Acquisition Proposal,
unless such Acquisition Proposal has been recommended publicly by the Company
Board to all Company stockholders, provided, that if the Company Board has not
publicly recommended against such Acquisition Proposal within three (3) months
of the later of (i) the initial public announcement thereof by the acquiror or
(ii) the formal presentation of such an Acquisition Proposal to the Company
Board, then the restrictions of this Section 3.1(c) shall lapse and have no
further force or effect, provided, further, that in the event such Acquisition
Proposal is not completed, all restrictions contained in this Section 3.1(c)
shall be reinstated upon two (2) Business Days' written notice to the Purchaser
and shall remain effective until subsequently terminated pursuant to this
Agreement. For purposes of this Agreement, "Acquisition Proposal" shall mean any
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<PAGE> 15
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
offer or agreement by a third party to acquire, or proposal or indication of
interest with respect to the acquisition of (including any written or oral
proposal to the Company Board or to any director, officer or shareholder of the
Company or any public or other announcement of such a proposal or indication of
interest), by purchase or otherwise, from any Person or group of Persons,
capital stock of the Company representing in excess of (*) percent ((*)%) of
the voting power of the Company or assets of the Company representing in excess
of (*) percent ((*)%) of the assets or earning power of the Company and its
Controlled Affiliates, taken as a whole, or direct or indirect rights or options
to acquire (whether through purchase, exchange, conversion or otherwise) such
capital stock, assets or earning power.
(d) In order to enforce the foregoing covenants, the Company may
impose stop transfer instructions with respect to all Purchaser Shares (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of the applicable period for each such covenant.
(e) Any purported Transfers in violation of this Section 3 shall be
null and void.
(f) Nothing in Section 3.1(a), 3.1(b) or 3.1(c) shall be deemed to
restrict the Transfer of Company Securities by the Purchaser to any of its
Affiliates or by any such Affiliate to the Purchaser or any other Affiliate of
the Purchaser, provided, that all such Affiliates agree in writing to the
reasonable satisfaction of the Company to be bound by the provisions of this
Agreement.
3.2 COMPLIANCE WITH LAW.
(a) The Purchaser shall, and shall ensure that its Affiliates shall,
observe and comply with the Securities Act, the Exchange Act and applicable
state securities laws, and the rules and regulations promulgated under both, as
each is now in effect and as each is from time to time amended, and all other
Requirements of Law in connection with any permitted Transfer of Company
Securities, including, without limitation, all Requirements of Law relating to
the use of insider information or the trading of securities while in the
possession of nonpublic information.
(b) In furtherance of the foregoing, and in addition to the
restrictions specified above, the Purchaser shall not, and shall ensure that its
Affiliates do not, Transfer any Company Securities unless at such time at least
one of the following is satisfied:
(i) a registration statement under the Securities Act covering
the Company Securities proposed to be Transferred, describing the manner
and terms of the proposed sale, transfer or other disposition, and
containing a current prospectus, shall have been filed with the SEC and
made effective under the Securities Act;
11
<PAGE> 16
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(ii) counsel representing the Purchaser, reasonably
satisfactory to the Company, shall have advised the Company in a written
opinion letter reasonably satisfactory to the Company and its counsel, and
upon which the Company and its counsel may rely, that no registration
under the Securities Act would be required in connection with the proposed
Transfer; or
(iii) an authorized representative of the SEC shall have
rendered written advice to the Purchaser (sought by the Purchaser or
counsel to the Purchaser, with a copy thereof and of all other related
communications delivered to the Company) to the effect that the SEC would
take no action, or that the staff of the SEC would not recommend that the
SEC take action, with respect to the proposed Transfer.
3.3 RIGHT OF FIRST OFFER AND RIGHT OF FIRST REFUSAL.
(a) In addition to the other restrictions provided in this Agreement,
if the Purchaser desires to Transfer any Company Securities (other than to any
Affiliate of the Purchaser), the Purchaser will give written notice to the
Company of such intention to Transfer Company Securities (as used in this
Section 3.3, the "Sale Notice"). The Sale Notice will describe either (i) if the
Purchaser intends to Transfer Company Securities to any Person that (A)
following such Transfer, would (alone or collectively with all Affiliates of
such Person) beneficially own more than (*) percent ((*)%) of the outstanding
Common Stock or (B) is listed on Schedule 2 hereto, as revised or updated from
time to time in accordance with Section 3.1(b)(i) hereof (any such Transfer, a
"Significant Transfer"), (1) the class and number of Company Securities to be
transferred, (2) the minimum consideration for which the Purchaser will Transfer
the securities, and (3) the proposed Transferee and, to the extent such
information is reasonably available to the Purchaser, the amount of securities
of the Company then held by such proposed Transferee, or (ii) in the case of all
other proposed Transfers, the class and number of Company Securities to be
Transferred. In the event the Transfer is being made pursuant to paragraph (f)
below, the Sale Notice shall so state.
(b) In the event the proposed transfer is not a Significant Transfer,
the Company shall have the right, within (i) in the event the Market Price of
the Company securities proposed to be Transferred is less than fifty million
dollars ($50,000,000) (a "Small Sale"), fifteen (15) days, (ii) in the event the
Market Price of the Company Securities proposed to be Transferred is fifty
million dollars ($50,000,000) or more, but less than one hundred million dollars
($100,000,000) (a "Medium Sale"), thirty (30) days, and (iii) in the event the
Market Price of the Company Securities proposed to be Transferred is one hundred
million dollars ($100,000,000) or more (a "Large Sale"), sixty (60) days, in
each case after the delivery of the Sale Notice, to offer to purchase all (but
not less than all) of the Company Securities proposed to be Transferred, at a
price determined by the Company in its sole discretion, by delivery to the
Purchaser of a written notice (the "Right of First Offer Notice") stating the
price offered by the Purchaser. The Purchaser shall have the right within five
(5) Business Days after the
12
<PAGE> 17
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
delivery of the Right of First Offer Notice to accept such offer with respect
to all (but not less than all) such shares by delivery of written notice to
the Company.
(c) In the event the proposed Transfer is a Significant Transfer, the
Company shall have the right, within sixty (60) days after delivery of the Sale
Notice, to elect to purchase all (but not less than all) of the Company
Securities proposed to be so Transferred (the "Option Shares") on the same terms
and subject to the same conditions as those specified in the Sale Notice,
exercisable by delivery to the Purchaser of a written notice stating that the
Company elects to purchase the Option Shares.
(d) If the Purchaser accepts the Company's offer pursuant to
paragraph (b) above, or the Company exercises its rights to purchase the Option
Shares pursuant to paragraph (c) above, such purchase shall be consummated on a
date selected by the Purchaser and agreed by the Company, provided, that the
Company shall not be required to consummate such purchase prior to (i) (A) in
the event the proposed sale is a Small Sale, thirty (30) days, (B) in the event
the proposed sale is a Medium Sale, sixty (60) days, and (C) in the event the
proposed sale is a Large Sale, ninety (90) days, in each case following the
Purchaser's delivery of its acceptance notice to the Company, or (ii) in the
case of a Significant Transfer, ninety (90) days after the Company's delivery of
its election notice to the Purchaser. On such date, the Company shall pay to the
Purchaser the purchase price according to the terms and conditions set forth in
the Right of First Offer Notice or the Sale Notice, as the case may be, and the
Purchaser shall deliver to the Company a certificate or certificates evidencing
the shares so purchased, provided, that in the event of a Transfer in which the
consideration for the Company Securities is property other than cash or
instruments of indebtedness, the purchase price will be the fair market value of
such property, as determined by an independent third-party appraiser appointed
by the Company and approved by the Purchaser, in its reasonable discretion.
(e) If and to the extent the Purchaser fails to accept the offer of
the Company pursuant to paragraph (b) above, or the Company fails to exercise
its right of first refusal pursuant to paragraph (c) above, the Purchaser may
Transfer that number of shares specified in the Sale Notice (but no more and no
less than such specified number) to any transferee permitted by the terms of
this Agreement (and, in the case of a Significant Transfer, solely to the
transferee specified in the Sale Notice), provided, that (i) such Transfer is
completed within ninety (90) days after the expiration of such period; (ii) such
Transfer is made at a price and upon terms no more favorable to the transferee
than those specified in the Right of First Offer Notice or in the Sale Notice,
as the case may be; and (iii) if the proposed Transfer would be a Transfer of
(*) percent ((*)%) or more of the Diluted Common Stock, or would be to a Person
that following such Transfer would beneficially own (*) percent ((*)%) or more
of the Diluted Common Stock, the proposed transferee executes and delivers to
the Company, prior to receipt of such shares, a written agreement in form and
substance satisfactory to the Company to be bound by all the provisions of this
Section 3 and Section 6 hereof. In the event that the Purchaser has not
Transferred such securities within such ninety (90) day period, the Purchaser
shall not thereafter Transfer any of such
13
<PAGE> 18
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
Company Securities without first complying with the procedures set forth in
this Section 3.3.
(f) Notwithstanding the foregoing, the rights of first offer and
first refusal of the Company under this Section 3.3 shall not apply to: (i) any
Transfer of Company Securities in a Public Distribution; (ii) any Transfer of
Company Securities in a Rule 144 Transaction; (iii) any other Transfer of
Company Securities effected on a nationally recognized securities exchange or
the Nasdaq Stock Market, provided, that, to the knowledge of the Purchaser, no
purchaser of such securities is purchasing more than one-half of one percent
((*)%) of the outstanding Common Stock in any such Transfer or will beneficially
own more than (*) percent ((*)%) of the outstanding Common Stock as a result of
such Transfer, or otherwise is purchasing such securities with the intent of
gaining or exercising control over the Company; (iv) any Transfer of Company
Securities pursuant to an Acquisition Transaction; or (v) any pledge of
securities made pursuant to a bona fide loan transaction with a financial
institution that creates a mere security interest, provided, that in the event
of any such pledge, (A) the Purchaser shall inform the Company of such pledge
prior to effecting it and (B) the pledgee shall execute and deliver to Company,
prior to receipt of such securities, a written agreement in form and substance
satisfactory to the Company to be bound by all the provisions of this Section 3
and Section 6 hereof, and provided, further, that the restrictions on other
Transfers of Company Securities described herein shall continue in accordance
with the terms hereof. For purposes of clarification, the obligation of a
transferee of Company Securities to execute and deliver an agreement of the type
specified in clause (iii) of paragraph (e) above shall not apply to any
Transfers of Company Securities referred to in clauses (i), (ii), (iii) and (iv)
of this paragraph (f).
(g) The Company, at its sole discretion, may exercise its rights of
first offer and first refusal as provided above either directly or through any
other Entities, and may assign such right to any other Entities, provided, that
the Company will guarantee the obligation of such Entities to purchase the
Company Securities subject to the exercise of such rights.
(h) For purposes of this Section 3.3, "Market Price" with respect to
Company Securities shall mean (i) with respect to any Company Securities (or
conversion equivalent) that are publicly traded, the average closing price per
share or unit of such equity interest (or conversion equivalent) on the ten (10)
consecutive trading days immediately preceding the date of determination, or
(ii) with respect to any Company Securities (or conversion equivalent) that are
not publicly traded, the fair market value thereof as determined by a nationally
recognized investment banking firm selected by the Purchaser subject to the
reasonable consent of the Company.
(i) The Purchaser shall ensure that any Affiliate of the Purchaser
desiring to Transfer any Company Securities (other than to the Purchaser or any
other Affiliate of the Purchaser) shall comply with the procedures described in
this Section 3.3 as if it were the "Purchaser" hereunder. All proposed Transfers
by the Purchaser and any of its Affiliates within any three (3) month period
shall be deemed one Transfer for purposes of
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determining whether such proposed Transfers constitute a Significant Transfer
or a Small, Medium or Large Sale.
4. REGISTRATION RIGHTS.
4.1 CERTAIN DEFINITIONS.
As used in this Agreement, the following capitalized terms have the
following meanings:
(a) "Demand Registration" shall mean a registration requested by the
Holders pursuant to Section 4.2 hereof.
(b) "Holders" shall mean the Purchaser and any transferee of the
Purchaser's rights under this Section 4 as permitted by the terms hereof.
(c) "Registrable Securities" shall mean the Purchaser Shares,
together with any securities issued or issuable by the Company in respect of any
of such securities by way of a distribution or split or in connection with a
combination or subdivision of such securities of the Company or a
reclassification, recapitalization, merger, consolidation or other
reorganization of the Company, provided, that as to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when:
(i) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of under such registration statement;
(ii) such securities shall have been transferred pursuant to
Rule 144 promulgated under the Securities Act ("Rule 144");
(iii) such securities shall have been otherwise transferred or
disposed of, and new certificates therefor not bearing a legend
restricting further transfer shall have been delivered by the Company, and
subsequent transfer or disposition of them shall not require their
registration or qualification under the Securities Act or any similar
state law then in force; or
(iv) such securities shall have ceased to be outstanding.
4.2 DEMAND REGISTRATION RIGHTS.
(a) If, after the first anniversary of the closing date of the IPO,
the Company shall receive (i) a written request from the Holders of a majority
of the Registrable Securities then outstanding that the Company file a
registration statement under the Securities Act covering the registration of (A)
at least twenty-five percent (25%) of the aggregate Registrable Securities
purchased by the Purchaser pursuant to the Master Agreement or (B) Registrable
Securities with an anticipated aggregate offering price, net of underwriting
commissions and discounts, of at least twenty-five million
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dollars ($25,000,000) or (ii) if the Company is eligible to file a registration
statement on Form S-3 under the Securities Act, a written request from any
Holder or Holders of the Registrable Securities that the Company file a
registration statement on Form S-3 under the Securities Act covering the
registration of Registrable Securities with an anticipated aggregate offering
price, net of underwriting discounts and commissions, in excess of fifteen
million dollars ($15,000,000), then, in each case, the Company shall, subject to
the limitations set forth in this Agreement, (y) promptly following receipt
thereof, give written notice of such request to all Holders (the "Notice of
Request for Registration") and (z) as soon as practicable, use its reasonable
best efforts to effect such registration under the Securities Act covering all
Registrable Securities which the Holders request to be registered by notice to
the Company within thirty (30) days of the mailing of the Notice of Request for
Registration by the Company.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as part of their request made pursuant to Section 4.2(a) and the Company shall
include such information in the Notice of Request for Registration. The
underwriter shall be selected by the Initiating Holders, subject to the consent
of the Company to such underwriter and its form of underwriting agreement, which
consent shall not be unreasonably withheld. In such event, the right of any
Holder to include its Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. If any Holder disapproves of the terms of the
underwriting, it may elect to withdraw therefrom by written notice to the
Company and the underwriter. The Registrable Securities so withdrawn shall also
be withdrawn from registration.
(c) Notwithstanding any other provision of this Section 4.2, if the
underwriter or underwriters determine, in good faith, that marketing factors
require a limitation of the number of shares to be underwritten, the
underwriters may limit in their sole discretion the number of Registrable
Securities and other Company Securities to be included in the registration and
underwriting, subject to the terms of this Section 4.2(c). The Company shall so
advise all holders of the Company's securities that would otherwise be
registered and underwritten pursuant to such registration. The Holders of
Registrable Securities shall have absolute priority over any other securities
requested to be included in such registration and underwriting. The number of
shares of such securities, including Registrable Securities, that may be
included in the registration and underwriting shall be allocated in the
following manner:
(i) first, among the Holders of Registrable Securities, in
proportion, as nearly as practicable, to the respective amounts of such
securities held by such holders and otherwise entitled to be included in
such registration;
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(ii) second, among holders of other securities in accordance
with the terms of their respective registration rights, if any, in each
case in proportion, as nearly as possible, to the respective amounts of
such securities held by each such holder and otherwise entitled to be
included in such registration; and
(iii) third, to any Company Securities proposed to be issued
or sold for the account of the Company.
(d) Notwithstanding anything to the contrary in this Section 4.2, in
the event that the underwriters require that the securities included in a
registration statement be cut back as set forth in the preceding paragraph (c),
as a result of which the number of Registrable Securities to be included in such
registration statement is less than fifty percent (50%) of the number of
Registrable Securities requested to be included in such registration statement,
the registration shall not be considered a Demand Registration, and shall not be
counted for purposes of the limit on Demand Registrations set forth in Section
4.2(f) hereof.
(e) Notwithstanding the foregoing, but subject to the terms of this
paragraph (e), the Company shall not be obligated to effect any registration
pursuant to this Section 4.2 if at the time of any request to register
Registrable Securities pursuant to this Section 4.2:
(i) the Company is engaged, or has or is considering plans to
engage, in a registered public offering;
(ii) the Company Board determines in good faith that the
registration might adversely affect any activity, plan or proposal of the
Company or any of its Affiliates, including any activity, plan or proposal
with respect to any financing, acquisition, recapitalization,
reorganization or other transaction;
(iii) the Company Board makes a good faith determination that
the filing or effectiveness of a registration statement would require the
disclosure of information relating to any development, event, occurrence
or change in circumstance relating in any way to the Company or its
business or plans, the disclosure of which might adversely affect the
Company, including without limitation the business and plans of the
Company; or
(iv) audited financial statements of the Company are not
available or the Company is not then able to comply with the SEC
requirements applicable to the requested registration (notwithstanding its
reasonable efforts to comply).
In the circumstances described in clauses (i), (ii), (iii) and (iv) above,
the Company may, at its option, direct that such request be delayed (x) for a
period not in excess of one hundred twenty (120) days from the effective date of
an offering described in clause (i), (y) for such period as the Company Board
determines in good faith is
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necessary to avoid any adverse effect on the Company's activities or planned
activities or to avoid the adverse effect of any required disclosure with
respect to the circumstances described in clauses (ii) and (iii), or (z) for
such period as is necessary to address the circumstance or circumstances
described in clause (iv), provided, that such deferrals cumulatively with
respect to one (1) or more requested registrations pursuant to this Section 4.2
shall not exceed in the aggregate one hundred twenty (120) days in any one (1)
year period or one hundred eighty (180) days in any two (2) year period.
(f) In addition, the Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 4.2:
(i) after the Company has effected three (3) Demand
Registrations and such registrations have been declared or ordered
effective;
(ii) during each period following the effective date of a
registration statement effected by the Company in an underwritten offering
of Common Stock, whether for its own account or for the account of others,
equal to the period of any lock-up of stockholders of the Company required
by the underwriting firm which was the lead manager of the offering
related to the registration statement; or
(iii) within one hundred eighty (180) days after the effective
date of any registration statement filed by the Company in response to a
request pursuant to this Section 4.2.
4.3 PIGGYBACK REGISTRATION.
(a) If, after the first anniversary of the closing date of the IPO,
the Company proposes to register any of its stock or other securities under the
Securities Act in connection with the public offering of such securities solely
for cash (other than a registration on Form S-8 or S-4 or a registration in
which the only Common Stock being registered is Common Stock issuable upon the
conversion or exercise of other securities), the Company shall give each Holder
written notice of such registration promptly (which notice, to the extent
reasonably practicable following the Board's determination to effect the
registration, without additional burden or delay, the Company shall use
reasonable efforts to mail at least thirty (30) days prior to the filing of the
applicable registration statement with the SEC). Upon the written request of
each Holder given within fifteen (15) days after mailing of such notice by the
Company, the Company shall, subject to the limitations set forth in this
Agreement, use its reasonable best efforts to include in the registration
statement under the Securities Act all of the Registrable Securities that each
such Holder has requested to be registered, provided, that the Company shall
under no circumstances be required to delay the filing or the effectiveness of
its registration statement in order to accommodate any Holders, regardless of
the time of delivering of any such notice, and provided, further, that nothing
in this Agreement shall prevent the Company from, at any time and for any
reason, in its sole discretion, abandoning, withdrawing or delaying any such
registration without obligation to any
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Holder, regardless of any action whatsoever that the Holder may have taken,
whether as a result of the issuance by the Company of any notice hereunder or
otherwise.
(b) Registrable Securities shall be sold in such offering only in
such quantity as the managing underwriter determines, in its sole discretion,
will not jeopardize the success of the offering by the Company. To the extent
that the managing underwriter will not permit the registration of all of the
securities sought to be registered, in the case of a registration pursuant to
this Section 4.3, the Company shall so advise all holders of the Company's
securities that would otherwise be registered and underwritten pursuant to such
registration, and the number of shares of such securities, including Registrable
Securities, that may be included shall be allocated in accordance with the
following priorities:
(i) first, among the shares of Common Stock proposed to be
included in such registration statement for the account of the Company;
(ii) second, pro rata among holders of Common Stock, if any,
requesting inclusion in such registration statement pursuant to
registration rights existing on the date of this Agreement and ranking
senior to the registration rights of the Holders of Registrable
Securities, as listed on Schedule 3 to this Agreement, to the extent
required by such senior registration rights;
(iii) third, pro rata with respect to all Holders of
Registrable Securities or holders of other Common Stock who have requested
to be included in the registration pursuant to this Section 4.3 or
pursuant to piggyback registration provisions of other agreements that
rank pari passu with the piggyback rights provided hereunder, in
proportion to the number of shares owned by each such holder; and
(iv) fourth, among holders of any other Common Stock, in
accordance with the terms of their respective registration rights, if any,
in proportion to the number of shares owned by each such holders.
The respective ownership percentages of any holder for purposes of prorating any
underwriting cutback or participation under this Section 4.3 shall be measured
as of the date of the determination of the final terms of the offering covered
by the registration statement for which such ownership percentages are being
calculated.
(c) In connection with any offering involving an underwriting under
this Section 4.3, the Company shall not be required to include any Holder's
securities in such underwriting unless such Holder accepts the underwriters
selected by the Company and the proposed pricing and other terms of the
underwriting as agreed upon between the Company and the underwriters (all in the
Company's sole discretion) and executes an underwriting agreement with such
underwriters containing such provisions as may be required by such underwriters.
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4.4 OBLIGATIONS OF THE COMPANY.
Whenever required under this Section 4 to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its reasonable best efforts to
cause such registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for a period of up to one hundred
eighty (180) days or such shorter period as required until the distribution
contemplated in the registration statement has been completed, provided, that
the Company shall have the right to suspend the effectiveness of the
registration statement and by notice to the Holders to require the Holders to
cease using any related prospectus if at any time:
(i) the SEC or any other Governmental Authority issues any
stop order suspending the effectiveness of the registration statement or
qualification of the Registrable Securities or initiates or threatens to
initiate any proceedings for that purpose, provided, that the Company
shall use its reasonable best efforts to obtain the withdrawal of any such
stop order as soon as reasonably practicable;
(ii) any event happens that requires the making of any changes
in the registration statement or the related prospectus so that, as of
such date, the statements therein are not misleading and do not omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, provided, that the Company shall
use its reasonable best efforts to make such required changes as soon as
practicable; or
(iii) the Company determines, in its judgment, that it is
advisable to suspend use of the related prospectus for valid business
reasons including, among other things, the acquisition or divestiture of
assets, public filings with the SEC, pending corporate developments and
similar events, provided, that the maximum period of suspension in
connection with the circumstances described in this clause (iii) that the
Company may require with respect to any registration requested by the
Holders during any one hundred eighty (180) day period shall be either (A)
forty-five (45) days, with respect to any registration which was deferred
by the Company pursuant to Section 4.2(e) above, or (B) ninety (90) days,
with respect to any registration with respect to which the Company did not
exercise any such deferral rights; and provided, further, that if the
Company has exercised any deferral rights pursuant to Section 4.2(e) above
with respect to any registration, then the Company may not suspend such
registration in connection with the circumstances described in this clause
(iii) until at least sixty (60) days shall have passed since the effective
date of the applicable registration statement;
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and provided, further, that the maximum period of one hundred eighty (180) days
specified above shall be extended for a period of time equal to the period of
the suspension of the effectiveness of the registration statement as provided
above.
(b) Notwithstanding the foregoing, if applicable rules under the
Securities Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment which (x) includes any
prospectus required by Section 10(a)(3) of the Securities Act or (y) reflects
facts or events representing material or fundamental change in the information
set forth in the registration statement, the Company may incorporate by
reference information required to be included in clauses (x) and (y) above to
the extent such information is contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement.
(c) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary during the period specified in the
preceding paragraph (a) to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement.
(d) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(e) Use its reasonable best efforts to register or qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business, subject itself to
taxation or to file a general consent to service of process in any such
jurisdictions.
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the Company's becoming
aware that the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing and, at the
request of any such Holder, prepare and furnish to such Holder a reasonable
number of copies of an amendment to such registration statement or related
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, the prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
(g) Notify each Holder of Registrable Securities covered by such
registration statement at any time:
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(i) of the issuance by the SEC of any stop order suspending
the effectiveness of the registration statement or any order preventing
the use of the related prospectus, or the initiation or any threats of any
proceedings for such purposes, in each case of which the Company is aware;
and
(ii) of the receipt by the Company of any written notification
of the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or any threats
of any proceeding for that purpose.
(h) Use its reasonable best efforts to comply with all applicable
rules and regulations of the SEC, and as soon as reasonably practicable make
available to its stockholders an earnings statement which shall satisfy the
provisions of Section 11(a) of the Securities Act, provided, that the Company
shall be deemed to have complied with this paragraph if it has complied with
Rule 158 under the Securities Act.
(i) If the registration is an underwritten registration, enter into a
customary underwriting agreement and in connection therewith:
(i) make such representations and warranties to the
underwriters in form, substance and scope as are customarily made by
issuers to underwriters in comparable underwritten offerings;
(ii) use reasonable efforts to obtain opinions of counsel to
the Company, addressed to the underwriters, and covering the matters
customarily covered in opinions requested in comparable underwritten
offerings;
(iii) use reasonable efforts to obtain "cold comfort" letters
and bring-downs thereof from the Company's independent certified public
accountants, addressed to the underwriters, such letters to be in
customary form and covering matters of the type customarily covered in
"cold comfort" letters by independent accountants in connection with
underwritten offerings; and
(iv) deliver such documents and certificates as may be
reasonably and customarily requested by the managing underwriters and as
may be reasonably available to the Company to evidence compliance with
clause (f) above and with any customary conditions contained in the
underwriting agreement.
(j) Cooperate with the Holders of Registrable Securities covered by
such registration statement and the managing underwriter or underwriters or
agents, if any, to facilitate the timely preparation and delivery of
certificates (in such denominations as the Holders may reasonably request)
representing the securities to be sold under such registration statement.
(k) Use its reasonable best efforts in cooperation with the
underwriters to list such Registrable Securities on each securities exchange on
which similar securities issued by the Company are then listed.
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(l) Provide a transfer agent and registrar for all Registrable
Securities covered by such registration and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
4.5 CERTAIN HOLDER OBLIGATIONS.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 4 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company in writing (and signed by the Holder and stated to be specifically
for use in the related registration statement, preliminary prospectus,
prospectus or other document incident thereto) such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to effect the registration
of such Holder's Registrable Securities. Any such information, or any comments
on any such information included in a draft of a registration statement provided
to a Holder for its comment, shall be provided to the Company promptly upon
request by the Company.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 4.2 if, due to the operation of
Section 4.5(a), the number of shares or the anticipated aggregate offering price
of the Registrable Securities to be included in the registration does not equal
or exceed the number of shares or the anticipated aggregate offering price
required to originally trigger the Company's obligation to initiate such
registration as specified in Section 4.2(a).
(c) Each Holder shall notify the Company, at any time when a
prospectus is required to be delivered under applicable law, of the happening of
any event as a result of which the prospectus included in the applicable
registration statement, as then in effect, with respect to information provided
or confirmed by such Holder, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing. Each Holder shall immediately upon the happening of any such event
cease using such prospectus. If so requested by the Company, each Holder
promptly shall return to the Company any copies of any prospectus in its
possession (other than permanent file copies) that contains an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing.
(d) Upon receipt of any notice from the Company (i) of the actual or
contemplated suspension of the effectiveness of a registration statement
pursuant to Section 4.4(a) above or (ii) that the Company has become aware that
the prospectus (or any preliminary prospectus) included in any registration
statement filed pursuant to Section 4.2 or 4.3 above, as then in effect,
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, each Holder shall forthwith cease from engaging in any sale or
delivery of Registrable Securities pursuant to the applicable registration
statement or related prospectus until such Holder has received written notice
from the
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Company to the effect that such sales or deliveries may be resumed and, if
applicable, the Company has delivered to the Holder a supplemental or amended
prospectus. In addition, if so directed by the Company, each Holder shall
deliver to the Company at the Company's expense all copies in such Holder's
possession of the prospectus covering the Registrable Securities that was in
effect prior to such amendment or supplement or that otherwise is requested by
the Company in connection with any suspension of the effectiveness of a
registration statement pursuant to Section 4.4(a) above.
4.6 EXPENSES OF REGISTRATION.
The Company will pay all Registration Expenses in connection with all
registrations of Registrable Securities pursuant to this Agreement, and each
Holder shall pay (x) any fees or disbursements of counsel to such Holder (other
than the fees or disbursements of a single counsel to the Holders, which shall
be paid by the Company) and (y) all underwriting discounts and commissions and
transfer taxes, if any, and documentary stamp taxes, if any, relating to the
sale or disposition of such Holder's Registrable Securities pursuant to the
registration statement. The Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 4.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
Demand Registration pursuant to Section 4.2. Notwithstanding the foregoing, each
Holder shall pay such Registration Expenses which such Holder is required to pay
under applicable law.
4.7 DELAY OF REGISTRATION.
No Holder shall have any right to obtain or seek an injunction restraining
or otherwise delaying any such registration as the result of any controversy
that might arise with respect to the interpretation or implementation of this
Section 4.
4.8 INDEMNIFICATION.
In the event any Registrable Securities are included in a registration
statement under this Section 4:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively, a "Violation"):
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(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto;
(ii) the omission or alleged omission to state in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, a
material fact required to be stated therein, or necessary to make the
statements therein not misleading; or
(iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any
state securities law applicable to the Company;
and the Company will pay to each such Holder, underwriter or controlling person,
as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action, provided, that the indemnity agreement contained in this
Section 4.8(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), and
provided, further, that the Company shall not be liable in any such case for any
such loss, claim, damage, liability or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person and provided,
further, that the Company shall not be liable to any Person who participates as
an underwriter in the offering or sale of Registrable Securities or to any other
Person, if any, who controls such underwriter within the meaning of the
Securities Act, in any such case to the extent that such loss, claim, damage,
liability or action arises out of such Person's failure to send or give a copy
of the final prospectus, as the same may be then supplemented or amended, to the
Person asserting an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
corrected in the final prospectus.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages or liabilities (joint or several) to which any of the foregoing
persons may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation
specified in clause (i) or (ii) of the definition thereof, in each case to the
extent (and only to the
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extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration, and each such Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any Person intended to be indemnified
pursuant to this Section 4.8(b), in connection with investigating or defending
any such loss, claim, damage, liability or action, provided, that the indemnity
agreement contained in this Section 4.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld), and provided, further, that in no event shall any
indemnity under this Section 4.8(b) exceed the net proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
4.8 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 4.8, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel selected by the
indemnifying party (but subject to the reasonable approval of the indemnified
party), provided, that an indemnified party (together with all other indemnified
parties which may be represented without conflict by one counsel) shall have the
right to retain one separate counsel, with the fees and expenses to be paid by
the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 4.8, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 4.8.
(d) If the indemnification provided for in this Section 4.8 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party, on the one hand, and of the indemnified party, on the other,
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
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knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and each Holder agree that it would not be
just and equitable if contribution pursuant to this Section 4.8 were determined
solely by pro rata allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in this paragraph.
Notwithstanding the provisions of this Section 4.8(d), an indemnified party
shall not be required to contribute any amount in excess of the amount by which
the net proceeds received by such indemnified party or its affiliated
indemnified party in the offering exceeds the amount of any damages which such
indemnified party, or its affiliated indemnified party, has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with an underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and the Holders under this Section
4.8 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 4, and otherwise.
4.9 ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to cause the Company to register Registrable Securities pursuant
to this Section 4 may be assigned (but only with all related obligations) by a
Holder to a transferee or assignee of such securities who (i) receives such
Registrable Securities pursuant to a transfer made in compliance with this
Agreement and any other restrictions on transfer imposed by law and (ii) after
such assignment or transfer, holds at least twenty percent (20%) of the shares
of the aggregate Registrable Securities purchased by the Purchaser or any of its
Affiliates pursuant to the Master Agreement or as permitted by this Agreement
(determined on an as-converted basis), provided, that: (x) the Company is,
promptly after such transfer, furnished with written notice of the name and
address of such transferee or assignee and the securities with respect to which
such registration rights are being assigned; (y) such transferee or assignee
agrees in writing to be bound by and subject to the terms and conditions of
Sections 4 and 6 of this Agreement; and (z) such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act.
4.10 TERMINATION OF REGISTRATION RIGHTS.
The right of any Holder to request registration pursuant to Section 4.2 or
inclusion in any registration pursuant to Section 4.3 shall terminate at such
time as all Registrable Securities held or entitled to be held upon conversion
by such Holder may immediately
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be sold under Rule 144 or any similar rule or regulation hereafter adopted by
the SEC during any ninety (90) day period.
4.11 RULE 144.
(a) Following the consummation of the IPO, the Company shall file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder, all to the extent
required from time to time to enable the Holders to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144, as such Rule may be amended from time to
time, or (ii) any similar rule or regulation hereafter adopted by the SEC.
(b) Upon the request of any Holder of Registrable Securities, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
4.12 NO CONFLICTING AGREEMENTS.
The Company will not hereafter enter into any agreement with respect to its
securities which would constitute a violation by the Company of, or prevent the
Company from performing, its obligations to Holders under this Section 4.
Without limiting the generality of the foregoing, the Company will not after the
date hereof grant to any other Person piggyback registration rights superior in
priority to the piggyback registration rights granted to the Purchaser in
Section 4.3 hereof.
4.13 REMEDIES.
The Holders of Registrable Securities, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of their rights under this Section 4. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Section 4
and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
5. DESIGNATED EMPLOYEES.
5.1 RIGHT TO DESIGNATE.
Until the earlier of (i) the date the Purchaser and its Affiliates
collectively shall cease to own beneficially Company Securities at least equal
to the Ownership Threshold (but not less than three (3) years from the Closing
Date), or (ii) the termination or expiration of the Outside Service Provider
Agreement, the Purchaser shall have the right to designate up to a maximum of
three employees (the "Designated Employees") to be employed by the Company
pursuant to this Section 5, who shall have suitable experience and be reasonably
satisfactory to the Company, provided, that if the Purchaser and its Affiliates
collectively cease to own beneficially Company Securities at least equal to the
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Ownership Threshold as a result of a sale of Company Securities by the Purchaser
and its Affiliates pursuant to an Acquisition Transaction, then such right shall
continue until the termination or expiration of the Outside Service Provider
Agreement. One Designated Employee shall serve as an Assistant Vice President or
equivalent and the other Designated Employees shall serve as a director or
manager or the equivalent. Such Designated Employees shall have such substantive
responsibilities as the Company and the Purchaser may from time to time agree.
5.2 ACCESS TO INFORMATION; CONFIDENTIALITY.
The Designated Employees shall perform the normal roles and
responsibilities and have normal access to information required for the
performance of their responsibilities to the Company, provided, that the
Designated Employees shall have no access to Company customer data. Each
Designated Employee, as a condition to his or her employment by the Company,
shall execute a proprietary information and assignment agreement in the form
used by the Company for its employees generally, and shall be entitled following
termination of such employment to utilize, but only to the extent permitted by
such agreement and the procedures referred to below, the general knowledge,
skill and experience, ideas, concepts, techniques, and know-how possessed by
such Designated Employees prior to or acquired during the course of such
employment. In addition, each Designated Employee shall be subject to the
procedures for the protection of certain information of the Company, as set
forth in Exhibit B hereto.
5.3 STATUS OF DESIGNATED EMPLOYEES; EXPENSES.
The Company shall be responsible for the normal compensation expenses of
the Designated Employees, determined at the ordinary compensation levels of the
Company for its employees generally (excluding participation in the Company's
stock incentive plans, other than the Company's Employee Stock Purchase Plan),
and shall afford to the Designated Employees the same benefits as are provided
to similarly situated employees of the Company. The Purchaser shall be solely
responsible for, and shall indemnify and hold the Company harmless from and
against any claims for, the payment of any taxes or governmental charges of any
kind with respect to any such Designated Employees, other than normal income
taxes imposed in the U.S. and required to be withheld by an employer. The
Designated Employees shall, at the Company's expense, be provided with office
space and standard office equipment at the Company's facilities to the extent
reasonably necessary for them to carry out their intended purposes as described
in this Section 5.
5.4 PURPOSE OF DESIGNATED EMPLOYEES.
Without limiting the obligations of the Designated Employees pursuant to
Section 5.2 hereof, the Company and the Purchaser acknowledge that the
Designated Employees will be secunded to the Company in support of the Company's
and the Purchaser's relationship and operations under the Outside Service
Provider Agreement, and so that they may gain knowledge of the operation of
network operations, network
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engineering and service provisioning services as conducted by the Company, with
a view to enabling the Purchaser to provide such services to its customers.
6. RESTRICTIVE LEGEND.
6.1 LEGEND.
All certificates representing the Company Securities deliverable to the
Purchaser pursuant to the Master Agreement or otherwise acquired by the
Purchaser or any of its Affiliates (including, without limitation, any shares of
Common Stock acquired upon the conversion of any Junior Preferred Stock
purchased pursuant to the Master Agreement) (collectively, the "Purchaser
Shares"), and any certificates subsequently issued with respect thereto or in
substitution therefor, shall bear a legend substantially as follows, in addition
to any legend the Company determines is required pursuant to any applicable
Requirement of Law:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED,
SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES OR
THE ISSUER RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT TO
THE EFFECT THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE FURTHER SUBJECT TO CERTAIN
RESTRICTIONS RELATING TO TRANSFER, VOTING AND OTHER MATTERS SPECIFIED IN
THE INVESTMENT AGREEMENT DATED AS OF APRIL 7, 1998, A COPY OF WHICH IS ON
FILE AT THE OFFICE OF THE CORPORATE SECRETARY OF THE ISSUER.
6.2 STOP TRANSFER ORDER.
The Company, at its discretion, may cause a stop transfer order to be
placed with its transfer agent(s) with respect to the certificates for the
Purchaser Shares.
6.3 REMOVAL OF LEGENDS.
The legend set forth in Section 6.1 above and any stop transfer orders
shall be removed, and the Company shall issue certificates without such legends,
with respect to any Purchaser Shares transferred in any Transfer permitted by
the terms of this Agreement with respect to which (i) the Company has received
an opinion from counsel to the Purchaser or its Affiliates, as the case may be,
in form and substance and from counsel reasonably satisfactory to the Company,
that the Purchaser Shares so Transferred will cease to be "restricted
securities" within the meaning of Rule 144 following such
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Transfer, and (ii) the provisions of this Agreement provide that the transferee
of such Purchaser Shares will not be subject to the restrictions of this
Agreement.
7. CONFIDENTIAL TREATMENT OF CONFIDENTIAL INFORMATION.
7.1 PROTECTION OF CONFIDENTIAL INFORMATION.
(a) In the event any Covered Person (as defined below) (the
"Receiving Party") obtains from any other Covered Person or the Company (the
"Disclosing Party") any Confidential Information (as defined below), the
Receiving Party (subject in the case of the Designated Employees to Section 5.2
hereof): (i) shall treat all such Confidential Information as confidential; (ii)
shall use such Confidential Information only for the purposes contemplated in
this Agreement; (iii) shall protect such Confidential Information with the same
degree of care as the Receiving Party uses to protect its own proprietary
information against public disclosure, but in no case with less than reasonable
care; and (iv) shall not disclose such Confidential Information to any third
party except to such employees and agents of the Receiving Party who need to
know such Confidential Information for the purpose of effectuating this
Agreement and who have been informed of and have agreed to protect the
confidential nature of such Confidential Information (and the Receiving Party
shall be responsible for compliance by such employees and agents with such
agreement).
(b) "Confidential Information" shall mean technical and business
information relating to the Company's intellectual property rights, trade secret
processes or devices, techniques, data, formula, inventions (whether or not
patentable) or products, research and development (including research subjects,
methods and results), production, manufacturing and engineering processes,
computer software, costs, profit or margin information, pricing policies,
confidential market information, finances, customers, distribution, sales,
marketing and production and future business plans and any other information of
a "confidential" nature, specifically including, without limitation, any
information that is identified orally or in writing by the Company to be
confidential, or that the Receiving Party should reasonably understand under the
circumstances to be a trade secret or information of a similar nature, provided,
that Confidential Information shall not include any such information which: (i)
was in the public domain on the date hereof or comes into the public domain
other than through the fault or negligence of the Receiving Party; (ii) was
lawfully obtained by the Receiving Party from a third party without breach of
this Agreement and otherwise not in violation of the Disclosing Party's rights;
(iii) was known to the Receiving Party at the time of disclosure of such
Proprietary Information to the Receiving Party by the Disclosing Party and the
Receiving Party was not, at such time, subject to any confidentiality obligation
with respect thereto; or (iv) was independently developed by the Receiving Party
without making use of any Proprietary Information of the Disclosing Party.
(c) "Covered Person" shall mean the Purchaser or any Person (other
than the Company) that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company or the Purchaser, any
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officer, director, controlling person, partner, employee, representative or
agent of the Purchaser or any of its Affiliates (other than the Company), any
director, officer, employee or agent of the Company or any of its Affiliates, or
any person who was, at the time of the act or omission in question, such a
Person.
(d) "Affiliate" shall mean, with respect to any specified Person, a
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the Person
specified.
7.2 RETURN OF CONFIDENTIAL INFORMATION.
Upon the Disclosing Party's request at any time, the Receiving Party shall:
(i) return to the Disclosing Party or destroy all documents (including any
copies thereof) embodying the Disclosing Party's Confidential Information and
(ii) certify in writing to the Disclosing Party, within ten (10) days following
the Disclosing Party's request, that all such Confidential Information has been
returned or destroyed.
7.3 EQUITABLE REMEDIES.
The parties acknowledge that the extent of damages in the event of the
breach of any provision of this Section 7 would be difficult or impossible to
ascertain, and that there will be available no adequate remedy at law in the
event of any such breach. Each party therefore agrees that in the event it or
any Covered Person employed by or affiliated with it breaches any provision of
this Section 7, the aggrieved party (including, without limitation, the Company)
will be entitled to injunctive or other equitable relief, in addition to any
other relief to which it may be entitled.
8. OTHER AGREEMENTS.
8.1 NONSOLICITATION.
Unless otherwise agreed in writing, until the date three (3) years
following the date on which the Purchaser and its Affiliates no longer own any
Company Securities, the Purchaser shall not solicit, or allow its Affiliates to
solicit, for hire any employees of the Company or any of its Affiliates (other
than the Purchaser) ("Restricted Employees"), other than employees serving
strictly clerical roles. The phrase "solicit for hire" shall not include general
advertisements or other similar solicitations that are not specifically directed
at such Restricted Employees.
8.2 FURTHER ASSURANCES.
Each party shall execute and deliver such additional instruments, documents
or other writings as may be reasonably requested by the other party in order to
confirm and carry out and to effectuate fully the intent and purposes of this
Agreement.
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9. TERMINATION.
9.1 TERMINATION.
This Agreement (i) may be terminated at any time prior to the Closing by
the written agreement of the Purchaser and the Company and (ii) shall terminate
automatically upon any termination prior to the Closing of the Master Agreement.
9.2 EFFECT OF TERMINATION.
Except for the obligations of Sections 7 and 8.1, this Section 9 and
Section 11, if this Agreement shall be terminated pursuant to the preceding
Section 9.1, all obligations, representations and warranties of the parties
hereto under this Agreement shall terminate and there shall be no liability of
any party hereto to any other party hereto pursuant to the terms hereof,
provided, that nothing in this Section 9 shall relieve any party for breach of
any warranty, covenant or agreement herein or in any other Transactional
Agreement.
10. SUCCESSORS AND ASSIGNS.
10.1 SUCCESSORS AND ASSIGNS.
Except as otherwise expressly provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto. Except as otherwise
expressly provided herein, neither party may assign any of its rights or
obligations hereunder without the written consent of the other party hereto.
10.2 NOVATION.
(a) From and after the date of this Agreement, the Purchaser shall
have the right, with or without the consent of the Company, to assign all of its
rights and obligations under this Agreement (other than its obligations pursuant
to this Section 10, except in the circumstances and subject to the conditions
described in Section 10.2(b)), effecting a novation, to a direct or indirect
wholly-owned subsidiary of the Purchaser (the "Assignee"), provided, that any
such assignment shall only be made in conjunction with an assignment by the
Purchaser to the same transferee of its rights and obligations under the Master
Agreement, pursuant to Section 7 of the Master Agreement. Such assignment shall
become effective immediately upon notification by the Purchaser to the Company
of such assignment.
(b) In the event of a transfer of the rights and obligations of the
Purchaser under this Agreement pursuant to a statutory reorganization of the
Purchaser prescribed in the Supplementary Provisions to the Law Concerning
Partial Amendment to the Nippon Telegraph and Telephone Corporation Law (Law No.
98 of 1997) (the "Amendment"), the Purchaser shall ensure that all the rights
and obligations of the Purchaser under this Agreement and the ownership of the
Purchaser Shares are transferred to the said successor entity without any
dilution or adverse effect on the
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enforceability of such obligations. Subject to the aforesaid, the Company: (i)
agrees that such a reorganization by itself shall not constitute a default by
the Purchaser or any successor entity of the Purchaser under this Agreement and
shall not constitute grounds for termination of this Agreement by any of such
parties; (ii) anything to the contrary herein notwithstanding, consents to the
transfer of all the rights and obligations of the Purchaser under this Agreement
(including, without limitation, its obligations pursuant to Sections 10.3 and
10.4 hereof) to a successor entity as part of such reorganization; (iii)
consents to the transfer of the Purchaser Shares to a successor entity as part
of such reorganization; and (iv) anything to the contrary herein or elsewhere
notwithstanding, agrees to absolutely and irrevocably release the Purchaser from
its obligations under this Agreement and the other Transactional Agreements upon
such reorganization, provided, in each case, that the successor entity shall be
subject to the terms and conditions of this Agreement and the other
Transactional Agreements, including, without limitation, the representations and
warranties of the Purchaser herein and in the other Transactional Agreements,
and shall deliver to the Company a written agreement to such effect, in form and
substance reasonably satisfactory to the Company, and provided, further, in each
case, that the successor entity is either one of the Regional Companies or the
Long Distance Company currently contemplated in the Amendment.
10.3 GUARANTEE.
(a) The Purchaser hereby absolutely, unconditionally and irrevocably
guarantees (i) the full and complete performance by each Assignee and each
Purchaser Party Affiliate of all covenants and obligations to be performed by it
under this Agreement, the Master Agreement and all other Transactional
Agreements, and (ii) the payment of any and all damages, losses, claims,
demands, recoveries, deficiencies, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) which the Company or any of
its successors, assigns or Affiliates may suffer or incur in connection with,
resulting from or arising out of any breach by any Assignee or any Purchaser
Party Affiliate of any such covenants and obligations, which guarantee shall be
effective from and after the date hereof or, in the case of any Assignee,
automatically upon the related assignment pursuant to Section 10.2(a).
(b) Without limiting the generality of the preceding paragraph (a),
the Purchaser agrees that, in the event that any Assignee or any Purchase Party
Affiliate fails to perform any of its duties and obligations under this
Agreement or any of the other Transactional Agreements, and monetary claims by
the Company or any of its successors, assigns or Affiliates arising out of or
with respect to such failure to perform have been determined (by any judgment of
a court, by an arbitral award, by execution of a settlement agreement or by
final resolution under the terms of the relevant Transactional Agreement) to be
payable to the Company or any such successor, assign or Affiliate ("Payment
Determination"), then the Purchaser shall promptly pay over to the Company or
such successor, assign or Affiliate all of the amounts so determined to be due
to it within thirty (30) days after such Payment Determination, if and to the
extent that the Assignee or the Purchaser Party Affiliate, as applicable, shall
have failed to pay such amounts within such time period. The Purchaser agrees
that it will pay and perform all
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obligations of the Assignee or the Purchaser Party Affiliate, as applicable,
established through any Payment Determination made as a result of any
litigation, arbitration or other proceeding, even though such litigation,
arbitration or any other proceeding may be appealed or is appealable by the
Purchaser, the Assignee or the Purchaser Party Affiliate.
(c) In addition to all other amounts to which it may be entitled
hereunder, in the event that the Company or any of its successors, assigns or
Affiliates recovers any amounts from the Purchaser or any Affiliate of the
Purchaser pursuant to this Section 10 or otherwise in connection with the
matters giving rise to the Purchaser's guarantee obligation hereunder, the
Company or any such successor, assign or Affiliate shall be entitled to recover
from the Purchaser all costs and expenses (including, without limitation, court
costs and reasonable attorneys' fees and expenses) incurred by the Company or
any such successor, assign or Affiliate in connection with the enforcement of
this Section 10 against the Purchaser and all actions or proceedings, in any
way, manner or respect arising out of or relating to the enforcement by the
Company of its rights under this Section 10 against the Purchaser. In the event
that the Company or any of its successors, assigns or Affiliates seeks to
enforce this Section 10 against the Purchaser and is finally judicially
determined not to be entitled to any recovery with respect to the matter for
which the Purchaser's guarantee hereunder was sought to be enforced, the
Purchaser shall be entitled to recover from the Company all costs and expenses
(including, without limitation, court costs and reasonable attorney's fees and
expenses) incurred by the Purchaser in connection with the Purchaser's defending
such enforcement action.
10.4 CERTAIN WAIVERS AND AUTHORIZATIONS.
In connection with any assignment by the Purchaser pursuant to
Section 10.2(a) above and the guaranty by the Purchaser pursuant to Section 10.3
above:
(a) The Purchaser hereby irrevocably waives, to the fullest extent
permitted by law: (i) all statutes of limitations defenses; (ii) any defense
based upon any legal disability or any discharge or limitation of the liability
of any Assignee or any Purchaser Party Affiliate, whether consensual or arising
by operation of law or by any bankruptcy, reorganization, receivership,
insolvency or similar debtor-relief proceeding, or from any other cause; (iii)
presentment, demand, protest and notice of any kind, including, without
limitation, notices of nonperformance, protest and dishonor; and (iv) any right
to require the Company to proceed against any Assignee, any Purchaser Party
Affiliate or any other party or to pursue any other remedy in the Company's
power whatsoever.
(b) The Purchaser's obligations under Section 10.3 shall be primary
obligations and are independent of those of any Assignee or any Purchaser Party
Affiliate. The Company may bring a separate action against the Purchaser,
without first proceeding against any Assignee, any Purchaser Party Affiliate or
any other Person and without pursuing any other remedy. The Company's rights
hereunder shall not be exhausted by any action of the Company until all
obligations of all Assignees and all
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Purchaser Party Affiliates have been performed and there shall be no
outstanding default thereunder, and all obligations of the Purchaser otherwise
shall have been performed.
(c) To the fullest extent permitted by law, the Company may at any
time and from time to time, without the consent of or notice to the Purchaser,
without incurring any responsibility to the Purchaser, and without impairing or
releasing the obligations of the Purchaser hereunder, upon or without any terms
or conditions and in whole or in part:
(i) exercise or refrain from exercising any rights against any
Assignee or any Purchaser Party Affiliate or others or otherwise act or
refrain from acting;
(ii) subordinate, release, settle or compromise any of the
obligations of any Assignee or any Purchaser Party Affiliate;
(iii) consent to or waive any breach of, or any act, omission
or default under, this Agreement, the Master Agreement or any other
Transactional Agreements, or otherwise agree with any Assignee or any
Purchaser Party Affiliate to amend, modify or supplement any such
Agreements or any other instrument or agreement; or
(iv) substitute, add or release any one or more guarantors.
(d) The obligations of the Purchaser hereunder shall continue to be
effective if any obligations of any Assignee or any Purchaser Party Affiliate
are rescinded or nullified, or any payment made thereby must otherwise be
restored or returned to such party, or any trustee, receiver, custodian,
liquidator or other similar officer thereof (and is so returned) upon the
bankruptcy of such party or upon or as a result of the appointment of a
custodian, receiver, trustee or other officer with similar powers with respect
to such party.
(e) The obligations of the Purchaser hereunder shall continue to be
effective notwithstanding any other provision hereof or any amendment or
modification of this Agreement or any of the other Transactional Agreements, or
any assignment or any rejection thereof which may occur in any bankruptcy or
proceeding concerning any Assignee or any Purchaser Party Affiliate, whether
permanent or temporary, and whether or not assented to by any of the parties to
this Agreement or any of the other Transactional Agreements.
(f) Without notice to or further assent from the Purchaser, any of
the terms and conditions respecting the duties and obligations of any Assignee
or any Purchaser Party Affiliate under this Agreement and the other
Transactional Agreements may be waived or modified by any of such parties and
the Company, and the time of payment of any amount due or the time of
performance of any obligation of such parties may be compromised, settled or
extended in writing by such parties and the Company.
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The obligations of the Purchaser hereunder shall not be discharged or impaired
or otherwise affected by (i) any extension or renewal of this Agreement or any
of the other Transactional Agreements or any obligations of any Assignee or any
Purchaser Party Affiliate thereunder, without notice or further assent from the
Purchaser; (ii) any rescission or any waiver, amendment or modification of any
of the terms or provisions of this Agreement or any of the other Transactional
Agreements; (iii) any permitted assignment or delegation by the Company, or any
of its successors and assigns, of its rights and obligations under this
Agreement or any of the other Transactional Agreements; or (iv) any other act or
thing which may or might in any manner or to any extent vary the risk of the
Purchaser or which would otherwise operate as a discharge of the Purchaser as a
matter of law.
11. MISCELLANEOUS.
11.1 INTERPRETATION.
(a) References in this Agreement to "beneficial ownership" or
beneficially own," or any derivation of such terms, shall have the meaning set
forth in Rule 13d-3 under the Exchange Act.
(b) The various section headings are inserted for purposes of
reference only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
(c) Each party hereto acknowledges that it has been represented by
competent counsel and participated in the drafting of this Agreement and the
other Transactional Agreements, and agrees that any applicable rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in connection with the construction or
interpretation of this Agreement and the other Transactional Agreements.
(d) The original and controlling version of this Agreement and the
other Transactional Agreements shall be the version using the English language.
All translations of this Agreement or any of the other Transactional Agreements
into other languages shall be for the convenience of the parties only, and shall
not control the meaning or application of this Agreement or any of the other
Transactional Agreements. All notices and other communications required or
permitted by this Agreement or any other Transactional Agreement must be in
English, and the interpretation and application of such notices and other
communications shall be based solely upon the English language version thereof.
(e) When a reference is made in this Agreement or any other
Transactional Agreement to a Section, Exhibit or Schedule, such reference shall
be to a Section of, Exhibit to or Schedule to this Agreement or such other
Transactional Agreement, unless otherwise indicated.
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11.2 FEES AND EXPENSES.
Each party hereto shall be solely responsible for the payment of the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
Transactional Agreements, except to the extent expressly set forth in this
Agreement and the other Transactional Agreements.
11.3 GOVERNING LAW; JURISDICTION AND VENUE; WAIVER OF JURY TRIAL.
(a) This Agreement is to be construed in accordance with and governed
by the internal laws of the State of New York (as permitted by Section 5-1401 of
the New York General Obligations Law (or any similar successor provision))
without giving effect to any choice of law rule that would cause the application
of the laws of any jurisdiction other than the internal laws of the State of New
York to the rights and duties of the parties.
(b) Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement may be brought
or otherwise commenced in any state or federal court located in the County of
Denver, Colorado. Each party to this Agreement:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the County of
Denver, Colorado (and each appellate court located in the State of
Colorado) in connection with any such legal proceeding, including to
enforce any settlement, order or award;
(ii) agrees that each state and federal court located in the
County of Denver, Colorado shall be deemed to be a convenient forum; and
(iii) waives and agrees not to assert (by way of motion, as a
defense or otherwise), in any such legal proceeding commenced in any state
or federal court located in the County of Denver, Colorado, any claim that
such party is not subject personally to the jurisdiction of such court,
that such legal proceeding has been brought in an inconvenient forum, that
the venue of such proceeding is improper or that this Agreement or the
subject matter of this Agreement may not be enforced in or by such court.
(c) Each party hereto agrees to the entry of an order to enforce any
resolution, settlement, order or award made pursuant to this Section by the
state and federal courts located in the County of Denver, Colorado and in
connection therewith hereby waives, and agrees not to assert by way of motion,
as a defense, or otherwise, any claim that such resolution, settlement, order or
award is inconsistent with or violative of the laws or public policy of the laws
of the State of New York or any other jurisdiction.
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<PAGE> 43
(d) The Purchaser hereby irrevocably designates Corporation Service
Company, of One Civic Center Plaza, 1560 Broadway, Denver, Colorado 80202, as
agent for service of process hereunder and the above named is authorized and
directed to accept service of process on behalf of the Purchaser in any suit
regarding the Transactions or otherwise related to this Agreement or the other
Transactional Agreements.
11.4 SPECIFIC ENFORCEMENT.
The parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific intent or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which they may be entitled by law or equity.
11.5 NO THIRD PARTY BENEFICIARIES.
This Agreement is intended for the benefit of the parties hereto and their
respective permitted successors and assigns and are not for the benefit of, nor
may any provision hereof be enforced by, any other Person.
11.6 ENTIRE AGREEMENT.
This Agreement, the Master Agreement and the other Transactional
Agreements, and the other documents delivered expressly hereby, constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
11.7 SEVERABILITY.
The provisions of this Agreement shall be severable, and any invalidity,
unenforceability or illegality of any provision or provisions of this Agreement
shall not affect any other provision or provisions of this Agreement, and each
term and provision of this Agreement shall be construed to be valid and
enforceable to the full extent permitted by law.
11.8 AMENDMENT AND WAIVER.
(a) This Agreement may be modified or amended at any time by the
agreement of the Purchaser and the Company, provided, that without the consent
of the Purchaser, the Company may (i) enter into agreements with permitted
assignees pursuant to the terms of this Agreement, providing in substance that
such permitted assignees will be bound by this Agreement, and (ii) amend this
Agreement (A) to satisfy any requirements, conditions, guidelines or opinions
contained in any opinion, directive, order, ruling or regulation of the SEC, the
Internal Revenue Service or any other United States federal or state agency, or
in any United States federal or state statute, and to cure
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any ambiguity or correct or supplement any provision of this Agreement that may
be incomplete or inconsistent with any other provision contained herein, so long
as any amendment under this clause (ii) does not adversely affect the investment
in the Company of the Purchaser or any of its Affiliates or the rights of the
Purchaser or any of its Affiliates hereunder, and provided, further, that,
notwithstanding the foregoing provisions of this Section 11.8, no amendment of
this Agreement shall change the provisions of this Section 11.8 without the
prior written consent of the Purchaser.
(b) No failure to exercise and no delay in exercising any right,
power or privilege granted under this Agreement shall operate as a waiver of
such right, power or privilege. No single or partial exercise of any right,
power or privilege granted under this Agreement shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies provided in this Agreement are cumulative and are not
exclusive of any rights or remedies provided by law.
11.9 RELATIONSHIP OF THE PARTIES.
For all purposes of this Agreement and the other Transactional Agreements,
each of the parties hereto and their respective Affiliates shall be deemed to be
independent entities and, anything in this Agreement or the other Transactional
Agreements to the contrary notwithstanding, nothing herein shall be deemed to
constitute the parties hereto or any of their respective Affiliates as partners,
joint venturers, co-owners, an association or any entity separate and apart from
each party itself, nor shall this Agreement or any other Transactional Agreement
make any party hereto an employee or agent, legal or otherwise, of the other
parties for any purposes whatsoever. This Agreement does not create or
constitute, and shall not be construed as creating or constituting, a voting
trust agreement under the Delaware General Corporation Law or any other
applicable corporation law. None of the parties to this Agreement or any other
Transactional Agreement is authorized to make any statements or representations
on behalf of any other party or in any way to obligate any other party, except
as expressly authorized in writing by the other parties. Anything in this
Agreement or any other Transactional Agreement to the contrary notwithstanding,
no party hereto or thereto shall assume nor shall be liable for any liabilities
or obligations of the other parties, whether past, present or future.
11.10 NOTICES.
All notices required or permitted hereunder shall be in writing and shall
be deemed effectively given: (i) upon personal delivery to the party to be
notified; (ii) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient, if not, then on the next business day; (iii)
five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iv) two (2) days after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the parties
hereto at the respective addresses set forth below, or as notified by such party
from time to time at least ten (10) days prior to the effectiveness of such
notice:
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<TABLE>
<S> <C>
if to the Purchaser: Nippon Telegraph and Telephone
Corporation
Global Communications Headquarters
Tokyo Opera City Tower
20-2 Nishi-shinjuku 3-chome
Shinjuku-ku
Tokyo 163-14 Japan
Attention: Tatsuo Kawasaki
Facsimile: 81-3-5353-5753
with a copy to: NTT America, Inc.
101 Park Avenue, 41st Floor
New York, NY 10178
Attention: Richard Nohe
Facsimile: (212) 661-1078
and a copy to: Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Anthony S. Harrington
Facsimile: (202) 637-5910
if to the Company: Verio Inc.
8005 South Chester Street
Suite 200
Englewood, CO 80122
Attention: Carla Hamre Donelson
Facsimile: (303) 708-2494
with a copy to: Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
Attention: Gavin B. Grover
Facsimile: (415) 268-7522
</TABLE>
11.11 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall constitute an original, but all of which together shall constitute one
instrument.
11.12 ATTORNEYS' FEES.
If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorney's fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
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<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
NIPPON TELEGRAPH AND
TELEPHONE CORPORATION
By: /s/ JUN-ICHIRO MIYAZU
--------------------------------
Name: Jun-Ichiro Miyazu
Title: President
VERIO INC.
By: /s/ JUSTIN JASCHKE
---------------------------------
Justin Jaschke
Chief Executive Officer
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EXHIBIT A
CERTAIN DEFINITIONS
Terms used in the Agreement without definition shall have the respective
meanings given them in the Master Agreement. In addition, for purposes of the
Agreement (including this Exhibit A) the following terms shall have the
following meanings:
ACQUISITION EVENT. "Acquisition Event" shall have the meaning specified in
Section 2.2 of the Agreement.
ACQUISITION PROPOSAL. "Acquisition Proposal" shall have the meaning
specified in Section 3.1 of the Agreement.
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean a transaction
pursuant to an Acquisition Event, a Third Party Offer or an Acquisition Proposal
which has been publicly approved by the Company Board as described in Section
3.1(c) of the Agreement.
AFFILIATE. "Affiliate" shall have the meaning specified in Section 7.1 of
the Agreement.
AMENDMENT. "Amendment" shall have the meaning specified in Section 10.2 of
the Agreement.
ASSIGNEE. "Assignee" shall have the meaning specified in Section 10.2 of
the Agreement.
BUSINESS DAY. "Business Day" shall mean any day other than a Saturday or
Sunday or other day on which commercial banks in California are authorized or
required by law to close.
CHANGE OF CONTROL. "Change of Control" shall have the meaning specified in
Section 2.2 of the Agreement.
CLASS III DIRECTOR. "Class III Director" shall have the meaning specified
in Section 1.1 of the Agreement.
CLOSING. "Closing" shall have the meaning specified in Section 1.1 of the
Agreement.
COMMON STOCK. "Common Stock" shall have the meaning specified in the
Recitals to the Agreement.
COMPANY BOARD. "Company Board" shall have the meaning specified in Section
1.1 of the Agreement.
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COMPANY SECURITIES. "Company Securities" shall have the meaning specified
in the Recitals to the Agreement.
CONFIDENTIAL INFORMATION. "Confidential Information" shall have the meaning
specified in Section 7.1 of the Agreement.
CONTROLLED AFFILIATE. "Controlled Affiliate" with respect to a Person shall
mean any Affiliate of such Person that is controlled by such Person.
COVERED PERSON. "Covered Person" shall have the meaning specified in
Section 7.1 of the Agreement.
DEMAND REGISTRATION. "Demand Registration" shall have the meaning specified
in Section 4.1 of the Agreement.
DESIGNATED EMPLOYEES. "Designated Employees" shall have the meaning
specified in Section 5.1 of the Agreement.
DILUTED COMMON STOCK. "Diluted Common Stock" shall mean the sum of (i) the
number of shares of Common Stock outstanding at the time the determination is
made plus (ii) the number of shares of Common Stock issuable upon the exercise
or conversion of all then outstanding rights, warrants, options, convertible
securities or indebtedness, exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or exchangeable into, directly or
indirectly, Common Stock whether at the time of issue or upon the passage of
time or the occurrence of some future event.
DISCLOSING PARTY. "Disclosing Party" shall have the meaning specified in
Section 7.1 of the Agreement.
ENTITY. "Entity" shall mean any corporation (including any non profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
EXECUTIVE COMMITTEE. "Executive Committee" shall have the meaning specified
in Section 1.4 of the Agreement.
GOVERNMENTAL AUTHORITY. "Governmental Authority" means any nation or
government, any state or other political subdivision thereof and any Entity
properly exercising executive, legislative, judicial, regulatory or
administrative functions of government.
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HOLDERS. "Holders" shall have the meaning specified in Section 4.1 of the
Agreement.
INITIATING HOLDERS. "Initiating Holders" shall have the meaning specified
in Section 4.2 of the Agreement.
IPO. "IPO" shall mean an underwritten initial public offering of Common
Stock pursuant to an effective registration statement filed by the Company under
the Securities Act.
JUNIOR PREFERRED STOCK. "Junior Preferred Stock" shall mean the Series X
Junior Convertible Preferred Stock of the Company.
LARGE SALE. "Large Sale" shall have the meaning specified in Section 3.3 of
the Agreement.
MARKET PRICE. "Market Price" shall have the meaning specified in Section
3.3 of the Agreement.
MASTER AGREEMENT. "Master Agreement" shall have the meaning specified in
the Recitals to the Agreement.
MEDIUM SALE. "Medium Sale" shall have the meaning specified in Section 3.3
of the Agreement.
NOTICE OF REQUEST FOR REGISTRATION. "Notice of Request for Registration"
shall have the meaning specified in Section 4.2 of the Agreement.
OPTION SHARES. "Option Shares" shall have the meaning specified in Section
3.3 of the Agreement.
OWNERSHIP THRESHOLD. "Ownership Threshold" shall have the meaning specified
in Section 1.1 of the Agreement.
PAYMENT DETERMINATION. "Payment Determination" shall have the meaning
specified in Section 10.3 of the Agreement.
PERCENTAGE LIMITATION. "Percentage Limitation" shall have the meaning
specified in Section 2.1 of the Agreement.
PERSON. "Person" shall mean any person, Governmental Authority or Entity.
PUBLIC DISTRIBUTION. "Public Distribution" shall mean an offering and sale
of Company Securities pursuant to an effective registration statement under the
Securities Act that is either: (i) a bona fide public offering that is effected
through an underwriter, provided, that no sales of Company Securities are made
to any Person who would immediately after such sales, to the knowledge of the
Purchaser, beneficially own more
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
than (*) percent ((*)%) of the outstanding Common Stock, and provided, further,
that if any such Person (A) is a 13G Eligible Person and (B) is not otherwise
known to the Purchaser to be purchasing such securities with the intent of
gaining or exercising control over the Company, then the percentage limitation
described in the preceding proviso may be waived with the prior written consent
of the Company, which consent will not be unreasonably withheld (it being
understood that the Company may withhold consent to a Transfer to a 13G Eligible
Person where, among other things, such Person is of a type which is reasonably
likely to Transfer the Company Securities to a Person who may have the intent of
gaining or exercising control over the Company); or (ii) any other such offering
and sale pursuant to which, to the knowledge of the Purchaser, no Person is
purchasing more than (*) percent ((*)%) of the outstanding Common Stock or will
beneficially own more than (*) percent ((*)%) of the outstanding Common Stock as
a result of such distribution or otherwise is purchasing such securities with
the intent of gaining or exercising control over the Company.
PURCHASER BOARD DESIGNEE. "Purchaser Board Designee" shall have the meaning
specified in Section 1.1 of the Agreement.
PURCHASER BOARD NOMINEE. "Purchaser Board Nominee" shall have the meaning
specified in Section 1.2 of the Agreement.
PURCHASER BOARD OBSERVER. "Purchaser Board Observer" shall have the meaning
specified in Section 1.3 of the Agreement.
PURCHASER EXECUTIVE COMMITTEE OBSERVER. "Purchaser Executive Committee
Observer" shall have the meaning specified in Section 1.4.
PURCHASER PARTY AFFILIATE. "Purchaser Party Affiliate" shall mean any
Affiliate of the Purchaser that is a party to a Transactional Agreement.
PURCHASER SHARES. "Purchaser Shares" shall have the meaning specified in
Section 6.1 of the Agreement.
RECEIVING PARTY. "Receiving Party" shall have the meaning specified in
Section 7.1 of the Agreement.
REGISTRABLE SECURITIES. "Registrable Securities" shall have the meaning
specified in Section 4.1 of the Agreement.
REGISTRATION EXPENSES. "Registration Expenses" shall mean any and all
out-of-pocket expenses incident to the Company's performance of or compliance
with Section 4 of the Agreement, including, without limitation, (i) all SEC,
National Association of Securities Dealers, Inc. and securities exchange
registration and filing fees, (ii) all fees and expenses of complying with state
securities or blue sky laws (including reasonable fees and disbursements of
counsel for any underwriters in connection with blue sky qualifications of the
Registrable Securities), (iii) all printing, messenger and delivery expenses,
(iv) all fees and expenses incurred in connection with the listing of the
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Registrable Securities on any securities exchange or automated quotation system,
(v) the fees and disbursements of counsel for the Company and of its independent
public accountants, (vi) the reasonable fees and expenses of any special experts
retained by the Company in connection with the requested registration, (vii) the
reasonable fees and expenses of a single counsel to the Holders and (viii)
out-of-pocket expenses of underwriters customarily paid by the issuer to the
extent provided for in any underwriting agreement, but excluding (x)
underwriting discounts and commissions, transfer taxes, if any, and documentary
stamp taxes, if any, and (y) any fees or disbursements of counsel to the Holders
or any Holder (other than a single counsel to the Holders).
REQUIREMENTS OF LAW. "Requirements of Law" shall mean, as to any Person,
the certificate of incorporation and bylaws or other organizational or governing
documents of such Person, and all federal, state, local and foreign laws, rules
and regulations, including, without limitation, securities, antitrust,
communications, licensing, health, safety, labor and trade laws, rules and
regulations, and all orders, judgments, decrees and other determinations of any
Governmental Authority or arbitrator, applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
RESTRICTED EMPLOYEES. "Restricted Employees" shall have the meaning
specified in Section 8.1 of the Agreement.
RIGHT OF FIRST OFFER NOTICE. "Right of First Offer Notice" shall have the
meaning specified in Section 3.3 of the Agreement.
RULE 144. "Rule 144" shall have the meaning specified in Section 4.1 of the
Agreement.
RULE 144 TRANSACTION. "Rule 144 Transaction" shall mean a transfer of
Company Securities pursuant to Rule 144.
SALE NOTICE. "Sale Notice" shall have the meaning specified in Section 3.3
of the Agreement.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
SEC. "SEC" shall mean the Securities and Exchange Commission.
SIGNIFICANT TRANSFER. "Significant Transfer" shall have the meaning
specified in Section 3.3 of the Agreement.
SMALL SALE. "Small Sale" shall have the meaning specified in Section 3.3 of
the Agreement.
STANDSTILL PERIOD. "Standstill Period" shall have the meaning specified in
Section 2.1 of the Agreement.
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THIRD PARTY OFFER. "Third Party Offer" shall have the meaning specified in
Section 2.2 of the Agreement.
13G ELIGIBLE PERSON. "13G Eligible Person" shall mean any Person (i) who is
eligible to report its beneficial ownership of (or will or would be eligible
upon acquisition of) equity securities of the Company (including Common Stock)
on Schedule 13G under the Exchange Act and (ii) without limiting the foregoing,
with respect to whom clause (i) of paragraph (b)(1) of Rule 13d-1 under the
Exchange Act is true and correct.
TRANSACTIONS. "Transactions" shall mean all of the transactions
contemplated by the respective Transactional Agreements, including, without
limitation, the issuance of the Purchased Shares by the Company to the Purchaser
in accordance with the Master Agreement.
TRANSFER. "Transfer" shall have the meaning specified in Section 3.1 of the
Agreement.
VIOLATION. "Violation" shall have the meaning specified in Section 4.8 of
the Agreement.
VOTING SECURITIES. "Voting Securities" shall mean (i) the Common Stock and
any other securities (including voting preferred stock) issued by a company
which are entitled to vote generally for the election of directors or other
governing body of the company, whether currently outstanding or hereafter
issued, and (ii) all rights, warrants, options, convertible securities or
indebtedness, exchangeable securities or indebtedness, or other rights,
exercisable for or convertible or exchangeable into, directly or indirectly,
Common Stock or any such securities, whether at the time of issue or upon the
passage of time or the occurrence of some future event.
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<PAGE> 1
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
EXHIBIT 10.30
MASTER SERVICES AGREEMENT
This MCI Master Service Agreement, including the Schedules attached hereto
("Agreement") is made between MCI Telecommunications Corporation and its
affiliates ("MCI") and Verio, Incorporated ("Customer"), and shall be
binding when executed by both Parties and the conditions set forth in
paragraph 11(m) below (*) and paragraph 11(n) with respect to credit
approval have been satisfied.
The Term, rates, discounts and certain other provisions applicable to MCI
tariffed services ("Tariffed Services") are set forth in Schedule I and its
Attachments (hereby incorporated by reference) and shall be effective on
the Attachment Effective Date, as set forth in Attachment A to Schedule I.
The Term, rates, discounts and certain other provisions applicable to MCI
non-tariffed services ("Enhanced Services") are set forth in Schedule II
and its Attachments (hereby incorporated by reference) and shall be
effective on the Schedule Effective Date, as set forth in Schedule II. The
MCI Enhanced Services provided under Schedule II and its Attachments will
not receive the rates, discounts and credits provided under Schedule I, nor
will Enhanced Service usage be included in determining the rates, discounts
and credits provided under Schedule I.
For good and valuable consideration, the sufficiency of which is hereby
acknowledged, and intending to be legally bound, MCI and Customer (each a
"Party" and together, the "Parties") agree as follows:
1. Authority. Each Party represents and warrants that it has the full right,
power and authority to enter into this Agreement, to perform its
obligations hereunder and that the execution, delivery and performance of
this Agreement will not conflict with or constitute a default under any
contract, agreement or other obligation to which it is subject.
2. Confidential Information. The Parties agree that any confidential
information disclosed during performance of this Agreement shall be
governed by the Non-Disclosure Agreement ("NDA") between the Parties dated
May 19, 1997. The parties further agree that this Agreement, its Schedules
and Attachments are confidential information under the terms of the NDA and
that notwithstanding anything to the contrary, the term of the NDA is
hereby amended to be coterminous with this Agreement.
3. Termination of Schedules and Attachments. In addition to any other
termination rights identified in the attached Schedules, the Parties agree
that if all Schedules and Attachments hereto have been terminated in
accordance with the termination provisions set forth therein, then this
Agreement shall terminate, effective as of the termination date of the last
remaining Schedule or Attachment.
4. Provision of MCI Services.
(a) Pass-Through Charges. For all domestic and international access
services provided in conjunction with the MCI services provided under this
Agreement, MCI shall pass through to Customer and Customer shall pay any
charges, fees, taxes and otherwise be subject to terms and conditions of
service imposed by access suppliers, including those pertaining to rate
fluctuations in
MCI CONFIDENTIAL
1
<PAGE> 2
telephone tariffs, and charges that are imposed or enacted by access
suppliers to MCI after the execution of this Agreement.
(b) Settlement Gains or Losses. If the charges of international
telecommunications operators (ITO's) or other third party service providers
are billed to Customer on a pass-through basis, the charges payable to the
ITO or third party service provider will be converted to U.S. Dollars at
the exchange rates applicable for billing in a foreign currency stated
above. The payments to the ITO's or third parties are generally made at the
end of the month. Any difference between the amount billed and the
equivalent U.S. Dollar amounts paid will be included in a subsequent
period's invoice as loss or gain on settlements.
5. MCI Invoices and Payment.
(a) Payment of MCI Invoices. All amounts due for MCI services provided
under this Agreement shall be billed and paid in U.S. Dollars. Customer
shall pay MCI for such services within thirty (30) calendar days after the
date of MCI's invoice. Independent of such payment obligation, Customer
shall make a separate claim in writing, with adequate support, for any
credit for service interruption to which Customer believes itself entitled
under this Agreement, and MCI and Customer will promptly address and
resolve the claim. Failure of MCI to invoice Customer in a timely manner
for any amounts due hereunder shall not be deemed a waiver by MCI of its
rights to payment therefor.
(b) Taxes. Except as otherwise indicated herein, the charges specified
in the Schedules or Attachments do not include, and Customer agrees to pay,
all taxes levied by any duly constituted taxing authority against or upon
MCI provided services or otherwise arising out of this Agreement
(including, without limitation, any sales, gross receipts or value-added
taxes), except any such income tax based on or measured in whole or in part
by gross or net income, gross or net payments, profits, or net worth of MCI
or its affiliates (the "Taxes"); so long as, in the case of foreign tax
withholdings, Customer shall agree to cooperate with MCI in providing
foreign tax receipts to MCI; utilize best efforts to comply with foreign
tax laws; and utilize best efforts to provide MCI and/or a foreign taxing
authority with additional information to support MCI's claim for foreign
tax credit(s), as requested in writing by MCI.
6. Customer Obligations.
(a) Customer-Obtained Equipment, Services and Interconnections. Unless
otherwise specified in this Agreement, Customer shall be responsible for
obtaining, installing, and maintaining all equipment, software and/or
communications services necessary for interconnection with MCI's network or
otherwise for use in conjunction with the applicable MCI provided service.
MCI will provide Customer with manufacturer-provided technical information
concerning MCI provided equipment and standard configuration information
with respect to MCI's network to allow Customer to obtain, install and
maintain the equipment, software and/or communications services. Except for
any equipment specified by MCI, Customer shall have sole responsibility for
ensuring that such equipment, software and/or services are compatible with
MCI's requirements and that they continue to be compatible with subsequent
revision levels of
MCI CONFIDENTIAL
2
<PAGE> 3
MCI provided equipment, software and services. Unless otherwise expressly
agreed in writing, MCI shall have no responsibility for the availability,
capacity and/or condition of any equipment, software or services not
provided by MCI under this Agreement. Should Customer undertake to connect
any MCI products or services to any third party service or network,
Customer shall indemnify and hold harmless MCI from any damages, costs,
liabilities and expenses resulting from such connection or attempted
connection, including but not limited to damages resulting from
unauthorized use of, or access to, MCI's network.
(b) Security. Customer shall, at its own expense, take all
commercially reasonable security measures with respect to physical and
information systems necessary to protect all equipment, software, data and
systems located on Customer's premises or otherwise in Customer's control
and used in connection with the MCI provided services, whether owned by
Customer, MCI, or MCI's subcontractors. Customer acknowledges and agrees
that MCI shall not be liable, either in contract or in tort, for any loss
resulting from any unauthorized access (other than that caused by MCI
agents, employees or subcontractors in performance of the Agreement) to,
or alteration, theft, destruction, corruption, or use of, equipment,
software, data, or systems used in connection with MCI services.
(c) Access to Customer Sites. Customer agrees to provide MCI and its
subcontractors and their respective employees and agents access to
Customer's sites where any MCI services are provided (including access to
associated equipment) as necessary for MCI and its subcontractors to
perform MCI services.
7. Services, Software and Documentation. MCI is not required to provide
software and/or documentation to the Customer under this Agreement.
However, if during the term of this Agreement the Parties determine
that software and/or documentation is to be provided to the Customer, then
the Parties agree to negotiate in good faith appropriate terms and
conditions associated with the rights to such software and/or
documentation.
8. Indemnify by Customer. Customer agrees to indemnify MCI and its affiliates
and their respective employees, officers, directors, agents and
subcontractors, and hold them harmless against any damages including those
for personal injury and property damage and expenses incurred by any of
them arising out of Customer's acts, omissions and/or breach of its
obligations hereunder, and/or Customer's use of MCI provided services in a
manner other than as contemplated herein, including without limitation use
that gives rise to claims for libel, slander, invasion of privacy, or
infringement of any patent, copyright, trademark, or other proprietary
right of a third party; provided, however, that Customer's obligations
hereunder shall not apply (i) to the extent the same arise out of or in
connection with MCI's modification of a program or a machine provided by
Customer or MCI's combination, operation or use of a program or machine
provided by Customer with devices, data or programs not furnished by
Customer or its subcontractors; or, (ii) to claims of infringement of any
patent, copyright, trademark or other proprietary right of a third party
arising from Customer's use of MCI provided software hardware. Customer's
obligations pursuant to this Section shall be subject to: (i) MCI notifying
Customer in writing as to any such claim, suit, action or other proceeding
promptly after MCI becomes or reasonably should have become aware of the
same; (ii) at the request of Customer,
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providing to Customer all information and assistance reasonably necessary
to Customer in the settlement and/or defense of the same; and (iii)
affording Customer sole control of the settlement and/or defense of the
same.
9. Compliance. Customer is responsible for complying with all local license or
permit requirements, and all laws and regulations, including but not
limited to export, import and customs laws and regulations. MCI shall
provide reasonable assistance to Customer and its affiliates to facilitate
such compliance. Such assistance may include preparation of import and
customs forms and/or, where requested by Customer, acting as Customer's
agent in the import process.
10. Disclaimer of Certain Damages. EXCEPT AS AWARDED AS PART OF A JUDGMENT OR
SETTLEMENT FOR THIRD PARTY CLAIMS COVERED UNDER SECTION 8, NEITHER PARTY
SHALL BE LIABLE TO THE OTHER FOR ANY CONSEQUENTIAL, EXEMPLARY, SPECIAL,
INCIDENTAL OR PUNITIVE DAMAGES ARISING FROM THIS AGREEMENT, THE SCHEDULES
AND THE ATTACHMENTS, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
11. Miscellaneous
(a) Assignment. Neither Party may assign this Agreement, or any of its
rights or obligations hereunder, without the prior written consent of the other
Party, which consent shall not be unreasonably withheld. Any attempted
assignment without such prior written consent shall be void. Notwithstanding the
foregoing, MCI may assign this Agreement, or any of its rights or obligations
thereunder, to its parent or any of its wholly-owned subsidiaries or affiliates.
(b) Project Management/Dispute Resolution. Project Management/Dispute
Resolution shall be as follows:
(1) Promptly following execution of this Agreement, each Party shall
name a Project Manager who shall be responsible for day-to-day
implementation and management of the project.
(2) Each Project Manager shall provide written notification to the
other in the event of any dispute arising from performance of
this Agreement, such notification to be tendered within a
reasonable time frame. Promptly following notification of any
such dispute, the Project Managers shall meet (if requested to do
so) and shall negotiate in good faith in an attempt to resolve
such dispute.
(3) If after good-faith negotiations the Project Managers shall be
unable to resolve any such dispute, then either Project Manager
may escalate resolution of the dispute to the following level of
personnel who, within ten (10) days of notice of such escalation,
shall meet (if requested to do so) and negotiate in good faith to
resolve such dispute:
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For MCI: Jerry Edgerton
Vice President
MCI Telecommunications Corporation
8200 Greensboro Dr.
McLean, VA 22102
Fax: (703) 902-6101
For Customer: Chris DeMarche
Chief Technology Officer
Verio, Incorporated
9250 East Costilla Avenue
Suite 400
Englewood, CO 80112
Fax: (303) 792-3869
(4) If after good-faith negotiations the Parties still are unable to
resolve the dispute, then either Party may escalate resolution of
the dispute to the following who, within ten (10) days of notice
of such escalation, shall meet (if requested to do so) and
negotiate in good faith to resolve such dispute:
For MCI: Robert Hartnett
President
MCI Telecommunications Corporation
3 Ravinia Drive
Atlanta, GA 30346-2102
(770) 280-6113
For Customer: Justin Jaschke
Chief Executive Officer
Verio, Incorporated
9250 East Costilla, Avenue
Suite 400
Englewood, CO 80112
Fax: (303) 792-3869
(5) Any dispute arising out of or related to this Agreement, which
cannot be resolved by negotiation, shall be settled by binding
arbitration in accordance with the J.A.M.S/ENDISPUTE Arbitration
Rules and Procedures ("Endispute Rules"), as amended by this
Agreement. The costs of arbitration, including the fees and
expenses of the arbitrator, shall be shared equally by the
Parties unless the arbitration award provides otherwise. Each
Party shall bear the cost of preparing and presenting its case.
The Parties agree that this provision and the Arbitrator's
authority to grant relief shall be subject to the United States
Arbitration Act, 9 U.S.C. 1-16 et seq. ("USAA"), the provisions
of this Agreement, and the ABA-AAA
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Code of Ethics for Arbitrators in Commercial Disputes. The
Parties agree that the arbitrator shall have no power or
authority to make awards or issue orders of any kind except as
expressly permitted by this Agreement, and in no event shall the
arbitrator have the authority to make any award that provides for
punitive or exemplary damages. The Arbitrator's decision shall
follow the plain meaning of the relevant documents, and shall be
final and binding. The award may be confirmed and enforced in any
court of competent jurisdiction. All post-award proceedings shall
be governed by the USAA.
(c) No Waiver. Neither Party's failure, at any time, to enforce any right
or remedy available to under this Agreement shall be construed to be a waiver of
such Party's right to enforce each and every provision of this Agreement in the
future.
(d) Force Majeure. Any delay in or failure of performance by either Party
under this Agreement (other than a failure to comply with payment obligations)
shall not be considered a breach of this Agreement if and to the extent caused
by events without the fault and beyond the reasonable control of the Party
affected, including but not limited to acts of God, embargoes, governmental
restrictions, strikes (other than those affecting only Customer), subcontractor
failures or delays, riots, wars or other military action, civil disorders,
rebellion, vandalism, or sabotage. Market conditions and/or fluctuations
(including a downturn of Customer's business) shall not be deemed force majeure
events. The Party whose performance is affected by such events shall promptly
notify the other Party, giving details of the force majeure circumstances, and
the obligations of the Party giving such notice shall be suspended during but
not longer than the continuance of the force majeure, and the time for
performance of the affected obligation hereunder shall be extended by the time
of the delay caused by the force majeure event.
(e) Trademarks. Except as otherwise expressly provided in this Agreement,
nothing in this Agreement shall create in either Party any rights in any
trademark, trade name, service mark, insignia, symbol, identification and/or
logotype of the other Party. Before either Party uses any such mark of the other
Party, it shall obtain the prior written consent of the other Party.
(f) Export Controls. The Parties acknowledge that certain equipment,
software and technical data which may be provided hereunder may be subject to
export and re-export controls under the U.S. Administration Regulations and/or
similar regulations of the U.S. or any other country. No Party shall export or
re-export any such equipment, software, technical data or any direct product
thereof in violation of any such laws.
(g) Foreign Corrupt Practices. Customer agrees that neither it nor any of
its directors, officers, employees, subcontractors or agents will make any
offer, payment, promise to pay or authorization of the payment of any money,
offer, gift, promise to give, or authorization of the giving of anything value
to any official, political party, party official or political candidate or any
person, knowing that all or a portion of such money or thing of value will be
offered, given or promised, directly or indirectly to any official, political
party, party official or political candidate, for the purpose of retaining
business for or with, or directing business to Customer or MCI. As used in this
Section the term "official" refers to any officer or employee in private or
public
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service and includes any officer or employee of a government, or any department,
agency or instrumentality thereof, or any person acting in such an official
capacity for or on behalf of any such government or department, agency or
instrumentality thereof.
(h) Governing Law. This Agreement, and all causes of action arising out of
this Agreement, shall be subject to the Communications Act of 1934, as amended
or succeeded (the "Act"), or, to the extent that any part of this Agreement is
not governed by the Act, by the domestic law of the State of New York without
regard to its choice of law principles. In the event of a conflict between this
Agreement and any subsequent translations, this English language version shall
prevail.
(i) Notices. Any notice or other communication required to be given to the
other Party under this Agreement shall be given in writing, in the English
language and either (1) delivered in person, (2) sent by United States certified
or registered mail, postage prepaid, or (3) sent by an overnight courier
service, to the following addresses:
If to MCI:
MCI Telecommunications Corporation
8200 Greensboro Drive
McLean, VA 22102
Attn: Jerry A. Edgerton, Vice President
With a Copy To: Law and Public Policy (same MCI
address as above)
If to Customer:
Verio, Incorporated
9250 East Costilla Avenue
Suite 400
Englewood, CO 80112
Attn: Mr. Chris DeMarche,
Chief Technical Officer
The name and address for notice may be changed by giving written notice in
accordance with this Section. If mailed in accordance with this Section, notice
shall be deemed given three (3) days after mailing. If sent by an overnight
courier service, notice shall be deemed given one (1) day after deposit with the
courier service.
j) Severability. All provisions of this Agreement are severable, and the
unenforceability or invalidity of any of the provisions shall not affect the
validity or enforceability of the remaining provisions. The remaining provisions
will be construed in such a manner as to carry out the full
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
intention of the Parties. Section titles or references used in this Agreement
shall not have substantive meaning or content and are not a part of this
Agreement.
(k) Verio Owned Subsidiaries. MCI will provide location-level billing for
services provided under this Agreement to affiliates specified by Verio,
provided that Verio shall own or control at least twenty-five percent (25%) of
the equity of each specified affiliate. Notwithstanding such location level
billing, Verio shall at all times remain responsible for payment of all charges
incurred by Verio affiliates purchasing services under this Agreement. In the
event that a specified Verio affiliate fails to make payment when due, MCI may
notify Verio and Verio shall make such payment within seven (7) calendar days.
(1) Entire Agreement. This Agreement, including the Schedules and their
Attachments, constitute the entire agreement between the Parties with respect to
its subject matter and the applicable MCI Tariffs and Tariff Option, and
supersedes all other representations, understandings or agreements which are not
fully expressed herein, whether oral or written offers, no amendment to this
Agreement shall be valid unless in writing and signed by both Parties.
(m) Signature Authorization. The Parties have duly executed and agreed to
be bound by this Agreement as evidenced by the signatures of their authorized
representatives below. Each Party represents and warrants to the other that the
signatory identified beneath its name below has full authority to execute this
Agreement on its behalf. This offer shall remain open and be capable of being
accepted by Customer until June 16, 1997. Notwithstanding the foregoing, (***)
(n) Credit Approval. As a condition to MCI's commencement of performance
under this Agreement, Customer shall provide to MCI's reasonable satisfaction
information regarding Customer's current financial status and credit-worthiness
within fourteen (14) calendar days of execution of this Agreement. Within
fourteen (14) business days of receipt thereof, MCI will complete its credit
review and may in its sole discretion request Customer to provide adequate
financial security, assurance of payment, or other payment terms acceptable to
MCI. MCI will base this credit review and any security or payment terms upon an
assumed monthly usage rate (for all MCI services) of (*) (*) the "Credit
Ceiling"). In the event that Verio refuses or otherwise fails to provide such
security, assurance of payment, or to agree to such payment terms within five
(5) business days after receiving MCI's request therefor, MCI may at its option
terminate this Agreement. Neither party shall have any liability to the other in
the event of MCI's termination of this Agreement under this section 11(n)
regardless of reason. This provision, together with paragraphs 11(o) and 11(p)
is intended to supersede any inconsistent provisions of MCI Tariff No. 1,
Section B.7.
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(o) MCI may request additional financial security, assurance of payment,
or other payment terms under this Agreement after satisfaction of the condition
in paragraph 11(n) in those situations in which MCI reasonably believes (i)
that Customer's financial circumstances have changed in a material and adverse
manner, provided that Customer shall inform MCI within thirty (30) business days
of its investment in any internet service provider or provider of voice or data
transmission services to whom Customer intends to provide services purchased
under this Agreement. or (ii) MCI reasonably believes that Verio's late payment
history under this Agreement justifies either an increase in the amount of any
financial security provided, or if none has been requested previously, the
provision of such financial security, assurance of payment, or other payment
terms. If Customer fails to provide such security within five (5) business days
of such request it shall be a material breach of this Agreement and MCI at its
sole discretion may notify Customer and immediately terminate provision of
service under this Agreement. The failure of Customer to provide security in
connection with a request under subparagraph (i) of this paragraph (o) shall not
be considered a breach of this Agreement entitling MCI to any termination
payments.
(p) If Customer's actual usage of MCI services exceeds the Credit Ceiling
set in paragraph 11 (n), then MCI, in its sole discretion, may request that
Customer pay the amount of usage exceeding the Credit Ceiling on an estimated
basis, subject to true-up against Customer's actual usage when billed or lower
its usage to a rate below the Credit Ceiling. For example, if based on MCI's
records of Customer's traffic, MCI estimates a Customer's usage for a month to
be $(*), then MCI may submit to Customer an estimated bill for such usage and
Customer shall either pay $(*) within ten (10) days of receipt MCI's estimated
bill ($(*) less $(*) Credit Ceiling), or, in the alternative, immediately
disconnect circuits or otherwise lower its usage to a level equal to or below
the Credit Ceiling. If Customer elects to pay the amount estimated to exceed the
Credit Ceiling, then when MCI submits its regular invoice covering Customer's
actual usage for that period, it shall credit Customer for amounts already paid
on account, refunding (or crediting against future bills) any overcharge or
billing Customer for any balance due. If Customer elects not to make the
estimated payment requested by MCI or fails to lower its usage to a level equal
to or lower than the Credit Ceiling, then notwithstanding anything in this
Agreement, MCI may terminate this Agreement in whole or in part without prior
notice to Customer or opportunity to cure.
12. Adjustments.
(***)
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
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Any and all prior offers made to Customer, whether written or oral, shall be
superseded by this offer.
MCI TELECOMMUNICATIONS VERIO, INCORPORATED
CORPORATION
By: /s/ JERRY A. EDGERTON By: /s/ CHRIS DEMARCHE
------------------------------- ---------------------------
Name: Jerry A. Edgerton Name: Chris DeMarche
----------------------------- -------------------------
Title: Vice President Title: CTO
---------------------------- ------------------------
Date: 6/13/97 Date: 6/13/97
---------------------------- ------------------------
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
SCHEDULE I
SPECIAL CUSTOMER ARRANGEMENT
(***)
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
ATTACHMENT A TO SCHEDULE I
(***)
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
(***)
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
SCHEDULE II
ENHANCED SERVICES AGREEMENT
Customer's use of MCI Enhanced Services and any additional products in
the Attachments to Schedule II will not receive the rates provided
under Schedule I and its Attachments nor will such usage be included
in determining the discounts or credits provided under Schedule I of
the Agreement.
1. Term and Termination
1.1 Term. The Term of this Schedule II shall begin on
the Schedule Effective Date and end upon the
completion of sixty (60) months thereafter ("Term").
The Schedule Effective Date ("Schedule Effective
Date") will begin one (1) month from the first day of
the billing cycle following Customer's signature
date.
1.2 Discontinuation of Business; Bankruptcy. Either
Party may terminate this Schedule immediately upon
notice to the other Party if: (i) such other Party
dissolves, discontinues or terminates its business
operations to which the Agreement pertains; (ii) any
bankruptcy, reorganization, insolvency, dissolution
or similar proceeding is instituted by or against
such other Party; or (iii) such other Party makes any
assignment for the benefit of creditors.
1.3 Termination for Cause by Customer. Customer may
terminate this Schedule for Cause without Termination
Liability or liability under Sections 1.5 or 2. For
purposes of this Attachment, Cause shall mean:
(a) a failure of MCI to perform a material
obligation under this Attachment which failure is not
remedied by MCI within thirty (3O) days after receipt
of written notice; or
(b) Network Availability for SMDS service
provided under this Attachment falls below (*)% for
six (6) consecutive months during the Term of this
Agreement. For purposes of this provision, Network
Availability means the monthly average of the ratio
of actual service time to scheduled service time.
Actual service time is defined as the time period
during which connectivity is granted. Only outages
or service degradation caused by the network are
considered in measuring Network Availability. CPE
related disruptions, local access, and scheduled
maintenance will be excluded from Network
Availability measurements.
(c) At this time there is no Service Level
Agreement for MCI Hyperstream ATM service. If at any
time during the term of this Agreement, MCI
implements a generally available Service Level
Agreement for MCI Hyperstream ATM service, then the
parties will amend this Agreement to include the
terms and conditions of such generally available
Service Level Agreement including any applicable
change in rates.
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Customer's termination rights under paragraphs (b) and (c) are limited
to termination only of the affected services.
1.40 Termination by MCI. MCI may terminate the Schedule immediately upon
notice to Customer if any of the following events occur:
(a) A material breach of this Schedule by Customer (i.e., Customer
fails to meet any payment obligation hereunder and such failure is not
cured within ten (10) business days after Customer's receipt of
written notice from MCI notifying Customer of such failure); or
(b) MCI determines in its sole discretion that continued provision
of any facility, equipment, or service would contravene any local,
state, national or international regulation, law, or tariff; or
(c) MCI determines that interruption or termination of a service
provided by MCI hereunder is necessary to prevent or protect against
fraud or otherwise protect its personnel, agents, facilities, or
services; or
(d) Any third-party subcontractor or vendor to MCI is unable to
continue to provide such facility, or component of equipment, or
service for any reason; provided, however, that where such third party
has ceased to provide any facility, equipment, or service, MCI may, at
its option, continue to provide to Customer a comparable facility,
equipment, or service by or through another vendor under comparable
terms and conditions.
MCI's termination rights under paragraphs (b), (c) and (d) are limited
to termination of the affected services.
1.5 Termination Liability. If the Customer terminates service under this
Schedule before the expiration of the Term other than as set forth in
Section 1.3, or to take service under another arrangement with MCI
having equal or greater term and volume requirements, or if MCI
terminates this Schedule pursuant to Section 1.4(a), Customer will be
required to: (i) repay all credits received under this Schedule; and,
(ii) pay an early termination charge as calculated in Section 2.1 of
this Attachment for each monthly billing period remaining in the Term
or a pro rata portion thereof for any partial monthly billing period.
The Customer, however, will not be liable for termination charges if
the MCI Hyperstream ATM and/or MCI Hyperstream SMDS services are
converted to other MCI services of equal or greater value.
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
2. Minimum Volume Requirements and Underutilization Charges.
2.1 Minimum Volume Requirement. During the Term of this Agreement,
Customer's Net Usage of MCI services purchased under this Schedule II
shall equal or exceed (*) Dollars ($(*)) (the "ESA MVR"). For purposes
of this Schedule II, "Net Usage" means recurring and usage charges
accruing to Customer's account, after application of all discounts and
credits, during each monthly billing period, including without
limitation charges for usage of all Enhanced Services provided by MCI
under this Schedule (as may be supplemented from time-to-time with the
addition of other enhanced services provided to Customer by MCI under
mutually agreed upon terms and conditions) and excluding without
limitation access charges, access coordination charges, network
management charges, all charges expressly excluded in the ESA
Attachments, CPE, all charges for Tariffed Services, and all taxes and
surcharges.
2.2 ESA MVR Underutilization Charge. If Customer does not satisfy
the ESA MVR over the Term, then Customer will pay to MCI (i) Customer's
actual combined monthly recurring and usage charges for MCI Enhanced
Service, plus (ii) an underutilization charge (which Customer agrees is
reasonable) equal to (*) percent ((*)%) of the difference between the
applicable ESA MVR and Customer's actual Net Usage over the life of the
Agreement. The Customer, however, will not be liable for
underutilization charges if the MCI Hyperstream ATM and/or MCI
Hyperstream SMDS services are converted to other MCI services equal to
or greater than the difference between the ESA MVR and the actual net
ESA usage for the month in question.
3. Provision of ESA Services.
3.1 MCI shall provide the following MCI Enhanced Services to
Customer under this Schedule:
MCI Hyperstream ATM
MCI Hyperstream SMDS
3.2 ESA Attachments. Each MCI Enhanced Service provided under
this Schedule shall have a corresponding ESA Attachment specifying the
applicable rates, discounts, and other terms and conditions on which
MCI will provide such MCI Enhanced Service. To the extent that the
terms and conditions of any ESA Attachment are inconsistent with the
terms and conditions of the Master Agreement and this Schedule, the
ESA Attachment shall govern with respect to the corresponding MCI
Enhanced Service.
3.3 Effect of Tariffing. If, at any time during the Term, MCI
tariffs any of the MCI Enhanced Services provided pursuant to the
Master Agreement and this Schedule (each a "Newly Tariffed Service"),
Customer agrees to promptly execute appropriate additional agreements
and amendments to the Master Agreement and its corresponding Schedules
and Attachments the effect of which shall be to eliminate the Newly
Tariffed Service from the MCI Enhanced Services portion of the Master
Agreement and to incorporate such Newly Tariffed Service into that
portion of the Master Agreement (or a separate agreement) which
governs MCI Tariffed Services. Such MCI Tariffed Services agreement
shall contain the same rates, charges, discounts, term commitment, and
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volume commitment for the Newly Tariffed Service as set forth in that
portion of this Schedule which governs MCI Enhanced Services.
Customer acknowledges and agrees that MCI shall have no obligation to
include any equipment provided under the Master Agreement and this
Schedule or any charges payable for such equipment in any such
agreement for tariffed services. In the event that a Newly Tariffed
Service is eliminated from this Schedule, the ESA and SCA MVRs will be
adjusted accordingly.
4. Warranty. MCI's warranty obligations, if any, with respect to each
MCI Enhanced Service are set forth in the applicable Attachment.
EXCEPT AS SPECIFICALLY SET FORTH IN THE MASTER AGREEMENT, THIS
SCHEDULE AND THE ATTACHMENTS, MCI MAKES NO WARRANTIES, EXPRESS OR
IMPLIED, AS TO ANY MCI ENHANCED SERVICES. MCI SPECIFICALLY DISCLAIMS
ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING WITHOUT
LIMITATION ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AND ANY INTELLECTUAL PROPERTY WARRANTIES Of ANY
TYPE.
5. Limitation of Liability. NOTWITHSTANDING THE FOREGOING, MCI'S TOTAL
LIABILITY TO CUSTOMER ARISING FROM THIS SCHEDULE AND THE ATTACHMENTS
SHALL BE LIMITED TO THE LESSER OF (A) CUSTOMER'S PROVEN DIRECT DAMAGES
OR (B) THE TOTAL AMOUNT PAID BY CUSTOMER TO MCI FOR THE SPECIFIC
ENHANCED SERVICE UPON WHICH THE CAUSE OF ACTION IS BASED DURING THE
ONE (1) MONTH PERIOD PRIOR TO THE EVENT GIVING RISE TO THE CAUSE OF
ACTION. THE FOREGOING LIMITATION APPLIES TO ALL CAUSES OF ACTIONS AND
CLAIMS, INCLUDING WITHOUT LIMITATION BREACH OF CONTRACT, BREACH OF
WARRANTY, NEGLIGENCE, STRICT LIABILITY, MISREPRESENTATION AND OTHER
TORTS. FURTHER, NO CAUSE OF ACTION WHICH AROSE MORE THAN ONE (1) YEAR
PRIOR TO THE INSTITUTION OF A LEGAL PROCEEDING ALLEGING SUCH CAUSE OF
ACTION MAY BE ASSERTED BY EITHER PARTY AGAINST THE OTHER.
MCI CONFIDENTIAL
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
ESA SCHEDULE ATTACHMENT NO. 2
MCI HyperStream ATM Service
A. Description: MCI HyperStream Asynchronous Transfer Mode (ATM) is a
connection oriented public/private network data service. HyperStream ATM is a
cell-based broadband technology which allows seamless high speed wide area and
local area network connections. A wide range of data applications connect with
HyperStream ATM including local area network (LAN) interconnections, high-speed
transmission of digitized medical imaging across the country and desktop
videoconferencing enabling users to share multimedia applications.
B. Rates & Charges
MCI's HyperStream ATM Service provides the most up to date pricing options in
the industry. The HyperStream ATM Service rate structure enables customers to
tailor their ATM service to meet changing business needs and compliments the
flexible nature of Asynchronous Transfer Mode service.
The HyperStream ATM Service rate structure has three components: Access, Port,
and Usage charges.
(1) Access:
Local loop and access coordination charges are based on standard tariff rates.
In the case of DS-3 and below the IOC and COC or backhaul portion of the
circuit charge is included in the ATM port charge. In the case of OC-3, the
backhaul portion is NOT included in the ATM port charge. For OC-3 ATM access,
the customer pays for an OC-3 facility from their location to the closest ATM
node site.
(2) Ports:
Port charges are based upon the selected bandwidth needed to connect to the
HyperStream ATM network. MCI currently offers DS-1, DS-3 and OC-3 ATM UNI
ports.
(3) Usage:
Usage charges are based upon the Service Class and associated traffic contract
parameters selected by the customer and are described as Fixed SCR charges
similar to Frame Relay "Fixed CIR PVC Rates".
Port Charges:
<TABLE>
<S> <C> <C>
ATM UNI DS-1 $ (*) per month per port
ATM UNI DS-3 $ (*) per month per port
</TABLE>
MCI CONFIDENTIAL
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
<TABLE>
<S> <C>
ATM UNI OC-3 $(*) per month per port
Port Reconfiguration Charge $(*)
Port Installation Charge $(*)
</TABLE>
Non Recurring PVC Charges:
<TABLE>
<S> <C>
PVC Installation Charge $(*)
PVC Reconfiguration Charge $(*)*
</TABLE>
* Applied every time the parameters of a VC within a VP are changed as well as
VP parameter changes.
ATM UNI SERVICE CLASSES: Variable Bit Rate - Non Real Time
<TABLE>
<CAPTION>
PCR kbps Fixed SCR
<S> <C> <C>
PCR=1.544 16 $(***)
PCR=1.544 32 $(***)
PCR=1.544 48 $(***)
PCR=1.544 64 $(***)
PCR=1.544 128 $(***)
PCR=1.544 192 $(***)
PCR=1.544 256 $(***)
PCR=1.544 320 $(***)
PCR=1.544 384 $(***)
PCR=1.544 448 $(***)
PCR=1.544 512 $(***)
PCR=1.544 576 $(***)
PCR=1.544 640 $(***)
PCR=1.544 704 $(***)
PCR=1.544 768 $(***)
PCR=1.544 832 $(***)
PCR=1.544 896 $(***)
PCR=1.544 960 $(***)
PCR=1.544 1,024 $(***)
PCR=1.544 1,088 $(***)
PCR=1.544 1,170 $(***)
PCR=1.544 1,216 $(***)
PCR=1.544 1,280 $(***)
PCR=1.544 1,344 $(***)
PCR=45 1,536 $(***)
PCR=45 4,608 $(***)
PCR=45 10,800 $(***)
</TABLE>
MCI CONFIDENTIAL
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
<TABLE>
<S> <C> <C>
PCR=45 16,000 $(***)
PCR=45 25,000 $(***)
PCR=45 35,800 $(***)
PCR=155 101,900 $(***)
PCR=155 131,776 $(***)
</TABLE>
ATM UNI SERVICE CLASS: Constant Bit Rate
<TABLE>
<CAPTION>
Kbps Fixed PCR/SCR
CBR
<S> <C>
16 (***)
32 (***)
48 (***)
64 $(***)
128 $(***)
192 $(***)
256 $(***)
320 $(***)
384 $(***)
Kbps Fixed PCR/SCR
448 $(***)
512 $(***)
576 $(***)
640 $(***)
704 $(***)
768 $(***)
832 $(***)
896 $(***)
960 $(***)
1,024 $(***)
1,088 $(***)
1,170 $(***)
1,216 $(***)
1,280 $(***)
1,344 $(***)
1,536 $(***)
4,608 $(***)
10,800 $(***)
16,000 $(***)
25,000 $(***)
35,800 $(***)
101,900 $(***)
131,776 $(***)
</TABLE>
MCI CONFIDENTIAL
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THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
Note: All PVC rates are simplex. Asymmetrical PVC's are allowed.
Discount: The Customer shall receive a (*) percent (*%) discount off of the
above listed Port and PVC charges. (*)
MCI CONFIDENTIAL
28
<PAGE> 29
ENHANCED SCHEDULE ATTACHMENT NO. I
SWITCHED MULTIMEGABIT DATA SERVICE
A. MCI ENHANCED SERVICE:
Name: Switched Multimegabit Data Service (SMDS)
Description: SMDS is available in the United States as a connectionless
packet-oriented data transport service, provided by MCI Telecommunications
Corporation ("MCIT"). At the originating customer premises the customer's
equipment places the data into packets and gives each packet an E.164 source
and destination customer address. Subject to certain restrictions, MCIT
routes the packets over the MCIT Network to the terminating E.164 address.
For purposes of this Agreement, the MCIT Network shall mean the integrated data
network system owned and operated by MCIT (which may be connected to services
provided by third parties) for general use by its customers to transmit and
receive data. SMDS is available at speeds up to 34Mbps.
Technical Description: SMDS operates at layers two and three of the OSI
model and is designed to conform to the IEEE 802.6 Metropolitan Area Networking
Standard and to the Bellcore Technical Reference TR-TSV-000772.
A. Access to SMDS: You shall obtain access to SMDS via dedicated
digital facilities (DXI-SMDS) or Local Exchange Carrier Interconnection
(XA-SMDS), only.
B. Availability: SMDS is available between cities listed in MCIT
Tariff FCC No. 1, Section C.12, Table IV, Part A, as amended from time to
time, or any successor tariff (the "Tariff ").
B. RATES AND CHARGES
HyperStream SMDS pricing is composed of three primary parts: (1) Access
charges , (2) Port charges, (3) Usage charges
(1) ACCESS CHARGES
Access charges are the charges the customer pays for access from the customer
location to the MCI POP.
(2) PORT CHARGES
Port charges are based upon the customers selected mode of connection (DXI or
XA) and applicable connection speeds (56kbps to 34Mbps).
MCI CONFIDENTIAL
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REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
Port charges are based on the access method chosen to connect to the
HyperStream SMDS Network. The HyperStream SMDS Service provides two types:
XA-SMDS (eXchange Access) and DXI-SMDS (Data eXchange Interface). The access
rate includes backhaul from the MCI POP closest to the customers location to
the closest HyperStream SMDS gateway.
DXI-SMDS is the method used to gain direct access to HyperStream SMDS. The
customer connects directly to MCI's HyperStream SMDS Network. Monthly port and
usage charges for DXI-SMDS service are outlined below.
XA-SMDS is the method used to gain access to MCI's HyperStream SMDS via LEC
provided SMDS services. Customers connecting to a local LEC to obtain SMDS
access will be billed by the LEC for LEC-provided services and billed by MCI
for the IXC portion of the network. MCI charges are outlined below.
(3) USAGE CHARGES
DXI-SMDS customers connecting directly to MCI's SMDS network are charged for
usage based on megabytes delivered. These charges are based on Sustained
Information Rate (SIR) and are included in assessing all minimum and maximum
usage charges.
XA-SMDS customers using LEC access to get on to the HyperStream SMDS Network
and/or terminate traffic to a LEC-connected location are charged for access and
egress to/from the MCI HyperStream SMDS network as well as transport across the
network (access + transport + egress) based on the number megabytes delivered.
These charges are based on Sustained Information Rate (SIR) and are included in
assessing all minimums and maximums.
All DXI and XA usage charges can be combined to count towards satisfaction of
usage minimums and maximums. Port, access, and fee charges do not count
towards satisfaction of usage minimums and maximums.
DXI Port Charges (direct connection to MCI's HyperStream Network)
<TABLE>
<CAPTION>
Speeds Monthly Charge Installation
Available
<S> <C> <C>
56/64 K $(***) $(***)
112/128 $(***) $(***)
224/256 $(***) $(***)
336/384K $(***) $(***)
448/512K $(***) $(***)
672/768K $(***) $(***)
896/1024 K $(***) $(***)
</TABLE>
MCI CONFIDENTIAL
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REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
<TABLE>
<S> <C> <C>
1344/1536 K $(***) $(***)
4.5Mbps $(***) $(***)
10.5Mbps $(***) $(***)
</TABLE>
DXI Usage Charges:
(per megabyte, end to end transport)
This is the charge for transporting the customers traffic across the MCI SMDS
network and is based on megabytes delivered.
<TABLE>
<S> <C>
<=T-1 >T-1
$(*) $(*)
</TABLE>
DXI-Usage Minimums and Maximums
<TABLE>
<CAPTION>
Speed Minimum Maximum
<S> <C> <C>
56/64K $(*) $(*)
112/128 K $(*) $(*)
<CAPTION>
Speed Minimum Maximum
<S> <C> <C>
224/256 K $(*) $(*)
336/384 K $(*) $(*)
448/512 K $(*) $(*)
672/768 K $(*) $(*)
896/1024 $(*) $(*)
1344/1536 K $(*) $(*)
4.5Mbps (Class 1) $(*) $(*)
10.5Mbps (Class 2) $(*) $(*)
</TABLE>
XA-SMDS Port (connection to MCI's HyperStream Network via a LEC)
<TABLE>
<CAPTION>
Speeds Monthly Installation
Available
<S> <C> <C>
DS-0 $(*) $(*)
DS-1 $(*) $(*)
4Mbps $(*) $(*)
10Mbps $(*) $(*)
16Mbps $(*) $(*)
25Mmbps $(*) $(*)
</TABLE>
MCI CONFIDENTIAL
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REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
XA Usage Charge
(per megabyte)
<TABLE>
<CAPTION>
Access* Egress*
<S> <C>
$(*) $(*)
</TABLE>
Note: XA access and/or egress rates are combined with the DXI (or transport)
rate if the customer is sending traffic to or from an XA port to a DXI port.
Access and egress are charged if the customer is sending traffic to and from
XA ports.
XA-SMDS Usage Minimums and Maximums (based on SIR)
<TABLE>
<CAPTION>
Speed Minimum Maximum
<S> <C> <C>
DS-0 $(*) $(*)
DS-1 $(*) $(*)
4M $(*) $(*)
10m $(*) $(*)
16M $(*) $(*)
25M $(*) $(*)
</TABLE>
The Customer shall receive a (*) percent ((*)%) discount off of the above
port and usage charges for SMDS. In addition, (*)
- --------------------------------------------------------------------------------
FEES:
HyperStream SMDS offers additional features which have fees associated with
them.
Closed User Groups:
MCI's HyperStream SMDS Service offers customers the option to create closed
user groups (CUG). MCI can create Individual address screening tables which
can be used to define where traffic can be sent to and from which addresses
traffic can be received. These addresses can be within the customers
organization or other organizations the customer wishes to communicate with on
an authorized basis. Closed User Groups can also be used to segregate traffic
based on protocol type. For example, IPX users could be collected into one or
more Closed User Groups.
<TABLE>
<S> <C>
Address Screening (monthly) $(*)
Address Screening (install) $(*)
</TABLE>
MCI CONFIDENTIAL
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REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
Multicasting:
MCI's HyperStream SMDS Service offers the customer the ability to multicast -
broadcast a single message to multiple recipients. This capability is unique
to SMDS technology. The customer creates a single packet and that packet is
replicated across the network by MCI to sites defined by the customer in a
closed user group.
<TABLE>
<S> <C>
Group Address (monthly) $(*)
Group Address (install) $(*)
</TABLE>
MCI CONFIDENTIAL
33
<PAGE> 1
EXHIBIT 10.31
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
MCI/Verio Confidential
MCI Domestic (US) Public Interconnection Agreement
This Agreement is made, effective as of June 12, 1997 (the
"Effective Date"), by and between MCI Telecommunications Corporation, a
Delaware corporation with a principal place of business at 8200 Greensboro
Drive, McLean, VA 22102 ("MCI") and Verio, with a principal place of business
at 9250 East Costilla Avenue, Suite 400, Englewood, CO 80112 ("VERIO").
RECITALS
1. Each of MCI and VERIO operates an Internet Network, as defined below;
and
2. The parties wish to provide for the interconnection of, and exchange
of traffic between, their respective Internet Networks on the terms and
conditions herein.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Definitions
"Affiliate" means a corporation or other entity that controls, is controlled
by, or is under common control with another corporation or entity, but only
while that control relationship exists.
"Interconnection Point" shall mean any interconnection point at which the
parties agree to connect their respective Internet Networks under this
Agreement. A description of all Interconnection Points, together with all
direct interconnections agreed to by the parties, is set forth on Schedule 1
attached hereto, and Schedule 1 shall be amended by the agreement of MCI and
VERIO in the event of any changes.
2. Exchange of Traffic
a. The parties agree to exchange digital communications traffic over
their respective Internet Networks at (*) geographically dispersed
Interconnection Points, subject to the terms and conditions set forth in this
Agreement. (*) Unless otherwise agreed in writing the following shall be the
acceptable Interconnection Points: (*) agreed to in Schedule 1. Each party
shall provide, at its own expense, at least a (*)
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MCI/Verio Confidential
connection from its Internet Network to the Interconnection Point(s) or
direct interconnections hereunder, upon a schedule to be mutually agreed.
b. The data rate at which the parties will connect hereunder is set forth
in Schedule 1 attached hereto.
c. Each party agrees not to restrict traffic flowing through the
Interconnection Points to and from the other party based on the subject matter
of the traffic unless required to do so by court order or applicable law;
provided, however, that each party shall be free to block traffic that the
party determines violates the terms of usage of its Internet Network. Each
party shall retain its prior rights to impose usage restrictions on its own
customers and/or to assist its customers in imposing customer requested usage
restrictions on traffic flowing to and from the requesting customer.
d. There will be no restrictions on the ability of either party to
collect data and create statistics associated with data moving through its own
Internet Network and traffic moving through the Interconnection Point. Each
party shall keep all data it monitors or captures concerning the
Interconnection Points confidential in accordance with the nondisclosure
obligations of Section 16, and shall use such data solely for the purposes of
operating and managing its Internet Network. Except as otherwise agreed between
the parties, statistics itemized by the following criteria may not be provided
to third parties: service provider, company or other entity, and/or IP address.
Notwithstanding the foregoing, each party may provide any of its customers with
statistical data associated with such customer's traffic.
e. Neither party will establish a route of last resort directed toward
the other party's Internet Network. A "route of last resort" is defined as a
route which covers all possible destinations. Instead, the parties will fully
exchange explicit routes comprising public Internet service destinations of
entities to whom either party is contractually obligated to handle traffic. An
"explicit route" is defined as a route that covers only a strict, limited
subset of all possible destinations.
3. Payments
The parties agree that during the twelve-month period immediately following the
Effective Date of this agreement they shall work together to define the data
and operational characteristics of interconnection with a view toward agreeing
upon appropriate financial arrangements for interconnection of their respective
Internet Networks should they mutually be deemed necessary or desirable.
Immediately upon the parties' agreement to such financial arrangements, the
parties shall implement such arrangements by amending this Agreement to provide
for settlement or other payments between the parties. Until such financial
arrangements are finalized, no settlement or other charges of any kind for data
transmission will be paid by either
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REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
MCI/Verio Confidential
party to the other hereunder. Each party shall bear its own costs and expenses
incurred in connection with this Agreement.
4. Term and Termination
This Agreement shall have an initial term of one (1) year following the
Effective Date. Either party may terminate this Agreement with thirty (30)
calendar days' notice. If neither party terminates this Agreement upon
expiration of the initial term, this Agreement shall continue on its present
terms and conditions, until a party terminates it by thirty calendar days
written notice to the other. Either party may terminate this Agreement with ten
days' notice (unless such circumstances are cured within such ten day period)
upon the following circumstances: (i) a party interconnects at fewer than the
(*) geographically dispersed Interconnection Points; or (ii) VERIO or any
Affiliate thereof (subject to Schedule 1) purchases Internet access from MCI; or
(iii) either party fails to continue to meet the requirements specified in
Schedules 1 and 2.
5. Technical and Operational Matters
a. Each party represents that the Interconnection Points set forth in
Schedule 1 are, and during the term shall be, connected as part of an internal
network architecture comprised of multiple, cross-country circuits of at least
(*) speed.
b. Neither party is obligated to accept third party routes from the other
party. For purposes of this paragraph, any entity that peers with one party
hereto but not with the other shall be considered a "third party." If third
party routes are detected by either party, that party has the right to block
the routes. The foregoing restriction shall not apply to routes of customers
whose transit traffic is carried by the other party. The foregoing restriction
shall also apply to any Verio Affiliates not integrated with the Verio network
AS number 2914. For purposes of this Agreement, "transit traffic" is traffic
that a party agrees to transport to its final destination.
C. Both parties shall maintain a consistent routing announcement (i.e,
same set of routes announced with same AS path at all Interconnection Points).
Both parties will present the same autonomous system number at all mutual
agreed interconnection points listed in Schedule 1. Verio shall only present AS
2914. Each party shall carry full routing at edge routers using BGP-4 and
aggregated routes.
(i) The parties will work together during the term of
this Agreement to establish mutually agreed performance objectives and
operational procedure to enable each party to provide the highest practical
quality of service over its Internet Network and the interconnection provided
hereunder, in a cost effective fashion. In connection therewith, the parties
shall use their reasonable efforts to achieve a minimum end-to-end one-way
packet delay.
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REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
MCI/Verio Confidential
(ii) Each of the parties will use its reasonable efforts
to achieve a mean time to repair of (*) hours or less for all outages at
the Interconnection Point(s) set forth on Schedule 1. The parties will
cooperate with each other in each party's efforts under this paragraph 4.b.
(iii) Each of the parties will develop scheduled maintenance
procedures that provide for notification by one party to the other of all
scheduled maintenance that could cause end-to-end connectivity loss for any user
of more than (*). Each party agrees to give the other (*) advance notice for
scheduled maintenance that is expected to result in (*) or more of end-to-end
connectivity loss.
d. Each party agrees to maintain a fully staffed network operations
center ("NOC") that operates on a 24 hour/day, 7 days/week schedule.
(i) Each party will, at its own expense and on a
reasonable efforts basis, provide Network Operations Center ("NOC") support in
cooperation with the other so as to maintain the smooth operation of the
internetwork service. The parties shall develop operational procedures for the
interworking of their respective Internet Networks, including without
limitation inter-NOC problem management information exchanges (e.g., trouble
ticket tracking), and NOC escalation procedures for addressing unscheduled
outages or emergency maintenance.
(ii) Each of the parties will provide the other with
certain limited access to data for the purpose of operational monitoring and
the diagnosis of end-to-end connectivity problems. The determination of the
extent of this limited access to data and definition of this data shall be by
the mutual consent of both parties' engineering organizations. The parties will
use their reasonable efforts to develop procedures to govern the timing and
other terms and conditions upon which this access will be provided.
e. Each of the parties shall use reasonable efforts to secure their
respective Internet Networks and traffic through the Interconnection Points
from unauthorized access, transmission or use; furthermore, the parties shall
cooperate to address security issues and develop security procedures.
6. Customer Relations
Each party will be responsible for communicating with its own customers with
respect to its Internet Network. Each party shall use its reasonable efforts to
notify the other promptly in writing of all trouble reports made to it by
customers of the other party. Each party shall be responsible to screen the
traffic of its own customers not desiring public Internet access from
distribution across the Interconnection Point(s) agreed to hereunder. Each
party will independently establish the charges to its own customers for the
services provided in connection with this Agreement.
7. Nonexclusivity
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MCI/Verio Confidential
This Agreement shall not prohibit or restrain either party's entry into any
separate similar or dissimilar contract or agreement with one or more third
parties.
8. Liability
Neither party shall be liable to the other for any loss or damage arising from:
(i) any failure in or breakdown of any facilities or services hereunder,
whatsoever the cause and however long it shall last; (ii) any interruption of
service, whatsoever the cause and however long it shall last; (iii) such
party's submitting traffic to or accepting traffic from the other party
hereunder, or (iv) any other circumstance relating to this Agreement, except
for breaches of Sections 2(d)(Data Collection) or 16 (Confidentiality).
9. Liability; Consequential Damages
Each party is responsible for assessing its own need for property, casualty and
liability insurance and each shall obtain such insurance as each sees fit. Each
party shall bear the risk of loss and damage with respect to its own equipment
and agrees not to make any claims against the other, or assign any such claims
to third parties, for any property loss or damage.
IN NO EVENT SHALL EITHER PARTY BE RESPONSIBLE FOR ANY SPECIAL, INCIDENTAL
INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY KIND IN CONNECTION WITH THIS AGREEMENT,
EVEN IF THAT PARTY HAS BEEN INFORMED IN ADVANCE OF THE POSSIBILITY OF SUCH
DAMAGES, AND WHETHER OR NOT SUCH DAMAGES ARE FORESEEABLE.
10. Authorizations
All undertakings and obligations assumed hereunder by either party are subject
to all applicable existing and future laws, rules and regulations, and are
further subject to the issuance and continuance of all necessary governmental
licenses, waivers, consents, registrations, permissions and approvals.
11. Force Majeure
No failure or omission by either party to carry out or observe any of the terms
and conditions of this agreement shall give rise to any claim against the party
in question or be deemed to be a breach of this Agreement if such failure or
omission arises from any cause reasonably beyond the control of that party (a
"Force Majeure Event"). Each party shall give the other notice in the event it
experiences a failure or delay due to a Force Majeure Event. Upon such notice,
the party affected by the Force Majeure Event may delay performance hereunder
during the pendency of such Force Majeure Event, and shall have no liability for
such delay.
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MCI/Verio Confidential
12. Relationship of Parties
In their performance hereunder the parties are acting as independent
contractors, and nothing contained herein shall be construed to create a
partnership, joint venture or other agency relationship between the parties.
13. Regulatory Approval.
The parties acknowledge that this Agreement, and any or all of the terms
hereof, may become subject to regulatory approval by various local, state or
federal agencies. Should such approval be required from time to time, or at any
time, the parties shall cooperate, to the extent reasonable and lawful, in
providing such information as is necessary to complete any required filing.
14. Notices
All notices between the parties required or permitted hereunder shall be
effective if hand delivered or sent by post or courier, postage or fees paid,
or by facsimile transmission (with receipt confirmed by the receiving machine)
to the facsimile numbers stated below, or electronic mail (with acknowledgement
from the recipient) to the address specified below. All notices shall be
effective when sent.
If to MCI
networkMCI, Inc.
2100 Reston Parkway
Reston, Virginia 22091
ATTN: Internet Marketing
Facsimile:
------------------
email:
----------------------
with a copy to:
MCI Communications Corporation
1133 19th Street N.W.
Washington, D.C. 20036
Attention: Technology Group, Law and Public Policy
Facsimile:
------------------
email:
---------------------
If to VERIO:
Verio Inc.
9250 East Costilla Avenue, Suite 400
Englewood, Colorado 80112
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MCI/Verio Confidential
Attn: Randy Bush
Facsimile: (313) 792-3869
email: [email protected]
with a copy to:
Verio Inc.
9250 East Costilla Avenue, Suite 400
Englewood, Colorado 80112
Attn: Legal Department
Facsimile: (313) 792-3879
15. Miscellaneous
If any provision of this agreement is held by an arbitrator or court of
competent jurisdiction to be contrary to law, the remaining provisions of this
Agreement will remain in full force and effect. This Agreement may be modified
only by a written amendment signed by both parties. Nothing contained in this
Agreement shall be deemed to confer any rights in any third party not a
signatory to this Agreement. Neither party shall transfer or assign its rights
or obligations under this Agreement or transfer by way of merger, consolidation,
sale of all or substantially all of its assets without the prior written consent
of the other party which consent shall not be unreasonably withheld; provided,
that either party may transfer its interest herein to any subsidiary or
Affiliate of either party. This Agreement represents the entire understanding
between the parties regarding the subject matter hereof and supersedes all other
prior and contemporaneous agreements, understandings, negotiations and
discussions between the parties with respect to such subject matter. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York, U.S.A., without regard to the conflicts principles thereof
16. Confidentiality
a. During the course of performance of this Agreement, each party may
disclose to the other certain business, technology, research, customer and other
business information which the disclosing party treats as confidential
information ("Confidential Information"). Each party shall maintain the other
party's Confidential Information in confidence, shall protect it with the same
degree of protection which it uses to protect its own Confidential Information,
shall not disclose it to any third party, and shall use it for the sole purpose
of performing under this Agreement. "Confidential Information" shall not include
any information which (i) is disclosed with written permission of the other
party, (ii) becomes a matter of public knowledge through no action or inaction
of the receiving party; (iii) is disclosed by the disclosing party to a third
party without a duty of confidentiality; (iv) is rightfully received by the
receiving parry from a third party without a duty of confidentiality; (v) was
known to the receiving party before its first receipt from the disclosing party;
or (vi) is independently developed by the receiving party without use of
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<PAGE> 8
MCI/Verio Confidential
the other party's Confidential Information or by employees or other agents of
the receiving party who have not been exposed to such Confidential Information.
After any termination of this Agreement, upon written request, each party shall
promptly discontinue the use of, and return within thirty (30) days all
originals and copies of, any requested Confidential Information that has been
fixed in any tangible means of expression.
b. In the event that the receiving party is requested or required
(pursuant to any governmental rule, regulation, or form or through requests for
information or documents by any Governmental Authority in connection with legal
proceedings, civil investigations, or other similar legal processes) to
disclose any Confidential Information of the disclosing party, the receiving
party shall provide the disclosing party with prompt written notice of such
request or requirement so that the disclosing party may seek a protective order
or other appropriate remedy or waive compliance with the provisions of this
Agreement. If, in the absence of a protective order or other remedy or the
receipt of a waiver by the disclosing party, the receiving party is nonetheless
legally compelled to disclose such Confidential Information, it may, without
liability hereunder, disclose only that portion of the Confidential Information
which it is legally compelled to disclose.
c. Section 16 shall also apply to the contents of this Agreement;
provided, however, that the terms of this Agreement may be disclosed (i) as
required by applicable law, (ii) in connection with a court order or subpoena
or (iii) pursuant to press releases jointly prepared and approved by the
parties; further provided, that the existence (but not the terms) of this
Agreement may be disclosed in connection with a merger, acquisition or proposed
merger or acquisition or the like.
d. Each party agrees to notify the other party in the event of any breach
of its security under conditions in which it would appear that Confidential
Information was prejudiced or exposed to loss or unauthorized use. Each party
shall, upon request of the disclosing party, take all other steps reasonably
necessary to recover any compromised Confidential Information disclosed
hereunder. The cost of taking such steps shall be borne solely by the receiving
party.
e. Each party acknowledges that any breach of any of its obligations
under this Section 16 is likely to cause or threaten irreparable harm to the
other party, and accordingly, each party agrees that in such event the
disclosing party shall be entitled to equitable relief to protect its
interests, including but not limited to preliminary and permanent injunctive
relief, as well as money damages.
f. Except after consultation with the other party, neither party nor its
officers, directors, employees, agents or advisors shall, publicize, advertise,
announce or describe to any Governmental Authority or other Person, the terms
of this Agreement, the Parties hereto or the transactions contemplated hereby,
except in accordance with this Agreement or as required by applicable law.
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MCI/Verio Confidential
g. Notwithstanding the foregoing, the parties acknowledge that they
intend to disclose the technical objectives and certain technical terms and
conditions contemplated herein to the public, in a form and manner and at a
time or times to be mutually agreed by the parties.
17. Disputes. Any dispute arising out of or related to this Agreement,
which cannot be resolved by negotiation, shall be settled by binding
arbitration in accordance with the J.A.M.S/ENDISPUTE Arbitration Rules and
Procedures ("Endispute Rules"), as amended by this Agreement. The costs of
arbitration, including the fees and expenses of the arbitrator, shall be shared
equally by the parties unless the arbitration award provides otherwise. Each
party shall bear the cost of preparing and presenting its case. The parties
agree that this provision and the Arbitrator's authority to grant relief shall
be subject to the United States Arbitration Act, 9 U.S.C.1-16 et seq. ("USAA"),
the provisions of this Agreement, and the ABA-AAA Code of Ethics for
Arbitrators in Commercial Disputes. In no event shall the arbitrator have the
authority to make any award that provides for punitive or exemplary damages.
The Arbitrator's decision shall follow the plain meaning of the relevant
documents, and shall be final and binding. The award may be confirmed and
enforced in any court of competent jurisdiction. All post-award proceedings
shall be governed by the USAA.
IN WITNESS WHEREOF, the parties have caused their respective authorized
representatives to sign this Agreement on their behalf, effective as of the
date first written above.
MCI Telecommunications Corporation VERIO INC.
By: /s/ JERRY A. EDGERTON By: /s/ CHRIS DEMARCHE
-------------------------------- --------------------------------
Name: Jerry A. Edgerton Name: Chris DeMarche
------------------------------ ------------------------------
Title: Vice President Title: Chief Technical Officer
----------------------------- -----------------------------
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<PAGE> 10
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
MCI/Verio Confidential
(***)
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<PAGE> 11
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
MCI/Verio Confidential
Annex I
(***)
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<PAGE> 12
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
[MCI Telecommunications Corporation Letterhead]
July 3, 1997
Mr. Chris DeMarche
Chief Technical Officer
Verio
9250 East Costilla Avenue
Suite 400
Englewood, Colorado 80112
Dear Mr. DeMarche:
As you know, MCI and Verio entered into a Domestic Public Interconnection
Agreement on June 12, 1997 (the "Agreement"). As we have discussed, MCI and
Verio wish to amend the Agreement as follows:
(***)
(***)
As modified by this letter. the Agreement shall remain in full force and
effect. If you agree with the foregoing modification, please sign in the space
below and return to me.
Sincerely,
/s/ VINTON G. CERF
Vinton G. Cerf
Senior Vice President
ACKNOWLEDGED AND ACCEPTED:
/s/ CHRIS DEMARCHE
-------------------------------
Signature
Chris DeMarche
-------------------------------
Name (Printed)
CTO
-------------------------------
Title
8/7/97
-------------------------------
Date
<PAGE> 13
THE INFORMATION BELOW MARKED (*) OR (***) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
[MCI TELECOMMUNICATIONS CORPORATION LETTERHEAD]
AMENDMENT TO MCI (US) DOMESTIC PUBLIC INTERCONNECTION AGREEMENT
DATED AS OF DECEMBER 23, 1997
BACKGROUND
The parties entered into the MCI Domestic (US) Public Interconnection Agreement
(the "Agreement") on June 12, 1997. The parties wish to amend the Agreement as
follows:
(***)
(***)
As modified by this Amendment, the Agreement shall remain in full force and
effect. This Amendment may be signed in counterparts, each of which shall be
considered part of the same whole.
IN WITNESS WHEREOF, the parties have caused their respective authorized
representatives to sign this amendment on their behalf, effective as of
December 23, 1997.
<PAGE> 14
VERIO, INC.
/s/ Chris DeMarche
----------------------------------
Signature
Chris DeMarche
----------------------------------
Name (Printed)
CTO
----------------------------------
Title
1/12/98
----------------------------------
Date
MCI TELECOMMUNICATIONS CORPORATION
/s/ Vinton G. Cerf
----------------------------------
Signature
----------------------------------
Vinton G. Cerf
Senior Vice President
1/15/98
----------------------------------
Date
<PAGE> 1
EXHIBIT 21.1
Subsidiaries
As of April 10, 1998
<TABLE>
<CAPTION>
Part A - Subsidiaries
------------
State of
Name Organization Doing Business As
- ---- ------------ -------------------
<S> <C> <C>
Access One, Inc. Washington
Branch Information Services, Inc. Michigan
Verio Gulf South, Inc. Louisiana
Compute Intensive Inc. California Network Intensive
NorthWestNet, Inc. Oregon
Pacific Rim Network, Inc. Washington
RAINet, Inc. Colorado
Runestone Technologies, Inc. Delaware
ServiceTech, Inc. New York
Verio-MidAtlantic, Inc. Delaware
Verio-Midwest, Inc. Colorado Verio-Chicago
Verio-Michigan
Verio-New England, Inc. Massachusetts
Verio-Northeast, Inc. Colorado
Verio-Northern California, Inc. Colorado Verio-Sacramento
Verio-Northwest, Inc. Delaware
Verio-Pennsylvania, Inc. Colorado PREPnet
Verio-Rocky Mountain, Inc. Colorado Verio-Colorado
Verio-San Diego, Inc. Colorado Verio-Southern California
Verio-Southern California, Inc. Delaware ATMnet
Verio-Texas, Inc. Delaware
Verio Web Hosting, Inc. Utah iServer
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Verio Inc.:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
April 9, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
NorthWestNet, Inc.:
We consent to the use of our report relating to the financial statements of
NorthWestNet, Inc. as of June 30, 1996 and for the six months ended June 30,
1996 and the eight months ended February 28, 1997, and the financial statements
of NorthWest Academic Computing Consortium, Inc. as of June 30, 1995 and for the
year ended June 30, 1995 and the six months ended December 31, 1995, included
herein and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Seattle, Washington
April 9, 1998
